A new business-friendly government is poised to take the helm in Latvia, sparking speculation that it could finally complete the sell-off of oil terminal Ventspils Nafta -- possibly to a Russian oil firm.
Experts say Russian oil firms are likely to be among the most interested in buying the terminal. Russia's No. 2 firm Yukos, which in August acquired a controlling stake and management rights in Lithuania's Mazeikiu Nafta refinery, has been widely rumored as a potential buyer.
"The next government will be another right-wing one and one of its most important tasks will be to sell Ventspils Nafta," said Janis Naglis, former director of the Latvian Privatization Agency, who oversaw the sales of most state industries after independence.
A plan to privatize a 38.62 percent stake was put on hold earlier this year after Ventspils Nafta acquired nearly 50 percent of the Latvian Shipping Company at an equity auction.
Outgoing Economy Minister Aigars Kalvitis said the issue should be left to the new government, expected to be formed over the coming weeks.
Center-right parties won the majority of seats in the 100-seat Saeima, and parties began coalition-building talks this week.
With control of the Butinge import-export terminal, part of the Mazeikiu Nafta complex in Lithuania, Yukos would increase its control of the Baltic Sea region with Ventspils Nafta. The company has said it wants to triple exports by 2010.
"They have ambitions to grow into one of the biggest oil exporters and increase their share of the world oil market," said Uldis Osis, director of the Riga-based energy consultant Consortium Consulting. "This would give them full control of outlets in the Baltic Sea region and Northern Europe as a whole."
The state holds a 43.62 percent stake in Ventspils Nafta, with joint stock company Latvijas Naftas Tranzits, or LNT, holding 47.06 percent with the right to acquire an additional 5 percent, according to the 1997 privatization agreement.
The two have squabbled over a government-backed plan to sell most of its stake in the terminal for cash. LNT wants sizable stakes sold for privatization vouchers.
An agreement that requires the state to secure LNT's consent for any privatization deal will expire in 2003.
Another advantage for Russian firms: It's a buyer's market. Once the busiest Baltic port for Russian oil, Ventspils has seen its market shrink since Russia began shipping more oil through its Baltic port of Primorsk. In the first eight months of the year, Ventspils Nafta handled 10.9 million tons of oil and oil products, a 28.8 percent drop year on year.
"Earlier, Russia could not afford to decrease volumes through Ventspils, but now oil is being produced not only in Russia but in Kazakhstan and that oil has to go through Russian pipes," Osis said.
An official from Russia's No. 1 oil firm, LUKoil, told the Moscow-based business daily Vedomosti, "A question is who needs it more: Russia's oil terminals that have alternatives or Latvians who have suddenly realized that they may lose their port."
Yukos declined to comment directly, but the company's representative in Lithuania, Tomas Girzas, said the Baltic region was epxected to play a key role in plans to increase oil exports to Europe.
Naglis said Ventspils Nafta's decision to buy the Latvian Shipping Company had more to do with raising its overall value in the face of falling oil shipments than with any interest in developing the shipping firm.
"Ventspils Nafta is in a very difficult situation with Primorsk cutting into profits, and shareholders are expecting the state to sell out to the Russians," he said.
Interest from Yukos, LUKoil or other Russian firms that ship through Ventspils such as Transneft and Tatneft could have a political edge as well by giving Russian capital cachet in the European Union, which the Baltic states hope to join in 2004.
"Russia would be present with a substantial investment, they would have strategic resources and infrastructure and influence (in the EU)," Osis said.
Russian influence makes many Latvians uncomfortable, especially in such a strategic sector.
Lithuania initially chose to sell a one-third stake in Mazeikiu to the U.S. energy firm Williams International in 1999 because it was expected to enhance the country's security and improve its chances of joining NATO.
Butinge, now a key part of Yukos' plans to export to Europe, was initially built by Lithuania for imports should Russia resort to the kind of oil embargo it used in 1990 in an attempt to snuff out the nascent independence movement.
But Yukos has gained a reputation as an atypical Russian company: transparent, shareholder-friendly, Western-oriented.
Naglis said that the bottom line rather than political leverage has become more important with many major Russian companies.
Nicholas Redman, a security expert at the Economist Intelligence Unit, agreed.
"Oil companies, if privately owned, are concerned with the bottom line. If you get a Russian firm into these ports, prospects get a lot better for the transit trade."
Economy Ministry spokesman Gints Lipsbergs said the entire landscape could change if Latvia was invited to join NATO in November and joins the EU by 2004.
"The EU and NATO may change the situation. They can be seen as a security guarantee," he said. "Then things can be decided for economic reasons, whether we're talking about a Russian company, an English company or an American company."