The Orlen oil refinery, located in Mažeikiai in the northwestern corner of Lithuania, is the company's largest corporation. Photo by Orlen.

VILNIUS — After denying for months, Polish oil company PKN Orlen announced Monday that it is officially putting Lithuania’s largest corporation, the Orlen (formerly Mažeikių Nafta) refinery on sale.

The Lithuanian government sold Mažeikių Nafta in 2006 with a record Polish investment abroad of €1.7 billion. However since then the purchase had not been profitable for the Poles. 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.

PKN Orlen said that it had hired Japanese investment bank Nomura to assist with the sale of the refinery.

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 pipeline accident in Belarus and thereby cut off supplies of crude to Mažeikiai, the small city adjacent to the refinery in northwest Lithuania. Four 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.

“One scenario sees a total or partial sale of the refinery,” Sławomir Jędrzejczyk, Orlen’s deputy president, told the business newspaper Puls Biznesu. “The decision will be made in the fourth quarter.”

If PKN Orlen does decide to sell to the Russians, Lithuania could hold a National Security Council meeting and rule that Russian ownership of the refinery would harm national interests.

Also nationalist politicians in Lithuania’s 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.

Even if Lithuania succeeded in blocking a sale to the Russians, it would only leave the PKN Orlen with an unprofitable refinery that they could simply shut down, which would have a large impact on jobs and national tax revenue.

Meanwhile 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.

— Baltic Reports reporters James Dahl and Adam Mullett contributed to this article.

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