Publication: Monitor Volume: 5 Issue: 72

At a session chaired by Lithuanian President Valdas Adamkus, the country’s Defense Council has decided to sell a further 33 percent of shares in the country’s oil sector to the Williams International Company of the United States. The decision frustrates the Russian Lukoil’s company attempts to acquire that stock package through pressure on Lithuania. The Defense Council instructed the government to draw up the sale-purchase agreement with Williams, whose top managers are expected to arrive in Vilnius within the next few days.

The agreement will be subject to parliamentary approval, which should not prove problematic, because the governing parties–led by Fatherland Union/Conservatives–hold a large majority in the legislature. The price has yet to be agreed upon, however. The sale would boost Williams’ stake to 66 percent of the shares in Lithuania’s oil sector. Further, it should exclude Lukoil altogether from Lithuania’s oil industry, because the state must by law retain 25 percent of the industry’s capital, and the remaining stake would be far too small to interest Lukoil or other big Russian oil companies (Lietuvos Rytas, BNS Business, April 13).

Last September the parliament approved the sale of a first package of 33 percent of shares in Lithuania’s oil sector to Williams, turning down Lukoil’s bid. The Russian company reacted by asking for the lion’s share in the follow-up privatization stages and arm-twisting the reluctant Lithuanians. In January 1999, Lukoil cut crude oil supplies to Lithuania’s refinery and demanded onerous commercial conditions for the reduced deliveries. Those moves inflicted losses on Lithuania’s oil industry and state budget. Mixing pressure with blandishments, Lukoil offered to guarantee future oil supplies to and transit via Lithuania if the country bowed (see the Monitor, January 29, February 2).

Lukoil’s tactics were also intended to discourage Western investors by suggesting to them that the operation of Lithuania’s oil sector largely depends on Russian crude oil supplies. Lukoil management argued that Norwegian oil from the North Sea would prove too expensive for use in Lithuania, and was therefore no alternative to Russian oil.

The Lithuanian side handled the problem with utmost discretion, offered to include Lukoil in an international tender on a par with other bidders, ruled out any special treatment for the Russian company, and continued negotiations with Williams and other Western interested parties. Lithuania’s oil sector consists of the Mazeikiai refinery–the largest in the Baltic states–as well as the Naftotieks internal pipelines and the Butinge maritime oil terminal, whose construction is being completed by Williams.