RIGA - Executives of Vitol, a major international oil and gas trader, met with Prime Minister Aigars Kalvitis on April 12 to express worries over the investment climate in Latvia after the recent string of detainments and arrests of Ventspils-based businessmen and the town's mayor.
Kalvitis told journalists after the meeting that Vitol managers had pointed out investment dangers in Latvia's transit business, but that he had assured them that the Baltic state was safe for investors.
In October Vitol bought a 34.5 percent stake in Ventspils Nafta, a multi-business conglomerate, for 66 million lats (95 million euros), in an open auction.
Last month Vitol announced that it had agreed to purchase 49 percent of Ventspils Naftas Tranzits, a Ventspils Nafta subsidiary that specializes in oil handling, thereby consolidating its position in the Baltic state's lucrative oil transit market. Ventspils Nafta will retain a 51 percent stake.
The deals have taken place on the backdrop of a crackdown on graft and bribery, with several high-profile Latvian businessmen being detained for questioning. Offices and homes were raided and evidence confiscated.
The culmination came last month when Ventspils Mayor Aivars Lembergs, whose influence on oil transit in the city is significant, was arrested on charges of bribery, money laundering and tax evasion. He is still in jail as he awaits trial.
The arrest and raids have thrown Vitol into confusion given the company's ambitious plans to transform Ventspils into a premier oil transit hub in Eastern Europe. Kalvitis admitted that the Rotterdam-based company has planned large outlays in the transit business and that Latvia needed such a serious, long-term investor.
Indeed, Vitol has already managed to turn things around for Ventspils.
Ventspils Naftas Tranzits handled 3.3 million tons of oil and oil products in the first quarter, twice more than in the first quarter last year, according to a statement filed with the Riga Stock Exchange.
The rise in cargo handling was largely due to diesel fuel after a new product pipeline was launched, the statement said.
In the January-March period VNT handled 2.3 million tons of diesel fuel, 500,000 tons of automobile gasoline and 400,000 tons of oil and oil products delivered by sea.
For the full year 2006 VNT reloaded 5.7 million tons of oil, down 29.6 percent from 2005.
Russia ceased supplying crude oil via pipeline in 2003, citing a need to supply its own terminals first. However, with Russian oil output continuing to climb, there have been bottlenecks in the country's pipeline system, leaving a window of opportunity for oil companies to export via Ventspils. The Kremlin, however, has been unwilling to do that.
While in Moscow for the signing of the historic border agreement at the end of March, Kalvitis said he asked President Vladimir Putin about the oil transit matter.
"This issue was discussed, and Russia's oil exports are growing every year, and they would be interested in additional demands, but the road to that is still far and complicated," Kalvitis told reporters in Moscow.
"I had an impression that the Russian president implied that oil might return to Ventspils, but of course there are still many questions remaining," he added.
Asked if Russian exports of crude would return to Latvia again were Ventspils Naftas Transits to be taken over by a Russian company, the prime minister said, "I informed the Russian president that the state sold its shares to the Dutch Vitol Group, which is a good partner, and he saw no problems to cooperate."
Ventspils Nafta announced April 14 that it had posted earnings of 6.85 million lats for 2006 on total sales of 69.3 million lats. Although sales declined 20.6 percent from 2005, the concern still finished in the black after having losses in 2005.
"VN 2006 turnover, which was lower than planned, was affected by the volatile and virtually unpredictable situation with cargo shipments by rail," the company said in a statement.
"In this respect, VN subsidiary, oil and oil product terminal Ventspils Naftas Terminals is dependent both on Russia's politically defined high railway tariffs on cargo shipments outside the country's ports and the high customs duties on oil exports, as well as the overall market situation," the company said.
In addition to VNT, Ventspils Nafta has stakes in LatRosTrans, an oil pipeline, the Lasco shipping company and Preses Nams publishers.
