US embassy cable - 05VILNIUS1190

C O N F I D E N T I A L SECTION 01 OF 02 VILNIUS 001190 
 
SIPDIS 
 
STATE FOR EUR/NB 
 
E.O. 12958: DECL: 11/03/2015 
TAGS: PGOV, PREL, LH, HT25, HT8 
SUBJECT: LITHUANIA'S PM FACES CHALLENGE TO HIS INTEGRITY 
AND TO HIS CONTROL 
 
 
Classified By: Pol/Econ Officer Gregory L. Bernsteen for reasons 1.4(b) 
 and (d) 
 
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SUMMARY 
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1.  (C) Allegations that Prime Minister Brazauskas's wife 
benefited from a sweetheart deal with Russian oil giant 
Lukoil are prompting new strains in Lithuania's ruling 
coalition.  Coalition leaders reined in an anti-Brazauskas 
movement November 2, but confrontation is brewing with the 
opposition over whether to investigate the charges. 
Brazauskas threatens to resign if such an investigation goes 
forward.  The controversy takes place on the eve of 
politically charged negotiations to transfer the Mazeikiu 
Nafta oil refinery -- Lithuania's largest industrial 
enterprise -- from Yukos to a new investor.  Brazauskas has 
significantly distanced himself from Lukoil in the 
pre-negotiation jockeying, but widespread suspicion that he 
secretly supports its interests remains.  The coalition will 
 
SIPDIS 
survive for at least the short term.  But Brazauskas's 
curious volatility on the scandal -- he unsuccessfully 
threatened the leader of the opposition with criminal charges 
for raising it -- has aroused a sense of vulnerability that 
will likely provoke continuing assaults on the coalition from 
without and within.  END SUMMARY. 
 
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The "old man" of Lithuanian politics under fire 
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2.  (U) Charges emerged in late September that Brazauskas's 
wife in 2004 had purchased a 38 percent share in Vilnius's 
Crown Plaza Hotel, in which she already had a controlling 
interest, on ridiculously favorable terms from an investor 
linked to Lukoil.  Mrs. Brazauskas's growing ownership of the 
hotel since its privatization early in the decade and her 
marriage to the Prime Minister in 2002 had long been the 
subject of jokes and intrigue on the Vilnius political scene. 
 Opposition Conservative Party leaders cited the latest 
charges as evidence that the Brazauskas family is secretly 
tied to Lukoil's interests, even as the firm jockeys to 
acquire the Mazeikiu Nafta refinery.  The Conservatives 
demanded a parliamentary ethics investigation and quickly won 
the 36 necessary signatures that the rules of parliamentary 
procedure required to launch such an investigation. 
 
3.  (U) Brazauskas responded defiantly on October 19 that he 
would refuse to cooperate with such a commission, and later 
went on to say that he would resign if the Parliament 
launched the investigation.  Upping the ante even further, he 
called on Lithuania's Prosecutor General to charge the three 
Conservative members of Parliament who launched the drive for 
an investigation with criminal slander.  When the Prosecutor 
General refused, Brazauskas then initiated civil suits 
against his opponents. 
 
4.  (U) Smelling blood, other members of the coalition began 
to pile on.  Labor Party leader Viktor Uspaskich, who rarely 
criticizes his coalition partners, even after a parliamentary 
commission forced him to resign from Government and the 
parliament, suggested on October 28 the PM follow through 
with his threat to step down.  He said such a step would 
dissolve the coalition agreement and open up the premiership 
to others.  Members of other coalition parties also began 
questioning the PM family's business dealings and signaled 
they would support an investigation. 
 
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Mending fences and shoring up fortresses 
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5. (U) Brazauskas convened a special meeting of the 
four-party coalition council November 2 to restore 
discipline.  Brazauskas's supporters argued that the goals of 
the proposed commission are political and have nothing to do 
with government work; that the business affairs of his wife 
of only three years have nothing to do with the PM; and that 
establishing a commission was a vote of no-confidence and 
will obstruct the business of Government.  Coalition leaders, 
including Uspaskich, renewed their support for the 
coalition's continuation with Brazauskas as Prime Minister 
and vowed to defeat a motion to form the commission when it 
comes to a vote November 8. 
 
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Confrontation Brewing 
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6.  (U)  Opposition leaders and Parliamentary Ethics 
Commission Chairman Algirdas Monkevicius, however, insist 
that parliamentary rules of procedure require the 
establishment of a commission whenever 36 members of 
Parliament request it.  As more than 40 have requested the 
commission, they argue that an investigation must go forward 
regardless of any parliamentary vote.  Speaker of the 
Parliament Arturas Paulauskas stuck to the coalition line in 
insisting November 3 that a majority vote in the Parliament 
can block the investigation.  Thus the stage is set for a 
major confrontation that could end up in the courts for 
resolution. 
 
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Oil Politics Looming 
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7.  (U) The political conflict is playing out in the broader 
context of the negotiations that will shortly begin over 
control of Lithuania's largest industrial asset, the Mazeikiu 
Nafta oil refinery.  Yukos, the refinery's current majority 
owner, is seeking to sell its control of the refinery back to 
the government, which in turn will sell it to a new investor. 
 Lukoil is seeking to purchase the controlling shares in the 
refinery in partnership with ConocoPhillips.  In an obvious 
move to deflect charges that he is secretly promoting the 
interests of Lukoil, Brazauskas recently declared that the 
government favors the joint bid of British Petroleum and 
another Russian oil company TNK and would begin negotiations 
with the two companies during the week of November 7. 
Further, he said he would not pursue any deal with Lukoil 
without the Parliament's explicit approval. 
 
8.  (C) Opposition leader Andrius Kubilius told the 
Ambassador November 2 that the Conservative Party had raised 
the concerns about Brazauskas family business dealings in 
order to derail a Lukoil bid to acquire Mazeikiu Nafta.  He 
noted that Lukoil's close ties to the Kremlin, and its 
history of political meddling in Lithuanian politics, raised 
concerns that a successful Lukoil bid would threaten 
Lithuania's national security.  "If our efforts bring about 
the collapse of the governing coalition, so much the better," 
he said. 
 
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COMMENT 
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9. (C) The Prime Minister's vitriolic response to what at 
least superficially seems fair game for an ethics 
investigation has raised widespread suspicion that Brazauskas 
has something to hide.  Though he has succeeded in reining in 
his coalition behind him, the ugly confrontation that is 
looming over the parliamentary rules governing ethics 
investigation will guarantee this issue remains on the front 
pages for at least the next week.  That in turn will prompt 
continuing efforts to seize advantage, both within and 
without the coalition.  Regardless of the outcome of the 
issue, it will be much harder now for Brazauskas to sign 
Maziekiu Nafta over to Lukoil -- a significant achievement 
for the opposition's efforts to keep Lukoil out of Lithuania. 
MULL