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Russia: Moscow's Neighbors Struggling With Energy Investment Choices

Poland, Lithuania, and Georgia are all struggling with plans that would give Russian companies control of their vital energy assets. While critics are wary of Moscow's political power, the governments seem willing to embrace the investments only when no alternatives exist.

Boston, 13 September 2002 (RFE/RL) -- Russia's neighbors are considering their economic choices in deciding whether to depend on energy investments from Moscow.

In Poland, the government has made clear that it is casting about for alternatives to an investment by Russia's largest oil company LUKoil in the country's second-biggest refinery. Treasury Minister Wieslaw Kaczmarek said on 10 September that a decision on the joint bid with British-based Rotch Energy for Rafineria Gdanska had again been postponed in a move that is expected to lead to a domestic merger.

Kaczmarek said: "That decision will be made soon. It is a matter of two weeks because I assume that the cabinet will be dealing with a program amending the restructuring of the oil sector," Poland's Radio Zet and the PAP news agency reported. Kaczmarek added, "Today we have a tough choice to make: we have to decide whether to sell the refinery or revise the sector strategy and allow for the creation of a national operator."

In recent days, Polish officials have postponed action on the LUKoil offer, which was set for the end of last month. Last week, the nation's largest refiner, PKN Orlen, said it would match LUKoil's bid. The government's move is aimed at keeping the Gdansk refinery in Polish hands. In July, Prime Minister Leszek Miller cited a "political context" for an earlier delay of the decision on LUKoil. Poland has been trying to sell the refinery since 1998.

But the risk that Russia could control the refinery, with its 20 percent share of Poland's fuel market, is apparently too much for the government to bear. Although PKN Orlen's president, Zbigniew Wrobel, initially rejected the refinery's price as too costly, he now plans to raise the funds with a bank loan, CEE News said.

In Lithuania, the government apparently has no such plans and no hope for domestic investment in the Mazheikiu Nafta refinery. The Russian oil giant Yukos is trying to acquire a majority interest in the facility, which is the only major refinery in the Baltic countries. Last week, Lithuania's Economy Ministry recommended that the government should not buy a share in the loss-making business to keep Yukos from gaining control.

On 10 September, Prime Minister Algirdas Brazauskas told parliament members in the Seimas that the Yukos takeover would be "understandable and fair," RBC News said, noting the company's past and promised investment in the refinery. Yukos plans to assume the debt of the U.S.-based Williams Companies, which withdrew as the operator last month.

But lawmakers have asked the State Security Department to analyze the implications of the transfer, Lithuanian radio and the BBC reported. Mecys Laurinkus, the head of the security agency, urged the Seimas not to rush ahead with amendments that would allow the sale. Opposition leader Vytautis Landsbergis warned that the legislation would give Yukos the right to transfer control to any other company. But so far, no Lithuanian investors have emerged to take the place of the Russian company.

In Georgia, the grounds for security concerns may be even greater because of the country's bitter dispute with Russia over Chechen attacks that Russia says are staged from the Pankisi Gorge.

On 10 September, President Vladimir Putin ordered security officials to examine the "feasibility and desirability" of attacking terrorist bases, Interfax reported, implying that these may be found on Georgian territory. The next day, Putin informed the United Nations that Russia will take "appropriate measures" if Georgia fails to halt the attacks. Georgian President Eduard Shevardnadze responded by calling the statement "somewhat impulsive," adding that it treated the issues in a "lopsided and biased manner," Interfax said.

Yet, Shevardnadze has supported the takeover of Georgia's gas network by the Russian gas trader Itera through a joint venture known as Tbilgazi, despite objections from critics that it would leave energy security at the mercy of Moscow.

Last week, Shevardnadze angrily told his cabinet of ministers: "Do we wish to sign the deal with Itera or not? Stop talking. They can say whatever they wish. I will be the first to sign," the Russian website reported. An Itera spokesman said Georgia owes the company $90 million for past gas supplies. Shevardnadze fears that the debt will lead to a destabilizing cutoff this winter unless Georgia agrees to the Tbilgazi deal.

Itera is also set to take control of Azot, Georgia's largest fertilizer plant, which owes the company $36 million, according to Interfax. U.S.-registered Itera strongly denies any link to the Russian government.

But like their counterparts in Poland, Georgian officials have been seeking alternatives to minimize the risk of Russian control. Deputy Minister of State Giorgi Isakadze proposed this week that the U.S.-based company AES, which has operated the power network, be brought in as an investor in Tbilgazi.

It is unclear whether the move will succeed in reducing the Russian share or in easing Georgia's fears. But all three countries seem to see Russian investment in their energy sectors only as an option of last resort.