LyNOS deal has strings attached


May. 06, 2000 10:00
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The government announced on April 26 that it would hold a tender to sell a majority stake in the Lysychansk oil refinery (LyNOS), Ukraine’s second-largest. There’s a catch, however. The buyer will not only have to inject life in the idling refinery but also fulfil a long and expensive list of investment conditions following the purchase. The State Property Fund is offering a 67.41 percent stake in LyNOS at, on the face of it, a giveaway price of Hr 48.5 million. However, under the terms of the deal, the successful buyer is obliged to supply at least 4 million tons of crude to the refinery every year. Shortage of crude to process has been LyNOS’ major problem recently. Last year, the refinery stood idle for a staggering 326 days of the year, and output only 528,000 tons of petroleum, a 70 percent decrease over output in 1998. LyNOS has the capacity to process 16 million tons of crude every year. The low, low starting price for the stake is deceptive too. On acquiring the stake in the refinery, the buyer will also take on a hefty package of its debts - LyNOS owes 70 million euros to German bank to Westdeutsche Landesbank On top of that, the new management at LyNOS will have to pump Hr 13 million into the refinery’s working capital and carry out modernization work to the tune of Hr 60 million. And that’s not all. The buyer will also have to pay Hr 13 million in overdue wages to the employees, channel Hr 10.7 million to the budget in overdue contributions and, just for good measure, transfer Hr 400,000 to the Pension Fund. Altogether, the buyer of the stake must agree to invest almost Hr 490 million in the refinery. Despite that, Russia’s Tyumen Oil company has already said it will bid in the tender and it is regarded as a likely winner of the contest. The competition is supposed to take place within 60 days of being announced by the SPF. Meanwhile, the SPF is pushing to lift the ban on sales of Ukraine’s distilleries and railway companies, the fund’s senior official said. Earlier this month, parliament rejected a draft law asking the legislature to reduce a list of state-owned companies barred from privatization. The lawmakers, however, said they would reconsider the draft law in May.

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