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Lithuania: Officials Bid Reluctant Farewell To U.S. Oil Firm

The U.S. company Williams International Lithuania says it is selling its shares in the Mazeikiu Nafta oil refinery to a Russian oil company. The Russian company, Yukos, is also taking operational control of the refinery. Three years ago, Lithuanian authorities had eagerly supported the American company, while Russian companies were widely feared as possible instruments of Russian foreign policy. Some fears still remain, but analysts say they are less founded than before.

Prague, 23 August 2002 (RFE/RL) -- The U.S. company Williams International Lithuania announced this week that it is selling its 27 percent stake in the Lithuanian oil refinery Mazeikiu Nafta to the Russian oil giant Yukos.

The agreement between Williams and Yukos was reached on 14 August following secret negotiations that not even the Lithuanian government knew about. Although the government owns 40 percent of the refinery's shares, operational control of the refinery will belong to Yukos when it takes over at the end of September.

The departure of the U.S. firm from Lithuania is the consequence of financial problems at its parent company -- shares in Williams are at a nine-year low -- and also of Williams's losses in Lithuania, which amounted to $77 million last year. The pullout undermines the original goal of the privatization of Mazeikiu Nafta, i.e., to assert energy independence from Russia.

Williams acquired a 27 percent stake and operational rights at Mazeikiu Nafta in 1999, beating out the Russian oil company LUKoil. The ruling Conservative party in Lithuania that signed the deal insisted the U.S. investment would help make Lithuania less dependent on Russia and enhance its chances of joining NATO.

The departure of Williams marks the defeat of this strategy.

Some Lithuanian politicians say the departure of Williams will dangerously increase the influence of Russian capital in Lithuania. They say Russia will have more means to manipulate Lithuanian politics through Russian companies operating in the country.

Andrius Kubilius, the chairman of the Lithuanian Conservative party and a former prime minister, is cautious about Yukos's taking over Mazeikiu Nafta. "We should not fear such things as soaring oil prices or the stopping of the supply [of Russian oil]. What I fear most is that the company can use its financial power to shape the attitudes of Lithuanian political parties," Kubilius said.

Kubilius said Poland, the Czech Republic, or Hungary would never sell their strategic assets to a Russian company. He said the current Lithuanian Social Democratic government does not know how to think in geopolitical or geostrategic terms. He said the Conservatives wanted to sell Mazeikiu Nafta to Williams to ensure Lithuania's economic independence. "It was impossible to imagine in 1999 that Williams would have financial problems," said Kubilius. "And it looked incredible that the company would sell its shares to Russians behind the back of the Lithuanian government."

Gediminas Kirkilas is one of the leaders of the Social Democrats. In 1999, he was a critic of Williams's investments in Lithuania, saying the deal was politically motivated and not good for the country's economy.

Kirkilas is optimistic about the Yukos deal and told RFE/RL that he does not believe the company will be manipulated by the Russian government. "Yukos is truly a private company, not controlled by the state. I met senior managers of the company and talked with them informally several times. It is very hard for me to imagine that someone from the Kremlin invites someone from Yukos [and tells him what to do], and uses Yukos to put political pressure on Lithuania," Kirkilas said.

He said Russia is now an ally of NATO and the United States. "Maybe fears of Russian investments had some ground several years ago when LUKoil wanted to buy the refinery," said Kirkilas. "But now they are groundless."

The director of the International Information Department of Yukos, Hugo Erikssen of Norway, told RFE/RL that the company clearly understands the historical reasons why some Lithuanian politicians might fear Russian investments. "I can tell you if there is a company in Russia which is involved only in business and stays away from politics, this company is Yukos. We clearly understand the historic reasons [for the fears] and so-called geopolitical qualms. However, these fears have nothing to do with our purely commercial activity. If you look closely at foreign investors in Yukos, you will see that they all are American. They are mainly American pension funds located in various states and even the Pentagon's pension fund," Erikssen said.

Erikssen said nearly 25 percent of Yukos shares are in the hands of Westerners.

Valerii Mironov is an analyst at the Development Center, an independent think tank based in Moscow. He told RFE/RL that the main reason Russian oil companies are investing outside Russia is the fact that Russia lost almost all of its refineries after the breakup of the Soviet Union. The refineries are now located in Ukraine, Belarus, or the Baltic states. He noted that it is more profitable for oil companies to sell refined oil, not just the raw product.

The other reason is that Lithuania is a strong candidate for entry into the European Union, and Yukos hopes to have easier access to EU markets in the future.

Mironov admitted that the Russian state can use oil companies as instruments of foreign policy only in theory. "Theoretically, oil companies can be used [for political purposes] by the state, but I think the [Russian] authorities themselves are not inclined to use them as this [kind of] tool. In fact, oil companies are private enterprises with many foreign shareholders. If they happen to become puppets in the hands of the government, all of Yukos's record numbers in capitalization [investment in the assets of the company], which we have observed for the last two years, will become part of the past," Mironov said.

He said Yukos is not only the most profitable Russian oil company but also the one with the most progressive management and best strategic planning. Mironov said that in this aspect, Yukos differs greatly from its main competitor, LUKoil.

However, Yukos is investing in two different geographical directions: in China and in the Baltic states. Mironov is concerned Yukos will not manage to work effectively in both regions.