Latvian port feels pinch of Russian boycott

  • 2003-02-20
  • Nick Coleman
VENTSPILS

It is another slow day in the Baltic Latvian port of Ventspils, a gateway for Russian oil supplies to the West until it was hit by a Russian boycott last month.

"This is a crisis year, the main reason is political," Janis Adamsons, president of Ventspils Nafta oil transit company said.

He said that the boycott, imposed in January, is motivated by Russia's attempts to gain control of Ventspils Nafta, which is 43 percent owned by the Latvian state and the only Baltic oil terminal without Russian ownership.

Transneft has diverted supplies to Russia's new Primorsk oil terminal near Saint Petersburg, and there are plans to increase handling capacity by as much as 50 percent.

The boycott has put further strain on relations between Latvia and Moscow. Only 15 months away from joining the European Union, Latvia has taken the issue up with the bloc and also in multi lateral talks about Russia's admission to the WTO.

"[Latvia's] foreign minister expressed concern that political motives may have been behind Russia's action, which, in turn, could threaten the security of energy supplies both in the Baltic Sea region and the EU," the ministry said in a statement last week.The ministry said Latvia had secured the support of EU's External Relations Commissioner Chris Patten, who had promised to take up the matter with Moscow.

"After accession to the EU it will become a powerful weapon in our hands. Russia had great interests in the EU's, joint energy projects," Sandra Kalniete, Latvia's foreign minister, was quoted as saying.

Transneft had already decreased pipeline supplies to Ventspils from 14.9 million tons in 2001 to 7.4 million tons in 2002. The reduction contributed to an 8.4 percent drop in the total volume of goods reloaded last year in Latvia, ousting Ventspils from its traditional position as the biggest Baltic oil gateway in favor of Estonia's port of Tallinn.

But Russian oil companies have been angered by the Ventspils boycott, as Primorsk has insufficient capacity and is prone to freeze and Russian oil production has been increasing by some 8 percent annually.

Some oil is reaching Ventspils by train, but the pipeline boycott is contributing to a glut on Russia's domestic oil market, where prices have dropped to $5 per barrel, Stephen O'Sullivan, head of research at UFG investment bank, said.

"It doesn't necessarily make sense for Russia to own Ventspils. Transneft plans to expand Primorsk, but by then they will have (further) increased output," O'Sullivan said.

The state seems in no rush to sell its stake in Ventspils Nafta, which employs some 770 people, while the Economy Ministry says that damage from all transit decreases was limited to a relatively modest half-percentage-point-dent in gross domestic product growth last year.

Critics accuse Ventspils Nafta of doing too little to stay competitive, particularly by improving its ability to handle other products.

The wisdom of its recent purchase of a large stake in Latvia's shipping company looks doubtful, as the aging fleet has been hit by a raising of safety standards around the world following last year's Prestige tanker disaster.

"(Ventspils Nafta) just expanded - and it's not the smartest way to spend," an oil industry insider said.

"Eventually the state shares in (Ventspils Nafta) will have to be offered considering carefully the national interest," Latvia's Deputy Prime Minister Ainars Slesers said.