La Russophobe has moved!

You should be automatically redirected in 6 seconds. If not, visit
and update your bookmarks.

Take action now to save Darfur

Wednesday, August 09, 2006

From Stettin in the Baltic . . .

The International Herald Tribune reports that Lithuania is worried over the appearance of dirty tricks by Russia seeking to undermine its economy:

Lithuanian officials asserted Monday that Russia was trying to undermine Poland's purchase of a strategic oil refinery in Lithuania by purposely delaying repairs to a crucial oil pipeline that supplies the refinery.

With Russia's energy giants trying to increase their market share both in Eastern and Western Europe, analysts said Monday that the damaged pipeline could weaken competition Russia would face from Orlen, a leading Polish oil refining company. The pipeline was damaged in an accident last month.

"The timing of this accident is very strange," said Arunas Jievaltas, a senior diplomat at the Lithuanian Embassy in Warsaw. "It happened as Orlen was wrapping up negotiations to buy Mazeikiai Nafta refinery. Some would say that Russia is trying to show Poland that this is the price it must pay for obtaining Mazeikiai. It seems that every step which is taken by a Russian energy company is motivated by politics."

Orlen has recently expanded its operations in Central Europe and in Germany. In May, it established a foothold in Lithuania after clinching a deal to buy the Mazeikiai Nafta refinery, the largest in the country and the only one in the Baltic States. But two weeks ago, Transneft, the Russian oil pipeline monopoly, stopped oil deliveries to Mazeikiai Nafta after part of the 4,000-kilometer, or 2,500-mile, Druzhba pipeline system that transmits oil to Western Europe and the Baltic States was damaged.

The incident took place on part of the pipeline that branches off to Lithuania and Belarus from the main export line to Western Europe. RosPrirodNadzor, the Russian natural resources monitoring agency, said the damaged pipeline would have to be replaced entirely.

Oleg Mitvol, the deputy head of RosPrirodNadzor, said Transneft would need "one year and nine months" to replace the entire section. Pawel Poremba, an Orlen spokesman said: "We don't expect this to affect the transactions to complete the purchase of the refinery. We made provisions in the contract in case of such scenarios."

However, the markets have already reacted. Morgan Stanley last week sold its 2.6 million Orlen shares, which led to a 2 percent fall in Orlen's market price. Orlen will be forced to obtain oil by ship instead of a direct oil pipeline feed, thus making oil more expensive.

Tibor Bokor, energy analyst at Wood and Company Financial Services in Prague, said that if Orlen had to obtain its crude by ship, "our estimate is that it would cost an additional $1.50 a barrel. But Orlen would still be profitable at the margins," he said.

Lithuanian officials said it was unclear why it should take Transneft so long to repair the 70-kilometer section of pipeline. They also questioned the timing of the accident. During a summit meeting of G-8 leaders in St. Petersburg last month, President Vladimir Putin reassured the Europeans that Russia could be depended upon as a reliable energy partner. Fears over how Putin used Russia's energy as a political instrument were heightened last January when Gazprom, the giant state-owned Russian gas company, stopped supplies to Ukraine and its new pro-Western government ostensibly over a dispute over gas prices.

"Clearly, if Russia wants to be seen a reliable supplier of energy, we should expect that the problem with the supply of crude oil to Lithuania be fixed sooner rather than the original projections," said Bokor. Russia has wanted to gain control of the Mazeikiai Nafta refinery and the Ventspils oil-export terminal in Latvia for some time.

When the Lithuanian and Latvian governments refused to sell their stakes to Russia, Russia sharply cut its oil deliveries. Over the past 18 months, Ventspils has been forced to obtain oil by rail and is operating under capacity. Russia's attempts to obtain the Mazeikiai Nafta refinery failed after the refinery was bought in 2002 by the Russian energy company Yukos, whose chairman, Mikhail Khodorkovsky, was given an eight-year prison sentence for tax evasion.

Despite attempts by Russia to seize these Yukos assets, Orlen managed to buy the refinery last May. It agreed to pay $1.49 billion to Yukos International U.K., based in the Netherlands, for its 53.7 percent stake in the Mazeikiai Nafta refinery. The Lithuanian government also agreed to sell a 30.7 percent stake it holds in the refinery to Orlen for $851.8 million, once the deal is approved by the European Commission and by the Lithuanian Parliament.

No comments: