Ventspils shareholders vie for control

  • 2003-04-10
  • Gary Peach

Private shareholders in Ventspils Nafta made an unexpected move to gain control over the company by opting to buy a 5 percent stake reserved for them in accordance with an agreement signed with the government in 1997.

In order to pull off its plan, Latvijas Naftas Tranzits, which currently owns 48 percent of Ventspils Nafta, first conducted a repo transaction with 9.18 percent of Ventspils shares.

Apparently arranged for financial purposes, the repo deal - valued at 11.34 million euros - provides for LNT to buy back the stake at an unspecified date in the future.

Thus, by first purchasing the 5 percent stake and then re-acquiring the 9.18 percent one at some point in the future, Latvijas Naftas Tranzits will gain majority control over one of the country's most strategic and lucrative enterprises.

LNT officials refused to comment on the motives behind the deals.

"I cannot comment on this. Sorry, but I can't," LNT Vice President Vladimirs Solomatins told the Baltic News Service.

The action, however, sparked a backlash in the government, with Deputy Prime Minister Ainars Slesers asking Prime Minister Einars Repse to have the 9.18 percent stake arrested on the grounds that the state might suffer as a result of the deal.

Just days earlier Slesers had sent Repse documentation describing alleged violations of Ventspils Nafta's privatization, prompting Slesers to believe that by weaving this new deal LNT shareholders were essentially running for cover.

"I believe that an ownership change at a time when authorities have started looking into the legality of [Ventspils Nafta] privatization only confirms suspicion of possible illegalities during this privatization," Slesers wrote in his letter to Repse on April 2.

"[This] gives rise to concern that existing shareholders may take steps to make the investigation as difficult as possible to prevent a lawful solution to the matter."

Repse sent the documents to the interior minister and prosecutor general for further study.

The news that the government was considering legal action against the oil terminal and its private shareholders caused tremors on the markets and once again highlighted the thorny relations between the state and the private owners of one of Latvia's most important companies.

Lawyers on both sides are examining both the deal and the original agreement between the government and LNT, but on the surface the deal appears to be perfectly legal.

"From information at our disposal there is no indication that there has been any wrongdoing" in the deal, said Uldis Cerps, chairman of the Finance and Capital Markets Commission, adding that both the repo transaction and the sale of the 5 percent is in civil domain and out of the commission's reach.

The push to gain control comes at a turbulent time for Ventspils Nafta, which has been choked by a de facto embargo by Russia's pipeline operator Transneft and has seen crude oil deliveries drop dramatically.

Although company management has been able to restart oil deliveries from Russia via rail - the first such deliveries to Ventspils in some 20 years - a recent government study said that Ventspils Nafta is losing $100,000 per day and that all told the state and private companies working in the industry stand to lose some $200 million this year as a result of Russia's policy.

Earlier there were reports that LNT had made an offer to Transneft which was subsequently refused.

If indeed LNT shareholders are intent on cutting a deal with Transneft, then majority control of the oil terminal would certainly strengthen their hand in future talks.

But if LNT shareholders would consider selling a majority of Ventspils Nafta, a cornerstone of Latvia's economy, to a foreign entity, the government would likely interfere.

According to Latvian law, private shareholders who gain direct or indirect control of any public company are obliged to buy out minority shareholders' stakes at a fair price. (A similar deal is taking place with Latvijas Balzams - see story on Page 8.)

"This is a process that we would definitely monitor," said Cerps.