SALE OF LITHUANIA'S REFINERY NEARS COMPLETION

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 001111 SIPDIS SIPDIS STATE FOR EUR/NB, EUR/NCE, EB/ESC STATE PLEASE PASS TO FEDERAL TRADE COMMISSION DOE FOR HARBERT DOC FOR 4231/IEP/EUR/BOHIGIAN NSC FOR GRAHAM, MCKIBBEN AND COEN TREASURY FOR LOWERY, LEE AND COX E.O. 12958: DECL: 12/13/2021 TAGS: ENRG EPET PREL LH RS PL VE NL SUBJECT: SALE OF LITHUANIA'S REFINERY NEARS COMPLETION REF: VILNIUS 1017 AND PREVIOUS Classified By: Political/Economic Chief Rebecca Dunham for reasons 1.4 (b) and (d) ¶1. (C) Summary: The official closing of the sale of Lithuania's Mazeikiu Nafta (MN) oil refinery to Poland's PKN Orlen should occur on December 15. The GOL will receive nearly USD 852 million and Yukos International USD 1.5 billion for its majority stake. MN will also fire six high-level managers accused of embezzlement and other malfeasance just before the closing. End summary. The light at the end of the tunnel -------------- ¶2. (U) The sale of MN, a drama that has stretched for more than 20 months, should reach its conclusion on December 15, when the Polish oil company PKN Orlen buys Yukos International's entire majority stake in MN (53.7 percent of MN's shares) and most of the GOL's shares (30.7 percent). The GOL will retain a 10 percent stake in MN. According to press reports, the GOL will receive USD 851.8 million. PKN will transfer USD 1.49 billion to bailiffs of the Dutch courts, where Yukos International is involved in a bankruptcy case. Management shakeup at MN -------------- ¶3. (C) MN's Amcit General Director Nelson English told us on December 12 that he plans to fire six of his Lithuanian deputies at 14:30 (local) on December 14. English said that he has long wanted to fire these individuals because of their malfeasance, but was unable to get concurrence from Yukos International. English said that Yukos International executives told him that firing these executives could create unnecessary complications and uncertainty for the deal with PKN and could possibly even threaten English's personal security. ¶4. (C) English said that both he and PKN's head of Upstream and Crude Procurement Cezary Filipowicz wanted to wait for a month or two before firing these executives so that PKN's team would have enough time to get comfortable at MN before a major personnel change. PKN President and CEO Igor Chalupec, however, wanted these individuals gone as soon as possible, according to English. The main risk with firing these six on December 14, said English, is that the January supply contracts will not be ready for signing before December 18, which will not leave much time for their replacements to get up to speed so that they can complete the contracts. ¶5. (C) English has complained repeatedly to us over the last several months about these individuals, particularly Redas Kristanavicius, MN's Deputy General Director for Logistics of Crude Oil and Petroleum Products. English said that he suspects Kristanavicius of malfeasance that, he believes, benefits Russian energy interests. As circumstantial evidence of Kristanavicius' improper connections, he claimed that Kristanavicius has recently been in direct contact with Vladimir Yakunin, head of Russia's Railway Company. Still looking for Venezuelan supplies -------------- ¶6. (C) English said that Venezuela's recent presidential election and related political intrigue had delayed his hoped-for deal to secure supplies of crude from Venezuela. He would keep working on the deal, he said, because the anticipated price makes that crude extremely advantageous for MN. Comment -------------- ¶7. (C) Finally, the end of the long process to sell MN is in sight. Putting MN into the growing PKN empire may reduce some of MN's vulnerability to supply disruptions, but it is not a panacea. With its supply pipeline from Russia cut off VILNIUS 00001111 002 OF 002 indefinitely, the bulk of MN's crude still needs to come via its Baltic Sea terminal at Butinge. This terminal relies on a solitary single-point mooring (SPM) buoy to offload tankers. An accident or bad winter weather could easily render the buoy inaccessible. PKN's ownership of the refinery will do nothing to change this vulnerability. ¶8. (C) The deal may herald the beginning of a new era in Polish-Lithuanian cooperation, especially on energy issues. In the wake of PKN's announcement in May that it would purchase MN, Vilnius and Warsaw made important progress on long-dormant plans to connect their electrical grids. The two countries have also reached a political agreement (along with Latvia and Estonia) to cooperate in the construction of a new nuclear reactor in Lithuania. CLOUD