This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 000101 
 
SIPDIS 
 
STATE FOR EUR/NB, EUR/ERA, EB/ENG 
 
E.O. 12958: DECL: 01/27/2015 
TAGS: ECON ENRG OVIP ELAB PGOV LH
SUBJECT: AMBASSADOR PROMOTES U.S.-LITHUANIA RELATIONS, 
DISCUSSES OIL REFINERY IN MAZEIKIAI 
 
REF: A. 2004 VILNIUS 1522 
 
     ¶B. 2004 VILNIUS 1521 
 
Classified By: Pol/Econ Officer Christian Yarnell 
for Reasons 1.4 (b) and (d) 
 
 ¶1. (C) SUMMARY: Ambassador Mull traveled to the provincial 
city of Mazeikiai, home to the Mazeikiu Nafta oil refinery, 
January 19-20 to convey a message of close U.S.-Lithuanian 
ties.  He also focused on efforts to combat corruption, 
intolerance, HIV/AIDS, and trafficking-in-persons.  Mazeikiu 
Nafta officials briefed on the refinery's recent operating 
successes and discussed some serious challenges for the 
future.  The dismantling of Russian oil giant Yukos will 
especially threaten Mazeikiu Nafta operations and, therefore, 
the economy of Mazeikiai.  END SUMMARY. 
 
---------- 
Background 
---------- 
 
¶2. (U) A January 19-20 visit to Mazeikiai was the most recent 
stop in our ongoing Ambassadorial travel program to 
Lithuanian regional towns.  Mazeikiai is a medium-sized 
(population 46,000), industrial town located in northwest 
Lithuania near the border with Latvia.  It is best known for 
the Mazeikiu Nafta (MN) (translation: "Mazeikiai's oil") oil 
refinery, by far the town's largest employer and one of 
Lithuania's largest companies.  Although MN has performed 
extremely well since Russian oil giant Yukos took over 
control of the refinery in 2002, the unemployment rate in 
Mazeikiai remains one of the highest in the country at 14.4%. 
 European Union membership has led to increased emigration 
(ref A) and has energized some local businessmen, however, 
leading to a gradual decrease in unemployment. 
 
------------------------ 
The Ambassador's Message 
------------------------ 
 
¶3. (U) Ambassador Mull stressed the following themes with 
local government, NGO, business, and media leaders: 
 
-- CLOSE BILATERAL TIES: Ambassador Mull throughout his trip 
emphasized the close relationship between the United States 
and Lithuania.  (Note: Some local citizens continue to harbor 
ill feelings regarding the operation of the Mazeikiu Nafta 
refinery under American firm Williams Intl). 
 
-- FIGHT AGAINST CORRUPTION: The Ambassador stressed the 
importance of transparency and ethics for Lithuania's 
democracy, noting that anti-corruption activities would be a 
priority for the Embassy during the year. 
 
-- TOLERANCE AND MINORITY RIGHTS: The Ambassador praised 
those who stand up against ethnic hatred and intolerance, and 
encouraged greater legal protections for vulnerable groups 
such as the physically impaired. 
 
-- HEALTH CONCERNS AND COMBATING TIP: Ambassador Mull 
encouraged greater dialogue of health concerns, such as 
HIV/AIDS, and stressed the importance of combating 
trafficking-in-persons. 
 
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It's All About Oil 
------------------ 
 
Securing Profitability 
---------------------- 
 
¶4. (SBU) Mazeikiai Mayor Vilhelmas Dziugelis described how 
the lifeblood of his town remains dependent on the 
performance of the MN oil refinery, whose future the Yukos 
affair now clouds.  MN General Director Nelson English, whom 
the Ambassador has met previously (ref B), introduced the 
company's management team and gave a detailed run-down of its 
operations.  He noted that 2004 was an unparalleled year for 
the refinery, with profits over $200 million, up three-fold 
from the previous year.  He credited the refinery's dramatic 
turnaround to the modernization program that previous 
managers Williams Intl began.  English and his team also 
attributed MN's success to Yukos's western management 
practices and access to Russian oil supplies.  The continued 
profitability of the refinery, he said, depended on similar 
access and business management acumen of whomever controls 
the plant in the future. 
 
¶5. (C) Topping the list of potential threats to MN's 
profitability, English noted, are securing oil supplies, the 
cost of doing business under EU rules, and corruption. 
Regarding supplies, English said that the refinery could deal 
with any short-term supply problems by importing crude oil 
through the Butinge sea terminal, albeit at much lower profit 
margins.  Long-term supply could be a more critical issue, 
with Russia apparently intent on pumping more crude to its 
own refinery in Primorsk.  The company leadership complained 
that stringent EU environmental regulations, combined with 
over zealousness on the part of Lithuanian authorities to 
enforce even optional EU guidelines, will cost the company 
millions in the coming years and hurt profits. 
 
Combatting Corruption 
--------------------- 
¶6. (U) English emphasized his personal commitment to fighting 
corruption in Lithuania.  He said that corruption and theft 
caused the company significant losses and described his 
company's "zero tolerance" for such behavior by employees. 
He praised Ambassador Mull's activity on the anti-corruption 
front, and the Ambassador pledged to support English's 
intention to host a conference on business ethics in the 
coming months. 
 
--------------- 
Societal Health 
--------------- 
 
¶7. (U) Ambassador Mull met with representatives from the 
Mazeikiai Health Coalition, an umbrella organization dealing 
with a variety of local health concerns.  The Coalition 
described their efforts to foster a greater sense of 
community health and activism on these issues.  Youth and NGO 
leaders noted a continued reluctance within Mazeikiai society 
to discuss the problems of HIV/AIDS and 
trafficking-in-persons.  The Ambassador stressed the 
importance of open dialogue in combating these threats. 
 
------------ 
Youth Flight 
------------ 
 
¶8. (U) The Mayor and some business leaders identified as an 
area of concern the markedly increased emigration resulting 
from Lithuania's 2004 accession to the EU.  The head of the 
Mazeikiai Entrepreneurs Association noted that young people, 
forced to leave the city for higher education, do not find 
economic motivations to return.  The head of the local 
unemployment office described a lack of qualified labor as 
the biggest threat to Mazeikiai's economy, noting especially 
the need to develop more small and medium-sized enterprises. 
Youth leaders described a growing "age gap" in Mazeikiai, as 
most residents are now either middle-aged or adolescent, with 
few in between. 
 
-------------- 
Media Coverage 
-------------- 
 
¶9. (U) There was extensive media coverage throughout the 
visit, including an exclusive interview to the region's 
largest daily newspaper.  Media reaction to the visit was 
overwhelming positive, with only a few negative comments 
surrounding past American involvement at Mazeikiu Nafta. 
 
----------------------------------- 
Comment: The Lifeblood of Mazeikiai 
----------------------------------- 
 
¶10. (C) While Ambassador Mull was able to address a variety 
of issues of importance to our Mission, conversation in 
Mazeikiai often seemed to turn to the city's prize 
possession, Mazeikiu Nafta.  Although the company is coming 
off a banner year, the future for the oil refinery and 
therefore this town is more uncertain.  Yukos, the magical 
combination of a Russian company with western management 
practices, was indeed a perfect match for Mazeikiu Nafta. 
The Kremlin's war on Yukos will likely have negative 
consequences for operations at Lithuania's oil refinery.  And 
as goes Mazeikiu Nafta, so goes the town of Mazeikiai. 
MULL