NATIONAL SECURITY A NECESSARY FACTOR IN NEGOTIATIONS ON MAZEIKIAI

Publication: Eurasia Daily Monitor Volume: 3 Issue: 66

Mazeikiai oil refinery in Lithuania

Russia’s court-appointed temporary administrator of the Yukos oil company, Eduard Rebgun, announced on April 3 that he would invalidate any sale of the Yukos assets in Lithuania to any party. Rebgun claims to hold “full legal rights” to authorize or block transactions involving Yukos property or shares, whether in Russia or abroad. He specifically warned that he would immediately nullify any sale-and-purchase agreement between Yukos and the Lithuanian government regarding the Mazeikiai oil refinery and associated enterprises. Yukos holds a 53.7% stake in the complex, its last remaining asset abroad.

Rebgun claims to be acting in the interest of creditors, which include the Russian state (based on retroactive “tax claims” against Yukos) and Western banks that had lent to Yukos prior to the company’s destruction by the Kremlin. The warning from Moscow cannot be regarded as originating with an independent court or as a part of due legal process. It looks, rather, like a state-ordered attempt to derail the negotiations between Yukos and Lithuania as they have reached the end-game phase. It equally aims to derail Lithuania’s ongoing negotiations with non-Russian oil companies that are interested in re-purchasing the Yukos assets from Lithuania, in the planned second stage of the transaction.

This situation partly explains the timing of the Russian authorities’ decision to appoint a temporary administrator for Yukos on March 28 and his announcement the following day that his jurisdiction extends to Yukos assets outside Russia. Technically, the Yukos majority stake in Mazeikiai belongs to the Netherlands-registered Yukos International company. Yukos itself handles the negotiations with Lithuania out of the company’s London headquarters. The Moscow headquarters no longer recognizes the authority of the company’s president, Steven Theede, now based in London.

On March 31, Theede appointed the company’s legal department chief Vasily Alexanian in Moscow to the newly created post of executive vice-president and delegated to him the powers of company president. However, the Russian authorities seem to favor the rival headquarters in Moscow, “Yukos RM,” under Anatoly Nazarov. Meanwhile Alexanian has been indicted and is being questioned by the Prosecutor General’s Office and a Moscow civil court on retroactive charges stemming from operations in the 1990s — the method that was used to destroy Yukos in the first place.

That same day, legal consultants in Britain and the Netherlands advised the Lithuanian government that the Moscow arbitration court and the temporary administrator appointed by that court do not have jurisdiction over Yukos assets outside Russia. This finding corroborates that of Lithuanian legal consultants.

However, the signing of a sale-and-purchase agreement is being held up by issues that had been thought to have been conclusively settled between Lithuania and the London headquarters of Yukos. According to Lithuanian Prime Minister Algirdas Brazauskas, Theede seeks to revise the understanding they had reached on the price of the Yukos stake in Mazeikiai. That price is credibly reported to have been agreed last year at $1.2 billion and has been communicated to the second-stage bidders. The planned two-stage bidding process may collapse if Yukos raises the price on Lithuania.

The looming impasse raises the possibility that Lithuania may nationalize the Yukos stake as a measure of last resort to avoid a hostile takeover or buyout by a Kremlin-approved company. Rosneft and Lukoil are among candidates for such a move. Some Lithuanian parliament members, such as Economics Committee chairman Vytas Navickas, opine that nationalization would be criticized internationally and would damage Lithuania’s image. However, the government and parliament can cite strong arguments for nationalization on grounds of national security, if it becomes necessary to avoid capture of Mazeikiai by some unfriendly entity not chosen by Lithuania.

The Mazeikiai complex includes the refinery with a design processing capacity of 15 million tons of crude annually; the 255 kilometers supply pipeline to the refinery; a 92 kilometer pipeline to the Butinge maritime terminal; and that state-of-the art terminal (completed in 2001 by the Oklahoma-based Williams International company) with a capacity of 14 million tons annually and capable of accepting tankers of 150,000 tons capacity. This complex is Lithuania’s most lucrative business enterprise and the top taxpayer in the country. This fact, along with the political context in the region, should justify taking national security considerations into account in the negotiations on Mazeikiai’s ownership.

(BNS, Interfax, March 31-April 3; see EDM, March 17, April 3)