Latvia appeals to EU to help with oil crisis

Latvia has asked the European Union to intervene in a growing dispute with Russia over oil deliveries to the port of Ventspils - a linchpin in Latvia's economy.

Ventspils' sole supplier - Russia's state-owned pipeline monopoly Transneft - halted supplies in December, saying Latvian transit taxes on its shipments had become too high. Crude oil deliveries as a result have tapered off to nil, and Russian ministers said the new policy would not be subject to review during the first quarter.

The Latvian government has responded with a complaint to the European Union, a Foreign Ministry spokesman said this week.

Foreign Minister Sandra Kalniete sent a letter to EU External Relations Commissioner Chris Patten accusing Russia of unfair trade practices and asking Brussels to discuss the matter with Moscow. "We are concerned that decisions related to oil transportation via Latvia are politically colored," Kalniete wrote in the letter dated Jan. 17.

Latvia is slated to join the EU next year.

Officials here say Russia is pressuring Latvia into selling its stake in Ventspils Nafta, the lucrative Soviet-era company that loads the oil onto tankers, so it can control the oil flow from well to ship.

"There is no economic argument Russia can make in doing this," said Latvia's Transport-ation Minister Roberts Zile. "Russia just wants to keep the infrastructure in its hands."

The EU has not yet formally responded to the letter, according to Foreign Ministry spokesman Rets Plesums.

Shipments to Ventspils have slowed down since Russia opened an oil terminal at Primorsk on the Gulf of Finland in December 2001. The Russian government estimates the Primorsk terminal will save $1.5 billion per year in transit tariffs - mainly those it pays to Latvia.

Russia built Primorsk to supplant dependence on Ventspils Nafta, a company the Soviets set up in 1955 to ship Russian oil to Western markets, but Moscow lost control of the company when the Soviet Union collapsed in 1991.

Until Primorsk opened, Russia was shipping 300,000 barrels per day to Ventspils through a 550-kilometer pipeline from the city of Polotsk in western Russia.

Shipments slowed down throughout last year and stopped completely last month, six months before Latvia hopes to sell a 38 percent share in Ventspils Nafta.

Though no concrete plan to sell the state share in Ventspils Nafta has been offered, Economy Ministry spokesman Guntars Gute said the ministry hoped to arrange a sale by mid summer.

Any sale would first have to go through Latviajas Nafta Tranzits, a leading shareholder in Ventspils Nafta, which has a right of first refusal to buy the state share, Zile said.

The Latvian government owns 43 percent of Ventspils Nafta and a consortium of shareholders owns the rest.

Latvia has been reluctant to sell its share in the company, which some analysts estimate accounts for as much as 7 percent of Latvia's annual GDP, to a Russian firm, though several have expressed interest in buying it.

A Transneft spokesman said earlier this month that his company was among those interested.

Russian officials deny that it is starving Ventspils Nafta to wear down resistance to Russian ownership. "Transneft's decision to pump the main crude flow to Russian terminals is a matter of business not politics," said Igor Studenikov, Russia's ambassador to Latvia.

But with inflated oil prices and Russian oil exports at a 10-year high, oil company executives in Russia wrote a letter to Prime Minister Mikhail Kasyanov on Jan. 9 asking that the Ventspils route be reopened.

"(The move robs us) of additional ways of exporting oil, which is having a negative impact on plans to increase output and is leading to significant losses for the federal budget," the letter was quoted as saying.

Analysts have speculated that Russia is trying to reassemble its Soviet-era oil supply chain.

Last year Yukos, Russia's second largest producer of crude, bought Mazeikiu Nafta in Lithuania, which operates the Baltic states' only oil refinery. Russian companies have also started buying up natural gas storage facilities in the Baltic states.

"This network was planned by the Soviets in such a way that it works together," said Riga-based oil industry consultant Uldis Osis. Ventspils Nafta, he added, was a key piece of the network.

"Russia is still working under this old Soviet attitude where it feels it can take what it wants," he said.