Pressure on Ventspils, Lembergs intensifies

2003 promises to be the toughest yet for a struggling Ventspils Nafta, as Russia's oil companies have reportedly decided to stop crude exports altogether through Latvia, claiming high tariffs have made the country an attractive export route.

After a precipitous decline in crude oil throughput at Latvia's largest port last year, Transneft Vice President Sergei Grigoriev said Jan. 3 that Ventspils Nafta will not be loading Russian oil in the first quarter 2003.

Speaking to a Russian news agency, Grigoriev said that transportation costs were too high to use the Ventspils port.

"The transit via the Latvian terminal of Ventspils is too high," he said.

The statement comes at a critical time for Ventspils Nafta, which is fighting to retain its market share in the lucrative oil export business. Ventspils port deputy director Guntis Tirmanis announced Jan. 6 that exports were down 24.3 percent in 2002, the largest export fall in the port's history.

The trend is poised to accelerate. Transneft's Grigoriev said that the Primorsk port in Leningrad Oblast was much more advantageous for Russia's oil producers.

Last year Primorsk handled 12 million tons or crude, and Transneft, which operates the port, wants to boost this to 18 million tons. Given the rate with which oil extraction is increasing (9 percent last year), the goal is attainable.

However, Grigoriev stressed that Russia's oil producers can choose which route to export their crude.

"Our producers choose their terminal themselves," he said.

Ventspils Mayor Aivars Lembergs, who is also president of the Latvian Transit Association, refuted Grigoriev's statements when meeting with journalists.

Citing a study comparing oil export costs in Ventspils, Primorsk, Butinge and Novorossiisk, Lembergs claimed that Ventspils is still the best route for Russian crude oil export.

"Railroad transportation is nearly two times more expensive than using the pipeline, and the growing oil supplies by rail prove that the current situation has nothing to do with the Ventspils tariffs," he said, implying that the Russian oil companies' decision is purely motivated by politics.

Lembergs said oil export costs are 3 dollar per ton cheaper in Ventspils than in Primorsk. Charter costs are also said to be increasing in Primork, with winter conditions forcing port authorities to use ice breakers.

Currently, the ice near Primorsk is 50 centimeters thick.

Meanwhile, Ventspils Nafta President Janis Adamsons said that Russia's oil companies are hostage to Transneft and would prefer to export through ice-free Ventspils but are being compelled to use Primorsk so that the new terminal can recover its significant investment outlays.

Transneft's decision confirms a series of press reports about Russia's push to increase exports at the Primork terminal, which opened in the end of 2001.

Crude oil transhipments at Ventspils last year were down to 13.2 million tons. In 2001, 22.3 million tons had been transhiped at the terminal. The company handled a record 25 million tons in 1996.

Lembergs said in December that the decline in revenues — approximately 20 million lats — would be insignificant to Ventspils city budget.

Juris Paiders, editor-in-chief of Dienas Bizness, a Latvian daily, said Latvia's gross domestic product may fall by 1 percent because of the aggravated oil transit problem, a negative consequence the Latvian government was able to avoid in 2002.