Repse casts doubt on Ventspils owners

Hopes for a breakthrough in Latvia's oil transit crisis were dashed last week as the nation's leadership threw into doubt the legality of the privatization of the Ventspils Nafta oil terminal.

Last week Prime Minister Einars Repse reportedly sent copious material on possible violations of privatization laws and regulations to the prosecutor general, the Interior Ministry and the anti-corruption office "so that the competent bodies can assess if there are any grounds to doubt the privatization results" of the oil terminal, the Baltic New Service quoted him as saying.

Although at this point it is unclear which violations allegedly occurred, the documents were reportedly prepared by an independent lawyer working on behalf of Deputy Prime Minister Ainars Slesers.

The daily Diena reported on March 31 that other than having the original privatization of Ventspils Nafta annulled through the courts, the government might also seek 75.5 million lats (120 million euros) in punative damages.

The government's aggressive move illustrates the tension behind the current situation surrounding Ventspils Nafta, where crude oil throughput has plummeted due to a Russian embargo and the state is losing a source of vast revenues.

An interdepartmental working group on the crisis issued a report last week stating the country stands to lose $200 million this year - in revenues and taxes - as a result of the current oil drought.

Ventspils Nafta itself loses $100,000 per day on unearned revenues.

One of Latvia's most strategic enterprises, Ventspils Nafta was partially privatized in 1997, with Latvijas Naftas Tranzits (Latvian Oil Transit) acquiring 37 percent of the terminal.

Currently the government owns a 43 percent stake, 5 percent of which it is obligated to sell to LNT under a previous agreement, while LNT has managed to increase its stake to 48 percent.

Thus no one side owns a controlling stake - precisely what Russia's Transneft, monopoly operator of the country's 50,000 kilometer pipeline system, is after.

Attempts to reach a compromise between the state and LNT - whereby each would sell part of its stake - have apparently yielded nothing, and now the government is considering legal action.

But other options remain on the table. On April 1 the Economy Ministry stated that it wants the Latvian Privatization Agency to work out a plan by Oct. 1 for selling the state's stake in Ventspils Nafta.

"We would want at least Ventspils Nafta privatization conditions and concept to be clear by that time" since the privatization will be liquidated by the end of the year, said Economy Minister Juris Lujans.

But few government officials seem willing to cave into Russian pressure. The interdepartmental report, which will be presented to the government next week, stops short of advising to cut a deal with Transneft.

As an official close to the group told The Baltic Times, the working group does not regard the sale of the state's remaining shares in Ventspils Nafta as a viable solution to the present crisis.

An attempt by LNT to arrange a deal with Transneft was also rejected by the Russians due to "unsatisfactory" terms.

The Transport Ministry said it wanted the Foreign Ministry to raise the issue with the World Trade Organization and the United States as a means to persuade Russia to renew oil deliveries, but given the current international climate this approach is bound to have little or no effect.

Due to the U.S.-led war, Russia stands to lose billions of dollars if it is kept out of postwar Iraq, so any influence the U.S.A. and international organizations might have on the Kremlin is close to nil.

Furthermore, Transneft has announced plans to increase throughput at its new Primorsk oil terminal on the Gulf of Finland to some 42 million tons - 30 million more than current capacity - over the next year, a development which will significantly impact Ventspils' attractiveness.

For these reasons the oil transit situation has reached critical mass, and the government has decided to ratchet up the pressure on Ventspils Nafta's owners to get them to come to the negotiation table before it's too late.

LNT is controlled by Ventbunkers, based in Ventspils, though the dominant figure behind the company is Aivars Lembergs, mayor of Ventspils and one of the country's most powerful individuals.

In the meantime, the Latvian Privatization Agency refuses to comment on any of the privatization allegations as it has not been given a copy of the documents.

Janis Naglis, who headed LPA when Ventspils Nafta was privatized, told the Baltic News Service that there is no basis whatsoever to doubt the legality of the sale.

"I want to say that this is a foolish approach - contesting privatization results. It only strengthens instability of private property," said Naglis.

"We will have enough arguments to contest these stupid - and this is exactly how I want to put it - stupid actions," he added.