Latvia's anti-corruption agency has stated that it will launch an investigation into possible fraud and tax evasion by Ventspils Mayor Aivars Lembergs, demonstrating once again the extent to which relations between the government of Prime Minister Einars Repse and the powerful Ventspils mayor have deteriorated.
A spokeswoman for the Latvian Corruption Prevention and Enforcement Bureau told the Baltic News Service that the investigation is based on comments by a prominent businessman that Lembergs is connected with offshore companies that directly control Ventspils Nafta, the company that operates the oil export terminal on the Baltic Sea.
Julijs Krumins, owner of Man-Tess and a shareholder in Latvijas Naftas Transits, told the daily Diena that Lembergs was the "big owner" of Ventspils-based transit companies through offshore companies.
Similar accusations against the Ventspils mayor have been circulating for years, but this was the first time they were made by someone so close to the powerful politician-businessman.
Krumins also said the purpose of Lembergs' recent trip to the United States had been to negotiate the sale of a controlling stake in Ventspils Nafta to an American company.
Speaking to Diena, Lembergs denied he had any connections to Ventbunkers, the offshore company that reportedly owns LNT.
"Let him sleep it off," Lembergs said of Krumins. "He may claim I'm the pope. I cannot do anything about it. He does not know a thing about my visit to Washington."
LNT currently owns 48 percent of the modernized oil terminal, though in the past weeks it has made a series of moves - including a repo transaction - that would allow it to buy the 5 percent stake reserved for it under the government's nominal ownership.
Minus the 5 percent stake, the government owns 38 percent in Ventspils Nafta.
If LNT were to pull the deal off, it would have majority control of Latvia's most strategic enterprise.
Many in the government, however, are resentful about the lack of transparency surrounding Ventspils Nafta's offshore shareholders and want to prevent LNT from gaining majority control.
Upon learning of LNT's intentions, Deputy Prime Minister Ainars Slesers asked the state prosecutor to arrest the shares for fear that the state's interests could be harmed as a result of the repo transaction.
Slesers was also behind an effort last month to reopen an investigation into the privatization of Ventspils Nafta based upon a new legal report that allegedly uncovered several significant violations during the oil terminal's sell-off.
The new investigation into alleged ties between Lembergs and offshore companies is evidence of the further erosion in relations between the government and one of Latvia's most influential business interests, which have been exacerbated by Russia's refusal to deliver crude oil to Ventspils via pipeline and the inability of Ventspils Nafta's shareholders - Latvia's government and LNT - to come to an agreement to solve the crisis.
Furthermore, the lack of transparency surrounding a linchpin in Latvia's economy has caused much resentment among top government officials.
In a telling interview to the daily Telegraf last month, Slesers said, "Any decision [on how to solve the crisis] is complicated by the fact that we don't know who the real owners of Ventspils Nafta are. I personally can't help a company whose owners hide offshore."
In a personal jab at Lembergs, Slesers said, "Mr. Lembergs lately has been commenting too much on affairs that aren't connected with his duties as mayor of Ventspils. Does he own the company? As mayor, it would be better if he helped figure out who stands behind Ventspils Nafta.
"Who knows," Slesers told the Telegraf, "maybe members of the Al Qaeda group are standing behind these offshore companies."