RIGA - After more than two years of collecting rust, the oil pipeline that crosses Latvian territory to the port of Ventspils may finally see some hydrocarbons as early as the end of this year. A recent wave of determination on the part of both Latvia's new government and managers of Ventspils Nafta, operator of the oil terminal, could attract a strategic investor to the struggling oil-transit enterprise.
Mamerts Vaivads, council chairman of Ventspils Nafta and board chairman of Latvijas Nafta Tranzits, told the Bizness & Baltija daily last week that he expected oil to begin flowing at the end of 2005 or the beginning of 2006. What's more, he stressed that oil transit had become a simple matter of life or death for Latvia.
"The Russian ambassador made it clear to us: Either we define a position, or time will slip away forever," he said.
The government, meanwhile, is also itching to resolve the two-year-old impasse and get oil back into the Polotsk-Ventspils pipeline. Krisjanis Karins, economy minister, has repeatedly said that the government, which owns a 38.6 percent stake in Ventspils Nafta, has no business in oil transit and that the asset itself is nonperforming. In an interview with Latvian Radio, he said the government was incapable of influencing decisions at the company despite having four members on the 11-member board.
What's more, state involvement in the enterprise is all but prohibited by the 1997 privatization agreement between the government and private investors, Karins added.
"In my opinion, the time has come to get involved in order to resolve the situation for the benefit of the state 's to defend its interest and the interests of taxpayers," Karins, who is from the right-wing New Era Party, told Bizness & Baltija last week. Though he declined to name specific timeframes or method of sale, the minister stressed that, for the sake of maximum income, the state would sell its entire stake for cash.
Curiously, despite similarities in tone, the two men's interviews 's given to the same paper during the same week 's highlight differing interpretations of possible causes behind the current drought in the Ventspils pipeline, which is capable of handling some 18 million tons of crude per year.
In Vaivads' opinion, the problem is mainly political and needs resolve on the part of Russia to change. Karins, however, stressed that infighting among LNT shareholders was causing much of the gridlock and was preventing them from finding a strategic investor. "It appears that some think they should go to the left, and other to the right. And so they argue," he said. (See chronology on this page.)
The minister also pointed out the nontransparent shareholder structure at LNT. "Having analyzed data on Lursoft, in the media and what the businessmen say, we get three various versions of who owns what. The information varies, and it changes constantly," he said.
Vaivads downplayed this aspect. "From our end everything is clear 's in spite of some differences between shareholders' representatives, there is Latvijas Naftas Transits, the largest shareholder of Ventspils Nafta," he said.
The question of who might become the strategic investor is also unclear judging by the two men's statements. Vaivads seems to think that the investor will be Russian, while Karins is confident that European and U.S. investors would be more than prepared to invest in the Ventspils oil business.
Regardless, the oil will remain in Russia where pipeline operator Transneft continues to boost capacity at the Baltic Pipeline System, exporting through the Gulf of Finland. Though the terminal at Primorsk freezes over 's unlike the one in Ventspils 's Transneft is set to increase handling capacity to 62 million tons, thereby putting even greater pressure on Latvia to act now.
The Russians "will start building one more route to Primorsk if we fail to reach an agreement, and then no one will take Ventspils into account even despite great interest in it," said Vaivads.
While admitting that talks with potential investors are currently nonexistent, Vaivads suggested he was placing hope on Russia's new ambassador to Latvia, Viktor Kalyuzhny, to help get the process started. He had already met with the ambassador and quoted the latter as saying that no investor would materialize from Russia unless a controlling stake in Ventspils Nafta was placed on the table.
LNT currently owns 42.3 percent but has an option to buy another 9 percent through a repo deal put together two years ago (ostensibly to avoid the buy-out obligation of a minority shareholder, as required by Latvian law).
Karins, who said he hadn't met with Kalyuzhny, seemed determined to see a through deal. The first step would be to procure Cabinet approval, which should occur in mid-February. "I think there will be a positive 'yes' from the government," he told Reuters last week. "What is unclear is what the guidelines [for the sale] will be. But there is a general willingness in the coalition to sell the government stake."
