Ventspils sell-off pushed to fall

  • 2002-07-25
  • Steven C. Johnson

The government confirmed recently it had delayed indefinitely the privatization of oil terminal Ventspils Nafta and said the issue would not be addressed until well after this fall's general election.

Economy Minister Aigars Kalvitis said last week that the oil terminal had become more valuable since it acquired a 49.94 percent stake in the Latvian Shipping Company at an equity auction last month, and should be sold for cash, not privatization vouchers.

A proposal drawn up in June by international advisers suggested the state sell a 38.62 percent stake in Ventspils Nafta, with some 15 percent of that stake exchangeable for privatization vouchers.

"Ventspils Nafta's privatization will not be continued in the life of this government. It has been stopped," Kalvitis was quoted by the Diena daily as saying.

The shipping company, or LASCO, is one of Europe's largest and last year earned profits of $26.1 million, a 10-year high.

Kalvitis' spokesman Gints Lipsbergs said there was not enough time before parliamentary elections in October to consider a new privatization plan for the company.

"The situation changed when they bought LASCO, and it would be too difficult to get everything prepared before the vote," he said.

The state holds a 43.62 percent stake in Ventspils Nafta. The joint stock company Latvijas Naftas Tranzits, or LNT, bought a 37 percent share in a first round of privatization in 1997 and has since increased its holding to 47.06 percent.

Further privatization has been hindered by disagreements between the state and LNT, which has lobbied for sizable stakes of the state's shares to be sold for privatization vouchers.

The 1997 privatization agreement with LNT included a provision that said the state could not sell its remaining shares without LNT's consent, which had proved difficult to secure.

"In one sense, it's always very nice to sell a company for as much as it can fetch, and in this case, that means selling it for cash, not vouchers, but the question is whether any government will be able to do this," said Martins Krutainis, a financial analyst with Suprema brokerage. "Obviously, LNT will not like this, and the state is pretty limited with its options."

The agreement, however, ends in 2003, at which time LNT is expected to pay the last installment for the stake it bought in 1997. LNT is also guaranteed the option to buy an additional 5 percent of the state's shares in any future privatization.

"This has been the main problem. But in 2003, once this agreement is finished, the conversation could be very different," Lipsbergs said.

The delay puts another dent in the credibility of the center-right government of Prime Minister Andris Berzins, which made privatization of Ventspils Nafta, LASCO and the power utility Latvenergo a top priority when it took power in May 2000.

After several false starts, LASCO was finally sold - to Ventspils Nafta - this year. Latvenergo was taken off the privatization short list in late 2000 amid sniping from the left-wing Social Democrat opposition and the threat of a referendum on selling the utility which the government looked set to lose.The debate surrounding the sell-off and its delay also comes at a time when Ventspils' city authorities are struggling to quell speculation of a substantial decline caused by Russia's decision to begin shipping more oil to its Baltic port of Primorsk, bypassing Latvia and Ventspils Nafta.

The oil terminal handled 9.3 million tons of oil and oil products in the first half of 2002, down 20.5 percent year on year. In June, it handled some 977,100 tons of oil, down 45.7 percent year on year.

Before the Primorsk terminal began operating, experts said Ventspils handled roughly 15 percent of the total amount of oil exported from Russia.

"It's very bad timing, and unless something bad happens in Primorsk, it's going to be hard to argue - if the sell-off starts next year - that business will pick up, when you see the downward trends of the last few years," Krutainis said.

Analysts said Ventspils Nafta's decision to buy LASCO was likely connected to plans to diversify its interests as a hedge against a possible continued decline in its shipping of oil and oil products.