Viewing cable 06VILNIUS459
Title: POLISH COMPANY SURGING IN BID TO BUY LITHUANIAN

IdentifierCreatedReleasedClassificationOrigin
06VILNIUS4592006-05-18 14:09:00 2011-08-30 01:44:00 CONFIDENTIAL Embassy Vilnius
VZCZCXRO9828
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVL #0459/01 1381409
ZNY CCCCC ZZH
P 181409Z MAY 06
FM AMEMBASSY VILNIUS
TO RUEHC/SECSTATE WASHDC PRIORITY 0165
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000459 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/NB AND EB/ESC 
 
E.O. 12958: DECL: 05/17/2016 
TAGS: ENRG ECON EPET PREL PGOV ETRD NL RS LH
HT12, HT9 
SUBJECT: POLISH COMPANY SURGING IN BID TO BUY LITHUANIAN 
REFINERY 
 
REF: A. VILNIUS 349 AND PREVIOUS 
     ¶B. 05 THE HAGUE 3119 
     ¶C. JOHNSON/JONES E-MAILS 05/04/2006 
 
Classified By: Economic Officer Scott Woodard for reason 1.4 b and d 
 
¶1. (C) SUMMARY:  The Polish energy company PKN Orlen has 
emerged as the frontrunner to secure a controlling interest 
in Lithuania's oil refinery, according to a reliable 
government source.  Court challenges in the United States and 
Netherlands continue and may yet derail the sale of the 
refinery.  END SUMMARY. 
 
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YUKOS REACHES AGREEMENT WITH PKN ORLEN 
-------------------------------------- 
 
¶2. (C) Saulius Specius, an adviser to the Prime Minister and 
one of the GOL's lead negotiators on the sale of the Mazeikiu 
Nafta (MN) refinery, told us on May 17 that the sale of MN 
had taken a new twist in favor of the Polish energy company 
PKN Orlen (PKN).  He said that Yukos had reached an agreement 
to sell its 53.7 percent of MN shares directly to PKN.  The 
GOL, he said, had reached an agreement in principle to sell 
all (or almost all) of its 40.6 percent ownership of MN to 
PKN as well.  PKN would buy a 30 percent stake in MN from the 
GOL, with an option to purchase the rest of the GOL's shares 
within five years.  Specius added that Lithuanian law 
currently requires the GOL to own at least 10 percent of MN's 
shares, a requirement that parliament will need to amend to 
allow PKN to exercise this option. 
 
¶3. (U) Press reports from mid-April, citing unofficial PKN 
sources, suggested that PKN was prepared to pay approximately 
USD 2.5 billion for the shares held by Yukos and the GOL: 
USD 1.5 billion for Yukos's entire stake and USD 1 billion 
for all of the GOL's shares.  Specius noted that this deal 
would turn the GOL shares to cash and eliminate the 
government's risk of getting stuck with a frozen asset or a 
minority share of limited interest to other buyers. 
 
--------------------------- 
SITTING HERE IN LEGAL LIMBO 
--------------------------- 
 
¶4. (C) Meanwhile, the GOL awaits the outcome of the May 19 
New York Bankruptcy Court hearing of the case that Yukos 
receiver Eduard Rebgun filed on behalf of Yukos creditors 
(ref C).  Specius said that Yukos's executives hope to use 
PKN's signature on the purchase agreement as evidence that 
the MN sale will benefit Yukos's creditors -- evidence that 
might persuade the judge to lift the temporary restraining 
order that bars Yukos from executing the MN sale. 
 
¶5. (C) Specius expects there will also be a hearing in the 
Dutch courts May 18 on the bankruptcy case involving Yukos 
International UK BV, the Dutch legal entity that owns the 
majority stake in MN.  He said it is unclear, however, 
whether the May 18 hearing involves the case Rebgun filed in 
the Netherlands in April or a case Yukansneftegaz filed 
earlier (ref B).  He also said that it was not yet clear how 
this case (or these cases) might affect MN's sale. 
 
------------------------------------ 
EXPENSIVE OIL INCREASES MN'S OPTIONS 
------------------------------------ 
 
¶6. (C) Specius told us that the current high price of crude 
and refined petroleum products means that MN's profitability 
no longer depends solely on Russian supply or transport of 
crude.  He acknowledged that MN will be most profitable if it 
receives Ural crude via pipeline, but will turn a profit even 
if Russia turns off the spigot and MN has to bring crude in 
through its Baltic Sea terminal at Butinge.  This profit 
point, Specius said, allowed the GOL to consider companies 
like PKN-Orlen and Kazmunaygaz as competitors to their 
Russian rivals like TNK-BP and Lukoil. 
 
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COMMENT 
------- 
 
¶7. (C) Specius is a well-placed source, but we suspect that 
 
VILNIUS 00000459  002 OF 002 
 
 
this is not the final chapter in the struggle for control 
over the refinery.  Litigation relevant to the sale continues 
in several foreign jurisdictions.  In Lithuania, the intrigue 
and infighting between many interests over the company's 
largest private enterprise persist. 
 
¶8. (C) PKN's apparent emergence as the frontrunner is 
certainly newsworthy, however.  It has been in the running as 
a potential buyer for the past several months, but few people 
gave it a chance, noting that it seemed less capable of 
providing a guaranteed supply of crude than other bidders 
(KazMunayGaz, TKN-BP, and Lukoil).  The high price of both 
crude and refined products, however, may have changed the 
calculations.  The big surprise here is the GOL's apparent 
interest in getting out of the oil business, which it has 
regarded since independence as strategic.  One possible 
explanation is that, as soon as the plant is operating, the 
government will reap its tax revenues, without the risk of 
holding onto a minority interest of no cash value. 
KELLY