LatRosTrans in jeopardy, Lembergs warns

This will be the first year the Latvian-Russian joint venture LatRosTrans, which operates pipelines from Polotsk, Russia, to Ventspils in Latvia and Mazeikiai in Lithuania will incur a loss, Ventspils Mayor Aivars Lembergs told the Russian newspaper Izvestiya.

"Although LatRosTrans supplies oil also to the Yukos-owned refinery in Mazeikiai and the Butinge terminal in Lithuania, 70 percent of all revenues were received from oil deliveries to Ventspils. At present, the loss is $2 million a month," said Lembergs.

The Russian pipeline monopoly Transneft halted deliveries to Ventspils in December, saying it could save money by shipping Russian oil to the newly built terminal in Primorsk, near St. Petersburg.

Officials in Latvia have accused the company of trying to pressure the government into selling its 44 percent stake in Ventspils Nafta, the firm that loads the oil onto tankers and one of Latvia's most prized companies.

The Russian firm Transnefteprodukt owns 34 percent of LatRosTrans and Ventspils Nafta owns the remaining 66 percent.

The most troubling aspect of the end of the oil transit to Ventspils is its suddenness, coming just after LatRosTrans invested $100 million in pipeline repairs, said Lembergs.

If the pipeline deliveries are halted long-term, LatRosTrans will likely close and deliveries to Mazeikiai and Butinge will stop, Lembergs said.

"A joint venture with $180 million in fixed capital is difficult to run when plans are known only for the next three months," said Lembergs.

The Russian government has not included Ventspils on its second quarter export schedule, which ends June 30. Transneft officials have said that no oil will be shipped to Ventspils this year.

"If no more oil is coming, pumps have to be dismantled, the remaining oil removed from the pipeline and sold and walking papers given to maintenance people," said Lembergs.

Ventspils Nafta is keeping many of its storage tanks empty in case deliveries resume, which is costing the company missed revenues, Lembergs said.

He said the tanks could be used for storing EU oil reserves or oil products the company receives by rail.

LatRosTrans earned a profit of 8.3 million lats (13.5 million euros) on sales of 27.46 million lats in 2001. The company has not yet released its results for 2002.

Ventspils Nafta also has not released its 2002 results, but its revenues were down 34 percent after the third quarter compared with the same period in 2001. The company adjusted its 2002 profit forecast from 7.2 million lats to 40,000 lats following the pipeline shutdown.