RIGA — President Dalia Grybauskaitė’s revelation that Russian companies are in talks with Poland’s PKN Orlen on possibly purchasing Orlen Lietuva has triggered panic among Lithuanian politicians.

PKN Orlen is denying that such as taking place, which has also sparked serious concerns about what is truly going on with Lithuania’s largest corporation.

Russian companies have tried twice in the past to buy the Orlen (formerly Mažeikių Nafta) refinery, but both times it failed. Moscow clearly covets the refinery, and in 2006 was so angered by Lithuania’s decision to sell the asset to the Poles that it staged a [private_supervisor]pipeline accident in Belarus and thereby cut off supplies of crude to Mažeikiai, the small city adjacent to the refinery in northwest Lithuania. Three years later, the pipe is still dry.

But times have changed dramatically. First, a fire in October 2006 at the Mažeikių refinery severely dented the enterprise’s profitability and apparently created no small amount of resentment, if not a bad taste, with the Polish investors.

Secondly, the world financial crisis dealt a blow to the oil industry, with crude prices down 50 percent since the peak in 2007. This has drastically cut margins on the downstream oil businesses such as PKN Orlen. Further, consumption in the Baltic market has fallen significantly.

Orlen Lietuva is under-performing financially, partly because it is forced to import crude through the Būtingė terminal, which is more expensive than taking on Russian crude via pipeline. It is unclear when the company will be able to escape from the red. Last year PKN Orlen had to reduce throughput at the refinery to cut its losses.

Finally, and perhaps most importantly, there are the pressing issues of expansion. The Poles want to buy Klaipėdos Nafta, an oil terminal that PKN Orlen uses to export a large part of its refined products, but Lithuanian authorities are unwilling to privatize it. Vilnius argues that the terminal is a strategic enterprise, and the Poles have responded by threatening to build another terminal in either Būtingė or even Liepāja, Latvia.

PKN Orlen also wants to build a product pipeline connecting the refinery in Mažeikiai to the Klaipėda terminal, which it would own, and thereby increase the profitability of its operations.

Too add insult to injury, PKN Orlen has outstanding disputes with Lithuania’s railroad operator, Lietuvos Geležinkeliai, over tariffs and railroad repairs that, according to one report, has cost €14-18 million in additional costs for the Polish oil firm.

The Poles’ patience finally snapped recently, and they have reportedly turned to the European Commission with a complaint over the railroad tariffs. As Krystian Pater, PKN Orlen’s CEO was quoted by the Rzeczpospolita newspaper as saying, “Protectionism aimed at protecting the interests of Lithuania’s state-owned companies is the main reason why Orlen Lietuva cannot achieve greater control over one of the Baltic ports.”

PKN Orlen has denied that it is in talks to sell its Lithuanian business. “We are not in talks on the sale of [Orlen Lietuva] with Russians or anybody else,” Dawid Piekarz, an Orlen spokesman, told Reuters.

However, this direct contradicts Lithuanian President Dalia Grybauskaitė’s statement to reporters in Helsinki on Wednesday that Russian Prime Minister Vladimir Putin had confirmed Russia is in talks with PKN Orlen on the Mažeikiai refinery.

“Putin confirmed that talks on [Orlen Lietuva] are under way with the Poles. The president said everything will have to be in line with Lithuania’s legislation and European Union’s legal acts,” her spokesman Lynas Balsas told BNS on Wednesday.

Russian purchase would be allowed

Whether one believes the Russian president or the Polish investors could be moot. The point is that the Poles have decided to step up the pressure on the Lithuanians to make concessions on rail tariffs, the Klaipėda terminal and the products pipeline, and there can be no better way to get the Lithuanians to cooperate than by playing the so-called Russian card. If PKN Orlen does decide to sell to the Russians, there will be little Lithuania can do to stop the sale. Nationalist politicians in the ruling coalition could try to appeal to Brussels, but this will likely fall on deaf ears. Russia’s oil companies have acquired numerous refineries and assets in Europe, and no one in the European Commission is likely to care if they take over “one more refinery” in Eastern Europe.

Some analysts have said that the idea of Russian ownership of the refinery doesn’t have to be considered a threat to national security.

“I wouldn’t call it a danger,” said Rimantas Rudzkis, an economist at DnB Nord. “As long as Klaipėdos Nafta is under state control, the sale of the Mažeikiai refinery to any government does not threaten us. Our oil products and fuel won’t dry up since we have the potential to import,” he told the Delfi news portal.

By letting the Russian on board, it would renew the flow of crude via the pipeline and increase the refinery’s profitability. “This is cheaper and increases the plant’s competitiveness. I think that sooner or later it will happen. The question is whether part of the shares will be sold, or if the entire refinery will change hands,” Rudzkis said.

PKN Orlen bought 84 percent of Mažeikių Nafta in 2006 for $2.34 billion, and has since increased the stake to 100 percent.

[/private_supervisor] [private_subscription 1 month]pipeline accident in Belarus and thereby cut off supplies of crude to Mažeikiai, the small city adjacent to the refinery in northwest Lithuania. Three years later, the pipe is still dry.

But times have changed dramatically. First, a fire in October 2006 at the Mažeikių refinery severely dented the enterprise’s profitability and apparently created no small amount of resentment, if not a bad taste, with the Polish investors.

Secondly, the world financial crisis dealt a blow to the oil industry, with crude prices down 50 percent since the peak in 2007. This has drastically cut margins on the downstream oil businesses such as PKN Orlen. Further, consumption in the Baltic market has fallen significantly.

Orlen Lietuva is under-performing financially, partly because it is forced to import crude through the Būtingė terminal, which is more expensive than taking on Russian crude via pipeline. It is unclear when the company will be able to escape from the red. Last year PKN Orlen had to reduce throughput at the refinery to cut its losses.

Finally, and perhaps most importantly, there are the pressing issues of expansion. The Poles want to buy Klaipėdos Nafta, an oil terminal that PKN Orlen uses to export a large part of its refined products, but Lithuanian authorities are unwilling to privatize it. Vilnius argues that the terminal is a strategic enterprise, and the Poles have responded by threatening to build another terminal in either Būtingė or even Liepāja, Latvia.

PKN Orlen also wants to build a product pipeline connecting the refinery in Mažeikiai to the Klaipėda terminal, which it would own, and thereby increase the profitability of its operations.

Too add insult to injury, PKN Orlen has outstanding disputes with Lithuania’s railroad operator, Lietuvos Geležinkeliai, over tariffs and railroad repairs that, according to one report, has cost €14-18 million in additional costs for the Polish oil firm.

The Poles’ patience finally snapped recently, and they have reportedly turned to the European Commission with a complaint over the railroad tariffs. As Krystian Pater, PKN Orlen’s CEO was quoted by the Rzeczpospolita newspaper as saying, “Protectionism aimed at protecting the interests of Lithuania’s state-owned companies is the main reason why Orlen Lietuva cannot achieve greater control over one of the Baltic ports.”

PKN Orlen has denied that it is in talks to sell its Lithuanian business. “We are not in talks on the sale of [Orlen Lietuva] with Russians or anybody else,” Dawid Piekarz, an Orlen spokesman, told Reuters.

However, this direct contradicts Lithuanian President Dalia Grybauskaitė’s statement to reporters in Helsinki on Wednesday that Russian Prime Minister Vladimir Putin had confirmed Russia is in talks with PKN Orlen on the Mažeikiai refinery.

“Putin confirmed that talks on [Orlen Lietuva] are under way with the Poles. The president said everything will have to be in line with Lithuania’s legislation and European Union’s legal acts,” her spokesman Lynas Balsas told BNS on Wednesday.

Russian purchase would be allowed

Whether one believes the Russian president or the Polish investors could be moot. The point is that the Poles have decided to step up the pressure on the Lithuanians to make concessions on rail tariffs, the Klaipėda terminal and the products pipeline, and there can be no better way to get the Lithuanians to cooperate than by playing the so-called Russian card. If PKN Orlen does decide to sell to the Russians, there will be little Lithuania can do to stop the sale. Nationalist politicians in the ruling coalition could try to appeal to Brussels, but this will likely fall on deaf ears. Russia’s oil companies have acquired numerous refineries and assets in Europe, and no one in the European Commission is likely to care if they take over “one more refinery” in Eastern Europe.

Some analysts have said that the idea of Russian ownership of the refinery doesn’t have to be considered a threat to national security.

“I wouldn’t call it a danger,” said Rimantas Rudzkis, an economist at DnB Nord. “As long as Klaipėdos Nafta is under state control, the sale of the Mažeikiai refinery to any government does not threaten us. Our oil products and fuel won’t dry up since we have the potential to import,” he told the Delfi news portal.

By letting the Russian on board, it would renew the flow of crude via the pipeline and increase the refinery’s profitability. “This is cheaper and increases the plant’s competitiveness. I think that sooner or later it will happen. The question is whether part of the shares will be sold, or if the entire refinery will change hands,” Rudzkis said.

PKN Orlen bought 84 percent of Mažeikių Nafta in 2006 for $2.34 billion, and has since increased the stake to 100 percent.[/private_subscription 1 month] [private_subscription 4 months]pipeline accident in Belarus and thereby cut off supplies of crude to Mažeikiai, the small city adjacent to the refinery in northwest Lithuania. Three years later, the pipe is still dry.

But times have changed dramatically. First, a fire in October 2006 at the Mažeikių refinery severely dented the enterprise’s profitability and apparently created no small amount of resentment, if not a bad taste, with the Polish investors.

Secondly, the world financial crisis dealt a blow to the oil industry, with crude prices down 50 percent since the peak in 2007. This has drastically cut margins on the downstream oil businesses such as PKN Orlen. Further, consumption in the Baltic market has fallen significantly.

Orlen Lietuva is under-performing financially, partly because it is forced to import crude through the Būtingė terminal, which is more expensive than taking on Russian crude via pipeline. It is unclear when the company will be able to escape from the red. Last year PKN Orlen had to reduce throughput at the refinery to cut its losses.

Finally, and perhaps most importantly, there are the pressing issues of expansion. The Poles want to buy Klaipėdos Nafta, an oil terminal that PKN Orlen uses to export a large part of its refined products, but Lithuanian authorities are unwilling to privatize it. Vilnius argues that the terminal is a strategic enterprise, and the Poles have responded by threatening to build another terminal in either Būtingė or even Liepāja, Latvia.

PKN Orlen also wants to build a product pipeline connecting the refinery in Mažeikiai to the Klaipėda terminal, which it would own, and thereby increase the profitability of its operations.

Too add insult to injury, PKN Orlen has outstanding disputes with Lithuania’s railroad operator, Lietuvos Geležinkeliai, over tariffs and railroad repairs that, according to one report, has cost €14-18 million in additional costs for the Polish oil firm.

The Poles’ patience finally snapped recently, and they have reportedly turned to the European Commission with a complaint over the railroad tariffs. As Krystian Pater, PKN Orlen’s CEO was quoted by the Rzeczpospolita newspaper as saying, “Protectionism aimed at protecting the interests of Lithuania’s state-owned companies is the main reason why Orlen Lietuva cannot achieve greater control over one of the Baltic ports.”

PKN Orlen has denied that it is in talks to sell its Lithuanian business. “We are not in talks on the sale of [Orlen Lietuva] with Russians or anybody else,” Dawid Piekarz, an Orlen spokesman, told Reuters.

However, this direct contradicts Lithuanian President Dalia Grybauskaitė’s statement to reporters in Helsinki on Wednesday that Russian Prime Minister Vladimir Putin had confirmed Russia is in talks with PKN Orlen on the Mažeikiai refinery.

“Putin confirmed that talks on [Orlen Lietuva] are under way with the Poles. The president said everything will have to be in line with Lithuania’s legislation and European Union’s legal acts,” her spokesman Lynas Balsas told BNS on Wednesday.

Russian purchase would be allowed

Whether one believes the Russian president or the Polish investors could be moot. The point is that the Poles have decided to step up the pressure on the Lithuanians to make concessions on rail tariffs, the Klaipėda terminal and the products pipeline, and there can be no better way to get the Lithuanians to cooperate than by playing the so-called Russian card. If PKN Orlen does decide to sell to the Russians, there will be little Lithuania can do to stop the sale. Nationalist politicians in the ruling coalition could try to appeal to Brussels, but this will likely fall on deaf ears. Russia’s oil companies have acquired numerous refineries and assets in Europe, and no one in the European Commission is likely to care if they take over “one more refinery” in Eastern Europe.

Some analysts have said that the idea of Russian ownership of the refinery doesn’t have to be considered a threat to national security.

“I wouldn’t call it a danger,” said Rimantas Rudzkis, an economist at DnB Nord. “As long as Klaipėdos Nafta is under state control, the sale of the Mažeikiai refinery to any government does not threaten us. Our oil products and fuel won’t dry up since we have the potential to import,” he told the Delfi news portal.

By letting the Russian on board, it would renew the flow of crude via the pipeline and increase the refinery’s profitability. “This is cheaper and increases the plant’s competitiveness. I think that sooner or later it will happen. The question is whether part of the shares will be sold, or if the entire refinery will change hands,” Rudzkis said.

PKN Orlen bought 84 percent of Mažeikių Nafta in 2006 for $2.34 billion, and has since increased the stake to 100 percent.[/private_subscription 4 months] [private_subscription 1 year]pipeline accident in Belarus and thereby cut off supplies of crude to Mažeikiai, the small city adjacent to the refinery in northwest Lithuania. Three years later, the pipe is still dry.

But times have changed dramatically. First, a fire in October 2006 at the Mažeikių refinery severely dented the enterprise’s profitability and apparently created no small amount of resentment, if not a bad taste, with the Polish investors.

Secondly, the world financial crisis dealt a blow to the oil industry, with crude prices down 50 percent since the peak in 2007. This has drastically cut margins on the downstream oil businesses such as PKN Orlen. Further, consumption in the Baltic market has fallen significantly.

Orlen Lietuva is under-performing financially, partly because it is forced to import crude through the Būtingė terminal, which is more expensive than taking on Russian crude via pipeline. It is unclear when the company will be able to escape from the red. Last year PKN Orlen had to reduce throughput at the refinery to cut its losses.

Finally, and perhaps most importantly, there are the pressing issues of expansion. The Poles want to buy Klaipėdos Nafta, an oil terminal that PKN Orlen uses to export a large part of its refined products, but Lithuanian authorities are unwilling to privatize it. Vilnius argues that the terminal is a strategic enterprise, and the Poles have responded by threatening to build another terminal in either Būtingė or even Liepāja, Latvia.

PKN Orlen also wants to build a product pipeline connecting the refinery in Mažeikiai to the Klaipėda terminal, which it would own, and thereby increase the profitability of its operations.

Too add insult to injury, PKN Orlen has outstanding disputes with Lithuania’s railroad operator, Lietuvos Geležinkeliai, over tariffs and railroad repairs that, according to one report, has cost €14-18 million in additional costs for the Polish oil firm.

The Poles’ patience finally snapped recently, and they have reportedly turned to the European Commission with a complaint over the railroad tariffs. As Krystian Pater, PKN Orlen’s CEO was quoted by the Rzeczpospolita newspaper as saying, “Protectionism aimed at protecting the interests of Lithuania’s state-owned companies is the main reason why Orlen Lietuva cannot achieve greater control over one of the Baltic ports.”

PKN Orlen has denied that it is in talks to sell its Lithuanian business. “We are not in talks on the sale of [Orlen Lietuva] with Russians or anybody else,” Dawid Piekarz, an Orlen spokesman, told Reuters.

However, this direct contradicts Lithuanian President Dalia Grybauskaitė’s statement to reporters in Helsinki on Wednesday that Russian Prime Minister Vladimir Putin had confirmed Russia is in talks with PKN Orlen on the Mažeikiai refinery.

“Putin confirmed that talks on [Orlen Lietuva] are under way with the Poles. The president said everything will have to be in line with Lithuania’s legislation and European Union’s legal acts,” her spokesman Lynas Balsas told BNS on Wednesday.

Russian purchase would be allowed

Whether one believes the Russian president or the Polish investors could be moot. The point is that the Poles have decided to step up the pressure on the Lithuanians to make concessions on rail tariffs, the Klaipėda terminal and the products pipeline, and there can be no better way to get the Lithuanians to cooperate than by playing the so-called Russian card. If PKN Orlen does decide to sell to the Russians, there will be little Lithuania can do to stop the sale. Nationalist politicians in the ruling coalition could try to appeal to Brussels, but this will likely fall on deaf ears. Russia’s oil companies have acquired numerous refineries and assets in Europe, and no one in the European Commission is likely to care if they take over “one more refinery” in Eastern Europe.

Some analysts have said that the idea of Russian ownership of the refinery doesn’t have to be considered a threat to national security.

“I wouldn’t call it a danger,” said Rimantas Rudzkis, an economist at DnB Nord. “As long as Klaipėdos Nafta is under state control, the sale of the Mažeikiai refinery to any government does not threaten us. Our oil products and fuel won’t dry up since we have the potential to import,” he told the Delfi news portal.

By letting the Russian on board, it would renew the flow of crude via the pipeline and increase the refinery’s profitability. “This is cheaper and increases the plant’s competitiveness. I think that sooner or later it will happen. The question is whether part of the shares will be sold, or if the entire refinery will change hands,” Rudzkis said.

PKN Orlen bought 84 percent of Mažeikių Nafta in 2006 for $2.34 billion, and has since increased the stake to 100 percent. [/private_subscription 1 year]

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