LITHUANIAN REFINERY FIRE LOOKS LIKE ACCIDENT

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000962 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: 10/19/2016 TAGS: ENRG EPET PREL LH RS PL SUBJECT: LITHUANIAN REFINERY FIRE LOOKS LIKE ACCIDENT REF: VILNIUS 944 AND PREVIOUS Classified By: POL/ECON Section Chief Rebecca Dunham for reasons 1.4 (b ) and (d) ¶1. (C) Summary: There is no evidence yet to suggest that the October 12 fire at Lithuania's oil refinery was anything other than an unfortunate accident. Five different investigations into the blaze continue. The fire will delay finalization of the purchase of the refinery by Poland's PKN Orlen, probably until January. PKN will also likely re-open its negotiations over both price and closing date with Yukos International, the majority shareholder of the refinery. While no physical evidence yet suggests that the fire was a deliberate act of sabotage, investigators have also not ruled it out. End Summary. Fire looks like an accident, at least for now -------------- ¶2. (C) Saulius Specius, adviser to the Prime Minister on economic and energy issues, told us on October 20 that the October 12 fire at Lithuania's Mazeikiu Nafta (MN) oil refinery appears to have been accidental, although at least five separate investigations are still evaluating the evidence. Those carrying out investigations include the Interior Minister; the local prosecutor; the fire department; the GOL Energy Agency; and MN itself. Specius said that the Interior Ministry's investigation would conclude on December 1, and the others would likely conclude by mid-November. ¶3. (C) Nerijus Eidukevicius, chair of MN's Board of Directors, told us on October 20 that the investigations had so far not turned up anything to suggest that the fire was the result of deliberate sabotage. He admitted that the timing of the accident, so close to the potential finalization of the deal to sell MN to Poland's PKN Orlen, was unfortunate, but that these kinds of accidents sometimes happen at refineries, especially those with 20- year-old equipment. ¶4. (C) MN's General Director (and Amcit) Nelson English told us in an October 20 telephone call that his investigation continued, but had so far not turned up a "smoking gun" that suggested deliberate sabotage. PKN's purchase postponed -------------- ¶5. (C) Specius told us that the fire would postpone the closing of PKN's deal to purchase MN, previously set for November or December, most likely until January. (Prior to the fire, the biggest hurdle for the deal was believed to be gaining the approval of EU competition authorities, which Specius expects to happen in early November.) He said that the fire actually gave PKN a legal reason to get out of the deal if it wanted to -- on the grounds that Yukos did not meet its obligation to maintain the value of the asset as required by the terms of the contract. That said, he believes that PKN still wants to go through with its purchase of MN. Specius, who said he has daily telephone conversations with PKN's chair Igor Chalupec, said that he was sympathetic to PKN's desire to learn more about the causes of the fire, its effects on MN's production capacity, and how much compensation MN's insurers will pay for the damage before completing the purchase, and that this delay made good business sense for PKN. ¶6. (C) Specius said that PKN would almost certainly renegotiate the terms of the purchase with Yukos International, MN's majority shareholder. This negotiation will probably involve the price that PKN will pay for Yukos's shares and the closing date -- under the current contract, PKN is required to finalize it purchase of Yukos's MN shares by December 31. Specius emphasized that PKN's negotiations with Yukos would not affect the price that PKN will pay for the GOL's MN shares. He said that the GOL's agreement with PKN precludes the possibility of PKN paying any less for the GOL's shares than it agreed to pay last May. He also said that the GOL's arrangement with PKN already allows for a closing date as late as March 31. Specius said that the GOL's focus right now is on facilitating a constructive VILNIUS 00000962 002 OF 002 discussion between PKN and Yukos International so that they reach mutually agreeable terms. Thwarted MN coup plot? -------------- ¶7. (C) MN's Board of Directors will meet on October 21. English told us that he had apparently disrupted an attempt by some of the Yukos-appointed Board members to oust him as MN's general manager. He said that he learned earlier this week that the Yukos Board members planned to introduce English's ouster as a surprise agenda item during the October 21 meeting. English said that he then sought the support of Yukos shareholders and PKN, who both weighed in heavily in his support, apparently forcing the Yukos Board members to promise not to raise this issue during the meeting. ¶8. (C) Specius told us that he had also heard about this "attempted coup," and said that it was not entirely clear who was influencing the Yukos-appointed Board members. He said that they seemed to be freelancing, rather than responding to the will of the shareholders, and that it was difficult to understand their behavior. He also said that he found their attempt to oust English "very troubling." ¶9. (C) Eidukevicius, one of the three GOL-appointed directors on MN's Board, skillfully avoided discussing this issue with us directly, but said that he expected an "energetic" meeting on October 21. Comment -------------- ¶10. (C) Prior to the fire, we passed messages to both the President's and Prime Minister's offices encouraging the GOL to ensure the physical security of MN and its management. We also warned these offices about possible attempts to undermine MN's management (particularly Nelson English) through slander or trumped-up legal charges. The fire may well turn out to be a simple industrial accident; no physical evidence yet uncovered suggests otherwise. The fact that the blaze occurred within a few weeks of the planned finalization of PKN's purchase of the refinery, however, coupled with the June "accident" that cut off MN's piped crude supply and the vague but serious-sounding threats we've heard against MN and its management, suggest that there may be more at work here than mere coincidence. KELLY