Publication: Eurasia Daily Monitor Volume: 2 Issue: 195

On October 18, the Lithuanian government decided unanimously to begin negotiations

with TNK-BP regarding the sale of a majority stake in Lithuania’s oil-refining and

oil-transport sector, the last major remaining asset of Yukos. The government’s

decision follows Prime Minister Algirdas Brazauskas’ unexpected October 11 statement

that TNK-BP was better placed than others to meet Lithuania’s criteria for selecting

the strategic investor. The decision puts TNK-BP ahead of Lukoil, hitherto the

frontrunner in the contest for the highly attractive legacy of Yukos in Lithuania.

Lukoil’s subsidiary in the Baltic states, LukoilBaltija, immediately and publicly

deprecated the Lithuanian government’s October 18 decision as “ill-conceived” and

“actually meaningless.” LukoilBaltija chairman Ivan Paleichik, whose political and

business connections with certain left-of-center Lithuanian politicians in past

years are on the public record, nevertheless insinuated that the government’s

decision “looks very much like corruption.” Paleichik is urging Lithuania to

negotiate also with the Lukoil and ConocoPhillips companies that intend jointly to

bid for the Yukos assets in Lithuania. The heads of Lukoil and ConocoPhillips, Vahid

Alekperov and James Mulva, had discussed that intention — along with other aspects

of the two companies’ partnership — with Russian President Vladimir Putin during

the latter’s visit to the United States in September.

By teaming up with ConocoPhillips in Lithuania, Lukoil seeks to reassure the country

that there will be no repetition of the 1999-2001 scenario. At that time, using its

monopoly on crude oil deliveries to Lithuania, Lukoil attempted a hostile takeover

of the country’s oil-refining and oil-transport sector by cutting those deliveries

drastically, so as to scare off other investors and depreciate the market value of

those assets, preparatory for a takeover by Lukoil on the cheap. Ultimately, it was

the American-friendly Yukos company that acquired the majority stake, ensured steady

supplies of crude oil, and turned the Mazeikiai refinery into a modern and highly

lucrative enterprise. However, the Russian government’s destruction of Yukos in its

own country has reopened that issue in Lithuania.

Meanwhile, Russian government agencies are targeting Yukos assets outside Russia as

well, under the same excuse of tax arrears. The state company Rosneft seems to lay a

claim to Yukos’ assets in Lithuania. Rosneft became a successor to Yukos in Russia

earlier this year through coercive takeover of the main Yukos production unit,

Yuganskneftegaz. During the second week of October, at the Russian company’s

request, a court in the Netherlands issued a temporary injunction against any

transactions with shares in Yukos assets. Moscow’s move is targeting the Yukos

assets in Lithuania, which technically belong to a Netherlands-registered subsidiary

of Yukos.

Those assets include the Mazeikiai refinery, Butinge maritime oil handling terminal,

and Birzai supply pipeline. The refinery alone outranks all business entities in

Lithuania with respect to turnover and net profits, and is the country’s top

taxpayer. Yukos owns 53.7% of the shares in the entire complex, and has the option

of a acquiring another 20%. The shares and the option are up for sale, but Russian

authorities seem to be aiming to derail a sale through confiscation or at least

litigation to that end.

For Lithuania, the national security implications of this issue are no less

significant than the economic ones. Lithuania understands that involving a Russian

company to replace Yukos as strategic investor is inevitable, because Russia is the

only possible source of crude oil supplies in the short- and perhaps medium-term.

However, Lithuania will clearly give preference to a partnership formed by a Russian

company with a major Western company, one with the power to block politically

motivated decisions detrimental to Lithuania. Along with supply guarantees, the

criteria to be met by the new Russian strategic investor include: adherence to

Western standards of corporate governance and management, public accountability and

full transparency of business practices, and a commitment to refrain from

interfering with Lithuania’s political processes.

The criteria also include independence from the Russian authorities; but, as

Lithuanian Economics Minister Kestutis Dauksys recognizes, the new Russian owner

will nevertheless have to maintain good relations with the Russian authorities: “The

situation in Russia’s oil sector today shows that an oil company that does not

cultivate good relations with the Kremlin will hardly be able to survive” (ELTA,

October 13). Ultimately, whichever Russian company replaces Yukos, it may depend on

the Russian government not only for approval of guaranteed oil supplies to

Lithuania, but even for the company’s fortunes in Russia.

(BNS, ELTA, October 11-18)