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. Last Updated: 07/27/2016

Senator Helms Attacks LUKoil

A U.S. senator has taken a special interest in LUKoil's planned flotation on the New York Stock Exchange, asking two U.S. securities officials to carefully scrutinize the oil company's application.

Jesse Helms — a Republican senator from North Carolina and chairman of the Senate's Foreign Relations Committee — wrote a letter to NYSE chairman Richard Grasso and to Arthur Levitt, chairman of the U.S. Securities and Exchange Commission.

"My concerns about this potential listing are rooted in reports of inappropriate and roguish conduct by LUKoil in Russian and other markets that have adversely and unjustly affected the interests of American firms," Helms wrote in the March 12 letter.

LUKoil, whose American Depository Receipts already trade over the counter, is in the process of floating level 3 ADRs on the NYSE. However, the float has been delayed until possibly next year. That delay has been attributed to LUKoil's reluctance to publish its GAAP financials for 1998 and 1999.

Citing a Moscow Times article from Jan. 19, 2000, written by Yevgenia Borisova, Helms discussed LUKoil's relationship with Mazheikiu Naft, a Lithuanian oil refinery that is one-third owned and operated by Williams International, which is based in Tulsa, Oklahoma.

Mazheikiu, with a capacity of 263,000 barrels per day, is the only refinery in the Balitcs and accounts for 5 percent to 10 percent of Lithuania's gross domestic product, according to a U.S. Energy Department report from January 2001. In October 1999, Lithuania concluded a $150 million agreement to sell a 33 percent stake to Williams.

Williams isn't Mazheikiu's only international partner. In April 2000, the refinery clinched a deal with BP Amoco that allowed the global oil major to market the oil.

LUKoil, which traditionally has -coordinated Russian oil exports to Lithuania, also expressed an interest in buying a stake in the refinery, and when Lithuanian government officials expressed their preference for Williams, LUKoil decreased oil supplies to the refinery and several times completely cut Mazheikiu off.

LUKoil spokesman Dmitry Dolgov said the accusations of "roguish conduct" were groundless, Reuters reported.

"LUKoil cannot stop anyone from delivering oil to Lithuania," Dolgov said Monday. "Perhaps no one really wants to. Maybe the senator just doesn't grasp the situation."

LUKoil takes applications for shipment from oil companies and hands them over to pipeline regulators, he said. "Access to the pipeline is controlled by Transneft," Dolgov said, referring to Russia's pipeline monopoly.

Helms sees it differently. In his letter, he writes that "LUKoil is using its control over the pipeline to essentially blackmail the refinery and Lithuania itself."

He also accused LUKoil president Vagit Alekperov of "tax and currency fraud schemes, among other criminal activities."

It is uncertain to what extent a prominent senator's involvement can affect the outcome of a petition to the SEC.

"We don't comment on correspondence between congressmen and SEC officials," said Don Hainy, an SEC spokesman. NYSE's Grasso could not be reached for comment on Tuesday.

The SEC has the power to approve or deny LUKoil's request to float ADRs on the New York Stock Exchange.

Helms' office said Tuesday it would not comment on the senator's letter or the motivation behind it.

Helms' stance on LUKoil in many ways reflects the Bush administration's attitude toward Russia: Proceed with caution. President George W. Bush warned after his election that he would cut off direct U.S. financial aid that is aimed at stimulating a market economy until significant reforms are carried out.

A level-3 ADR issue isn't direct U.S. financial aid, but the windfall from such a float could supply LUKoil with much needed funds for investments in equipment and oil-field exploration.

"It is important that only companies of the highest ethical standards and conduct are allowed to participate in U.S. markets," Helms wrote. "These allegations of improper conduct by LUKoil are very troubling and, I believe, deserve close scrutiny by the SEC."

This request comes at an unfortunate time for LUKoil, which — with its purchase of 1,300 Getty gas stations last year — was the first Russian oil major to break into the U.S. retail market.

LUKoil has also recently been the target of criticism from analysts for failing to release its financial reports according to generally accepted accounting principles. After repeated delays, the reports are set to be published in April to coincide with a meeting of the board of directors.

Also, a former EBRD banker has accused LUKoil management of being in control of Reforma Investments, an offshore vehicle that purchased a privatization packet of LUKoil shares in 1999.

In concluding this letter, Helms wrote that he would be "grateful for information on the status of the LUKoil application and how these allegations are being factored into SEC's review of this application."