KAZMUNAYGAZ CAN BE THE OPTIMAL CHOICE FOR MAZEIKIAI

The Moscow court-appointed administrator of Yukos oil company’s residual assets, Eduard Rebgun, filed suit in the U.S. Bankruptcy Court in Manhattan on April 13, seeking to block the sale of Yukos’ majority stake in Lithuania’s oil industry to that country’s government. The suit ostensibly protects the interests of Yukos’ creditors, which include the Russian state based on retroactive tax claims. In practice, the move appears designed to position the Russian state company Rosneft to take over the Mazeikiai refinery and associated enterprises in Lithuania, which account for at least 10% of the country’s GDP.

Rosneft seems set to lay such a claim as parent company of Yuganskneftegaz, formerly the Yukos company’s largest production unit in Russia, which Rosneft took over in 2005 as part of the Kremlin-directed destruction of Yukos. Moreover, a group of 14 Western creditor banks, led by Societe Generale de France, authorized Rosneft last month to recover from Yukos $482 million that those banks had lent to Yukos prior to the company’s demise in Russia.

In his suit in the Manhattan court, the Moscow-appointed administrator specifically accuses Yukos’ London-based management of attempting to sell its 53.7% stake in Mazeikiai to the Lithuanian government, “in blatant disregard” of the Moscow Arbitration court’s orders and the administrator’s instructions. The Moscow court and Rebgun had blocked any transactions with Yukos properties and shares as of March 28 and extended that order on March 29 to cover Yukos assets outside Russia. These actions are not those of an impartial justice or contract enforcement in a market economy, but form rather a part of a Kremlin-driven process to control private property in Russia and beyond, in line with Russia’s use of energy as a strategic tool. The Kremlin seeks to manipulate Western judicial and market mechanisms in this process.

Also on April 13 the Yukos management in London responded that the company does not own shares in Mazeikiai. Technically, the 53.7% stake in the refinery and associated enterprises is owned by the Netherlands-registered Yukos International. According to the company’s and Lithuania’s legal advisers in London and the Netherlands, the jurisdiction of Russian courts and the Russian administrator does not extend to Yukos assets outside Russia.

The Lithuanian government and Yukos had agreed in principle several months ago that Vilnius would acquire that 53.7% stake for $1.2 billion. However, according to Yukos board chairman Viktor Gerashchenko in Moscow (he has not moved with the management to London), the company has now raised the price to $1.4 billion (AP, April 11). If so, the hike would seem designed to stall the transaction, forcing the Lithuanian government to return to the parliament to authorize the additional funds and allowing Moscow extra time for legal maneuvers. The hike could also potentially discourage strategic investors who are preparing to participate in the second stage of the transaction. In that stage, the Lithuanian government would re-sell that stake, plus at least half of the government’s 40.66% stake, in a single package to a strategic investor for the same price per share as that paid to Yukos by the government.

To thwart that second stage and discourage foreign strategic investors, the Russian government does not allow non-Russian oil companies to supply crude oil to the Mazeikiai refinery through Russian territory. Kazakhstan’s KazMunayGaz is almost certainly the most suitable strategic investor in Mazeikiai from Lithuania’s standpoint. Russia, however, does not consent to the transit of KazMunayGaz-extracted oil through the pipeline from Atyrau (Kazakhstan) to Samara (in Russia on the middle Volga) and from there to Lithuania. Similarly, Moscow stonewalls on a proposal to ship KazMunayGaz-owned oil from Primorsk — the Gulf of Finland terminal of the Baltic Pipelines System — by tanker to Mazeikiai.

KazMunayGaz is now discussing a three-cornered swap option with Norway’s Statoil for shipping oil to Lithuania. Under this proposal, Kazakhstan would deliver certain volumes of oil in the Caspian Sea to the Norwegian company, which is a participant in several large-scale Caspian projects. Statoil would then deliver oil volumes of equivalent value from Norwegian extraction operations in the North Sea to the Mazeikiai maritime terminal at Butinge on the Baltic Sea. The Butinge terminal (a state-of-the art installation completed in 2001 by the Oklahoma-based Williams International company) has a capacity of 14 million tons annually and accepts tankers of 150,000 tons capacity.

This option — or other possible swap operations — would enable the partners to bypass the territory of an obstructionist Russia. The Statoil option has the additional merit of enabling the Norwegian company to pump the oil received from Kazakhstan directly into the Baku-Tbilisi-Ceyhan pipeline, thereby raising the latter’s profitability.

KazMunayGaz has offered $1.2 billion for repurchasing Yukos’ stake as soon as Yukos sells it to Lithuania. The Kazakh company would end up with a stake of 75% or 80% by also acquiring at least half of the Lithuanian government’s stake. KazMunayGaz is offering to invest $1 billion in the continuing modernization of the Mazeikiai refinery. The Kazakh company is also interested in using the refinery at a level near its design processing capacity of 15 million tons of crude oil annually, almost double the amount that the Kremlin-harassed Yukos was able to supply annually in 2004-05.

(BNS, Interfax, April 8-13; Lietuvos Rytas, April 12; Delfi [Vilnius], April 13; see EDM, March 17, April 3, 5)