05 July 2007

Refinery rift nears its end

By Eric Jansson
Published by Financial Times, 5 July 2007

The OKTA oil refinery has always stood a bit apart from the centre of power in the Republic of Macedonia. Though just 10km from downtown Skopje, the complex is situated in a desolate valley below barren slopes east of the city.

Yet the distance from the refinery's executive offices to the centre of government has sometimes seemed even greater during a long-running rift between the refinery's owner and the Macedonian state.

Later this month, that sense of estrangement is due to end. A Paris-based arbitration court is expected to settle, once and for all, the dispute between Skopje and Hellenic Petroleum, the Greek state-controlled energy group that purchased OKTA in 1999.

Both sides say they expect the court to settle all outstanding issues regarding the state's controversial sale of the refinery to Hellenic's subsidiary ELPET Balkaniki.

Relations between the state and the company, acrimonious for years after the sale, have "normalised" since 2004, Macedonian government ministers and Hellenic executives say. But both sides would also welcome a formal end to the dispute.

With Skopje striving to show a more welcoming face to incoming investors, Nikola Gruevski, the prime minister, already refers to Hellenic's problems as "a case from the past".

Michael L Myrianthis, OKTA's chairman and Hellenic's director-general for international activities, likewise says he believes Mr Gruevski's government is "making a genuine best effort" to improve relations with present and future investors.

Such comments are indicative of a gradual but dramatic reconciliation observed over the past three years.

On buying the refinery in May 1999, as the regionally destabilising Kosovo war raged next door, Hellenic had absorbed steep risks to secure a commanding position in the market. The company even moved ahead with large-scale refurbishment and infrastructure investments despite Macedonia's brief descent into inter-ethnic conflict in 2001.

Quick cash from the refinery sale had arguably helped to limit the post-Kosovo fallout for Skopje.

But as the dust settled after Macedonia's late-2001 Ohrid inter-ethnic peace agreement, opposition critics held the OKTA sale up to continued public scrutiny. They claimed the sale price of $32m had been too low and that Hellenic had gained monopolistic advantages in a non-transparent deal.

Added criticism from the World Bank and European Union, especially over the Greek company's extraordinary rights to import oil at a reduced tariff, ultimately yielded a turn in state policy.

By 2004, Hellenic officials complained of daily trouble from the state authorities, including blockages of OKTA's bank accounts in 2003 and claims by state officials that Hellenic had not acquired title to the land upon which the oil refinery stood. Repeated interventions slowed planned investments, Hellenic said.

The result, after eight years, is a complex dispute characterised by multiple grievances on both sides, with the state and Hellenic Petroleum each claiming to have suffered material losses through unfair treatment since the time of the sale.

In advance of this month's ruling, Mr Myrianthis plays down the refinery's importance to Hellenic Petroleum. "We can live without it. We can replace [its output] from Thessaloniki if needed, though that is not our intention."

A ruling in the state's favour could force payouts from the company although even then Hellenic would not withdraw from the country now, Mr Myrianthis says.

A ruling in Paris in Hellenic's favour would vindicate the company's strategy of "long-term thinking".

Instead, he says he hopes the court will chastise the state, but only mildly. A ruling that is "too one-sided" might serve to reignite political controversy over the refinery an outcome neither side wants.

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