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Lithuania's finance and economics ministers resigned yesterday in protest against a privatisation deal that would see a 33 per cent stake in the country's oil refinery sold to Williams International, the US oil company.
Deep divisions over the deal, under which Williams would pay $150m for the stake and Lithuania would provide $400m to finance Mazheikiu Nafta's debts and working capital, are threatening to bring down the government of Rolandas Paksas, Lithuania's prime minister.
The proposed deal has also put the small Baltic country under pressure from Russia. The oil giant Lukoil has cut off supplies of crude to the refinery in protest. Lukoil had hoped to buy a controlling share in Mazheikiu Nafta.
Jonas Lionginas, the finance minister, and Eugenijus Maldeikis, the economy minister had headed the government's negotiations with Williams. They tendered their resignations on Monday, after the cabinet voted to continue the talks.
The two ministers were supported in their opposition by Mr Paksas, who has also refused to sign the deal, claiming the terms are too harsh. But on Tuesday, Valdas Adamkas, Lithuania's American-born president who has been an avid supporter of the sale to Williams, accepted the resignations.
"I am not against Williams, I am not against privatisation, I am for beneficial terms," Mr Paksas said late on Monday night, after the 15-member cabinet voted to sign the agreement.
The Tulsa-based Williams has alienated members of the government with its demand that the state spend $400m to finance the ailing refinery's debts and supplement its working capital at a time when Lithuania is just recovering from the effects of the Russian crisis.
"I don't know how we arrived at this completely foolish agreement," said Eduardas Vilkas, economic adviser to the prime minister. "We must finance the $400m immediately, while the Americans stagger their payments. It isn't right."
While the Lithuanians argue over the terms of the sale to the US multinational, Lukoil has shut the taps on its crude oil supplies to Lithuania to put pressure on the government. Angered over the government's refusal to sell it a controlling stake in the refinery, Lukoil, Lithuania's sole crude supplier, now wants to raise its rates as a precondition to resuming supplies.
"This privatisation deal smells fishy," said Lukoil's Lithuania spokesman, Ivan Poleichick. "If they are so keen to deal with the Americans, let them go and buy oil from America."
Russian intransigence over the sale is responsible for the refinery's Litas 47.2m ($11.8m) loss in the first half of this year. Constant crude disruptions now threaten the viability of the refinery, which accounts for 10 per cent of Lithuania's GDP and contributes a quarter of the nation's taxes.
Although Lithuania can import oil through its newly built Butinge Terminal on the Baltic Sea, it is not a simple affair. A proposal to import crude from Iran, for example, met with harsh criticism from the US State Department.
Under pressure from two sides, some Lithuanians now think a new and open tender should be announced.