Publication: Monitor Volume: 5 Issue: 184

On September 30 and October 5, the Lithuanian parliament adopted two sets of legislative enactments, clearing the way for a takeover of the country’s state-owned oil sector by the U.S. company Williams International and implicitly barring a takeover by Russia’s Lukoil. The legislation:

–merges the Butinge oil-loading maritime terminal and the Naftotiekis pipeline system with the Mazeikiai oil refinery, the largest by far in the Baltic states with an annual processing capacity of up to 15 million tons;

–grants Williams the right to purchase 51.5 percent of the shares of the entire complex;

–sets aside from 18-25 percent of the shares for retention by the Lithuanian state; from 10-15 percent for possible acquisition by international financial institutions; and another 10-15 percent at the disposal of external suppliers of crude oil;

–requires the Lithuanian state to guarantee up to US$650 million worth of bank loans to be taken by Williams, mainly for modernizing the refinery and completing the second stage of construction of the maritime terminal.

The governing majority of Fatherland Union/Conservatives and Christian-Democrats ensured passage of the legislation, which also had the strong support of President Valdas Adamkus. The small left-of-center opposition cried treason but was powerless to block the passage. A statement signed by former President Algirdas Brazauskas, former Prime Minister Kazimiera Prunskiene and several political and academic figures summed up the objections of parliamentary and extraparliamentary opposition groups. They called for a larger chunk of the oil complex to be awarded to Russian oil suppliers, ostensibly to guarantee steady deliveries of crude oil; wanted another large chunk to be retained by the Lithuanian state in its ownership; described the conditions of the Williams takeover as a betrayal of Lithuanian national interests and a “colonization;” and objected to the government’s choice of that strategic investor without holding an open tender.

The latter objection is also being loudly voiced by Lukoil, whose sights have been set on Lithuania’s oil complex for the last several years. In early 1999 Russia drastically reduced deliveries of crude oil to Lithuania as a way of pressuring her into choosing Lukoil as strategic investor and deterring Williams–or other potential Western partners–from risking major investments. Lukoil conditioned its own participation on being awarded the majority of the shares. As Lithuania and an undeterred Williams continued the negotiations, Lukoil insisted on at least parity for itself in any final deal. Lukoil is now threatening to “leave Lithuania” altogether–a step which would imply terminating crude oil deliveries or reducing them to a trickle.

Mazeikiai is indeed badly short of supplies at present and incurring substantial losses as a result. The Lithuanian government and Williams jointly plan to resume discussions with Lukoil immediately on a delivery contract. But their main hopes in Russia rest on Lukoil’s potential competitor, Yukos, whom they regard as a possible minority investor in the Lithuanian oil complex. According to a senior Lithuanian official involved in the negotiations, Yukos–unlike Lukoil–“does not use intimidation tactics and threats.” On a parallel track, Lithuanian officials are sounding out Middle Eastern oil suppliers. Economics Minister Eugenijus Maldeikis has just returned from an exploratory visit to Iran and the United Arab Emirates. Lithuania evidently intends to avoid the trap of overdependence on any one source of supply. Her choice of the U.S. strategic partner and acceptance of its conditions demonstrates–as Parliament Chairman Vytautas Landsbergis commented during the final parliamentary debate–that “the ship of Lithuania is headed undeviatingly toward the West” (BNS, September 30, October 1, 4-5; Itar-Tass, October 4-5; see the Monitor, April 14, May 21, July 27).