Statoil has signed a letter of intent with SEB Venture Capital for the purchase of a 42.5% interest in UAB Mestilla. Mestilla is building the biggest biodiesel factory in the Baltic states.

Owners of Lithuanian agricultural company Linas Agro will be the other shareholder, with a 57.5% stake.

Construction of the factory began in the spring of 2006. It lies in the free economic zone near the coastal town of Klaipeda. Plans call for production to begin in the autumn of 2007.

The biodiesel factory will have a capacity of just over 100,000 tonnes per year. (Photo: Mestilla).

"The plant is close to the port, and the good export possibilities make it an efficient supplier to the European market," says Sjur Haugen, Statoil's sector manager in the Manufacturing & Marketing business area.

Statoil is also working to develop market opportunities both in the Baltic states and Poland with road and rail delivery.

"Moreover, the plant is located in an area of Europe where raw materials are readily available at competitive prices," says Mr Hagen.

The raw material is vegetable oil. But since the new factory has its own crusher, it can also make vegetable oil directly from oil seed rape supplied by farmers. The crushing capacity makes it more robust with a view to raw materials supply, which come from the Baltic states, Ukraine, Belarus and Russia.

"While Linas Agro possesses expertise on sourcing raw materials, Statoil has broad experience with sales, distribution and marketing of automotive fuels," he says.

Linas Agro will be responsible for the raw material supply and Statoil will be the sole marketer of the biodiesel product.

"It is unusual that an agricultural and oil company are collaborating this way in the biodiesel industry," says Mr Hagen.

"Our aim is to create a strong supply value chain meeting common sustainability criteria to the benefits of our customers. By being close to the market and being involved in the whole production process we have improved our ability to deliver the right quality biodiesel at the right time to them."

Final closing of the transaction will be dependent on Lithuanian competition authority approval.