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. Last Updated: 07/27/2016

Lithuania Concludes Mazheikiu Deal




VILNIUS, Lithuania -- The Lithuanian government and U.S. energy group Williams on Friday closed a controversial oil industry sale that has rocked two governments just as the refinery used up its last drops of crude.


Oklahoma-based Williams International has purchased a 33 percent stake in Mazheikiu Nafta - a combined refinery, pipeline system and crude-oil terminal - for $150 million.


"The government and Williams have committed themselves to developing Mazheikiu Nafta into a prosperous company for the benefit of the economy and the firm's shareholders," Williams president John Bumgarner said, after signing a protocol agreement with acting Prime Minister Irena Degutiene.


Officials said the shares and half of the $150 million have already been transferred. The remaining half is in a debenture due May 2002.


The government will see none of the funds, however, as the money goes directly into the company, which will still be about 59 percent state owned. Further investment from the European Bank for Reconstruction and Development, the International Finance Corp. and Russian crude suppliers is expected.


Analysts said Williams, with no European operations, sought the deal for two key reasons - partnership in a company they expect to make over $200 million in earnings before interest, tax and appreciation by 2002, and the opportunity to gain a geographically strategic toehold between the markets of Europe and abundant supply in Russia.


The refinery, however, was down to its last drops of crude due to insufficient fourth-quarter supplies. It expects to begin shutting down Saturday, the third time this year it will halt due to a lack of supplies. But officials said that talks were under way on an additional supply of some 100,000 tons.


"We are optimistic that we can restore stability to Russian crude suppliers" after the capital injection, Bumgarner said.


For Lithuania itself, the deal is likely to cause some near-term fiscal pain, as analysts said budget spending cuts were not deep enough this year, and the deal requires almost $350 million in long-term lending from the stateto Mazheikiu to make up for value lost at the company over this year.


But as Mazheikiu Nafta, which has been operating in the red and with decreasing volumes for over a year, contributes some 10 percent of GDP, the long-term payoff should be large.


"If everything works out OK, if Russian crude supply comes on line, I think everybody comes out a winner," Hermis Finance analyst Sharunas Skyrius said.


Mazheikiu shares closed up at 11.11 percent in Vilnius.


President Valdas Adamkus almost derailed the deal by announcing at the last minute he no longer supported it. He later clarified, saying there was no choice but to sign the deal, although it had been badly negotiated on the Lithuanian side.


The last-minute confusion took place amid political turmoil, as Degutiene turned down an offer to take the post of prime minister full time. Andrius Kubilius, the deputy speaker of parliament, later accepted the nomination.


The deal has already wreaked political havoc in the Baltic state, leading to the resignation of Prime Minister Rolandas Paksas in a public split with his conservative party as he said the financing was too heavy a burden to bear.