POLISH COMPANY ACQUIRES MAJORITY STAKE IN LITHUANIA’S OIL SECTOR

Lithuania’s oil industry holding, Mazeikiai Nafta, seems finally to be safe from takeover by Russian state-connected interests. The holding’s centerpiece, the Mazeikiai refinery, is the only refinery in the three Baltic states and the single most lucrative business entity in the three states. The Russian government and its company Rosneft sought (and, in all likelihood, will not soon desist from attempting) to take over the majority stake in Mazeikiai, held by the Yukos company until now as one of the last remaining major assets of Yukos. The Russian government laid claim to Mazeikiai under the guise of collecting on Yukos’ alleged tax arrears.

On May 26, Yukos sold its 53.7% stake in Mazeikiai to the Polish PKN Orlen oil refining company for $1.492 billion. Orlen signed the agreement in Amsterdam with the Yukos company’s Netherlands-registered subsidiary, Yukos International, which had all along held the legal title to that stake. The Lithuanian government had exercised its right to authorize this sale-and-purchase three days earlier. In a parallel move, Lithuania’s government has agreed to sell 30.7% of the Mazeikiai shares — out of total 40.7% government stake — also to Orlen for $852 million.

The Lithuanian government shall retain a 10% stake, which the Polish company shall have the option to buy five years later. The government retains a priority right to buy back the Orlen stake in the hypothetical event that Orlen decides to sell more than 50% of its own shares to a company that Lithuania deems to pose risks to national security — i.e., a Russian state-connected company. The Lithuania-Orlen sale-and-purchase agreement is to be signed following approval of its terms by the Lithuanian parliament, which is expected to vote favorably within days.

In all, Orlen is paying $2.344 billion for an aggregate 84.4% stake in the Mazeikiai holding. This amount exceeds the holding’s total market capitalization of $2.1 billion as estimated earlier this year. According to Orlen president Igor Chalupec, the Polish company plans to invest between $720 million and $900 million from 2006 through 2010 in Mazeikiai, mainly for equipment upgrades.

The Kremlin had sought to position the state-owned Rosneft to take over Mazeikiai, ostensibly as a debt-collection measure. Rosneft had laid such a claim as the parent company of Yuganskneftegaz, formerly the largest production unit of Yukos in Russia, which Rosneft took over in 2005 during the Kremlin-directed breakup of Yukos. Moreover, in March 2006 a group of 14 Western creditor banks had authorized Rosneft to recover almost $500 million that those banks had lent to Yukos prior to the company’s destruction. On March 28-29, the Moscow court-appointed administrator of the Yukos residual assets, Eduard Rebgun, ordered a freeze on those remaining Yukos assets in Russia and abroad. However, as it turned out, the assets abroad were beyond the Moscow court’s jurisdiction. On April 13, Rebgun filed suit in U.S. bankruptcy court in Manhattan to prevent American managers of Yukos from selling Mazeikiai. The Manhattan court issued a temporary restraining order that expired on May 25. Thus, Yukos International and Orlen were free to come to closure on May 26.

As late as May 22 Russian Deputy Prime Minister Dmitry Medvedev made clear to the visiting Lithuanian Economics Minister Kestutis Dauksys that the Russian authorities sought to acquire the majority stake in Mazeikiai from Yukos, ostensibly in the interest of Russian and international creditors. Prior to this, Russian authorities had thwarted a bid by Kazakhstan’s state company KazMunayGaz to acquire the Yukos stake in Mazeikiai. KazMunayGaz was unable to provide Lithuania with assurances that it would supply crude oil from the Caspian Sea because Rosneft and the state pipeline company Transneft blocked the proposed transit of Kazakh oil to Lithuania via Russia. A proposed swap operation, whereby Kazakhstan would supply oil in the Caspian Sea to Norway’s Statoil company, which would in turn supply oil of equivalent value from the North Sea to Lithuania, remained in suspension because Norwegians believed it would irritate Moscow and jeopardize Norway’s chances in bidding for access to Russia’s Shtokman gas field.

Orlen management expresses confidence that Russian oil producing companies would continue supplying Mazeikiai as a lucrative business proposition, even if the holding’s ownership will not be Russian. The past experience of Lithuania in this regard is a sobering one. Using its Kremlin-awarded power as “coordinator” of supplies to the Baltic states, the Lukoil company had previously deprived Mazeikiai of crude oil supplies so as to sink its market value and take it over on the cheap. By 2002, the American-friendly Yukos rescued Mazeikiai and turned the refinery into a highly profitable enterprise, before the Kremlin sank Yukos.

The Mazeikiai complex includes the refinery, a supply pipeline to the refinery, a pipeline to the Butinge maritime terminal, and that state-of-the-art oil-handling terminal, as well as preferential access to the Klaipeda oil-products terminal and a small but growing chain of gasoline stations.

(BNS, Interfax, PAP, May 22-31; see EDM, March 17, April 3, 5, 18)