With a steep dip in Latvia’s cargo volumes this year, Lars Pantzlaff, the managing director of Ventspils Nafta Terminals Ltd (VNT), one of the largest taxpayers in Ventspils and Latvia, warns that local authorities have to rethink policies towards the sector and VNT. “It is very unfortunate that for several years we have been experiencing a ban imposed by local authorities regarding the development of the terminal. And recently Ventspils Freeport Authority has been inexcusably slow or not-forthcoming in granting us needed approvals for the construction of a Vapour Recovery Unit, a condition set by Ventspils City Council to lift the ban, which, once implemented, will ensure stable, efficient, and environmentally-friendly operations and minimise the environmental footprint in the areas of emissions,” Pantzlaff, who is also a member of VNT Management Board, told The Baltic Times.
Oil markets have been quite volatile over the last couple of years. How did the slump in oil production and exports ill-affect VNT? How is the terminal coping with the aftermath?
If you refer to the effects on our company, we have been, generally, only mildly impacted. There are several reasons for that. After Vitol became a major shareholder in VNT in 2006, the main focus of the terminal’s management was to look into the efficiency of our operations. There have been some drastic changes, and we are now in a robust position to remain competitive in the market.
What we’ve done during this time is a thorough internal evaluation of how we run our business. As a result, we focused on improving efficiency, flexibility, cost structure, and customer service. I think that, objectively, we have managed to turn the company literally upside down — from one corner to another. We are in much better condition now than before.
The stats, however, are quite gloomy for your company for the time being. Reportedly, between Jan. and May 2016, the cargo turnover of VNT contracted by 1.5 million tons or 27 per cent to less than half of the terminal’s capacity, compared to the period between Jan. and May 2015. What is the company doing to mitigate the slump?
Let me tell you, some of the statements made in public are very misleading and suggest we are not using the facility to the greatest possible extent. We do very much so. When the terminal was built in 1961 and served as a crude oil outlet for the ex-Soviet Union, throughput did matter. Back then we had only a small number of products here and the terminal acted solely as an export facility.
These days, terminals serve other purposes — they are tools in the world of oil trading for the customers, and work along with the oil pipelines, railways, and ports, while at the same time dealing with the specific legislative environment of the country they operate in. There is a significant emphasis on the flexibility of the asset these days.
Needless to say, we are responsible for our own destiny, meaning we’re working performance-oriented in the context of safety, operations, or financial parametres. In perspective of the recent years, we are doing fine, running a sustainable business with about 10 million tons of transhipped oil products annually. The results we are generating are acceptable for the VNT shareholders.
Can you elaborate on how much VNT has contributed to Ventspils and Latvia in taxes and other incentives?
VNT, in fact, is one of the largest taxpayers in Ventspils and the port business. For the land we occupy in the port, we paid 1.2 million euros last year. The property tax we paid last year stood at 175,000 euros, and the personal income tax that went into the municipal and state budget amounted to more than 900,000 euros, also in 2015. And then here comes the social tax of 1.5 million euros. If you were to add up the amounts over the period of nearly 10 years, you’d come up with a total payment in various taxes of 56 million euros.
In addition, as we are historically tightly embedded in the local community; we are supporting social, culture, and sports activities, to mention a few areas. In addition to that, for the period from 2003 to 2015 we had a so-called contract with Ventspils City Council, actually a donation agreement, through which we have been paying more than a million euros to Ventspils City Council on an annual basis. Signed in 2003, this so-called contract had a long-term nature (about 30 years), and was not tied to the performance of VNT, i.e. payments had to be made regardless. In this context, one might say that this so-called contract in itself was unethical. Considering this being actually a donation agreement and given the fact that Ventspils City Council fell short of its commitments under this so-called contract, VNT unilaterally terminated the contract in 2015.
How does the Ventspils Terminal measure up against other similar facilities in the Baltic Sea region? What is unique about it?
Well, there is nothing unique about the whole infrastructure we have — tanks, pumps, valves, and pipelines. What is unique is that we’ve built a certain business culture over the years and this makes the terminal a unique place for the people to work. What I mean by this is that we have a flat organisation, we are quick, we are decision makers, we are change-minded, and we have this great ambition to drive the business forward. We like what we do and we feel ownership. If you do not have all of that embedded in the minds of the people whom you are working with, then it is much harder to reach your ambitions.
Any obstacles that we encounter along the way do not demotivate us, but rather inspire us. If we set ourselves a certain target and go for it as a team, sooner or later we will get there because we believe we have the capacity to overcome challenges.
What challenges are you referring to?
No business always runs perfectly. There are things that can be optimised within. On the other hand, we are working in an environment where we have to comply with several, sometimes conflicting, set of rules and bureaucracy; I am speaking specifically of local rules and bureaucracy in Ventspils that we have to deal with.
Currently, the latter has become a complicated issue for us. For a number of years now, our efforts to obtain permits for the development of our infrastructure have been halted due to a ban on permits imposed by Ventspils City Council. This ban is justified by VNT not operating a vapour recovery unit (VRU) that is meant to enhance environmental conditions during terminal operations.
Why do you need the VRU facility?
Environmental protection is an integral part of today’s business environment and VNT is committed to this cause in order to promote conditions that create a beneficial environment in the city of Ventspils where it operates.
The implementation of the VRU would ensure efficient and environmentally-friendly operations and minimise the environmental footprint in the areas of emissions. It also allows for stable operations and further development of the terminal. Development here refers to inclusion of new products in the company’s permit that shall only be handled in connection with a VRU. Unlike some public comments, this is nothing extraordinary and already being done by other oil terminals in the same fashion.
VNT is working on two solutions in parallel — a permanent and a temporary VRU. Both systems will be placed in the areas of the jetties, an area not under the direct control of VNT but a neighbouring company Ventbunkers JSC. Last year we finally secured access to a land plot where the system can be placed with Ventbunkers in a very co-operative manner.
The permanent VRU was planned to be operational in Nov. 2017. In parallel, until the permanent VRU becomes operational, VNT made significant efforts to employ a temporary VRU (packed inside a container) in the period up to Sept. 30 on an interim basis. Both systems will be beneficial to reduce emissions during the loading of vessels and thus also reduce the occurrence of unpleasant stenches. Vapour recovery units are quite widespread in oil and petroleum terminals all over the world.
Given the fact that the major obstacle — being allotted a land plot in the area of the jetties — was resolved at the end of last year, VNT cannot proceed with the execution of the permanent VRU project, because Ventspils Freeport Authority has been very slow, actually so far not-forthcoming, to administer the use of the land plot by VNT. In addition, Technical Regulations are outstanding to be received for more than five months.
How do you explain the Ventspils authorities’ reluctance to greenlight the request?
I don’t have a single answer.
You mentioned the cargo turnover decline at VNT being 27 per cent during this year’s first five months. However, if you were to look at the official Latvian statistics as to cargo transport for the first quarter 2016 in Latvia, you’d see a significant decline in all categories.
To be exact, a 21 per cent drop in international rail trade; transit cargo is down by almost 50 per cent, cargo to and from Latvian ports is down 21 per cent. In this context, one might think there is some urgency to take note of those trends. At the same time VNT attempts to reverse the trend as to matters within its control. The VRU will allow more stable operations and room for growth in transhipment volumes.
Unfortunately, so far, we cannot do what we’ve have long planned, i.e. the permission to again engage in our active development that comes along with the implementation of the VRU. The current situation costs not only VNT but also the Ventspils Freeport, the municipality, and the state in terms of revenues and reputation — and that continues every day.
Bearing in mind VNT’s huge imprint on the local economy, how do you explain the bureaucracy you’re dealing with to get the VRU project moving forward? Is there any political angle to it? Are the Ventspils mayor’s interests somehow involved in the procrastination?
I really do not want to get into any speculation. I believe that local authorities and the Freeport should be respecting the rules and boundaries within which businesses operate and, moreover, support local businesses, so they can achieve what they aim for in terms of their business development. This is not only in the interest of the business, but also for the interest of the local community, authorities, and the state. Especially considering the recent decline in Latvia’s cargo volumes and Latvia’s ambition to create an attractive business environment, this gives even more significance. It makes me wonder why in reality this is not applied consistently and bureaucracy is so excessive. We are determined to run our business in a responsible way and committed to contribute further by various means to the city. But we want it to be a two-way street and see the authorities doing it with us in a partnership.
Do you consider going to court against Ventspils City Council in order to acquire permits for the VRU installation?
My point is this: the company shareholders have invested millions of euros into VNT, they want the business environment to be predictable, stable, and supportive of business. If we feel that our investors’ rights are infringed upon or violated, then we will certainly pursue any available means, both internally in the country and externally, in the context of EU laws and international treaties.
Have you met personally the mayor of Ventspils, Aivars Lembergs, and discussed the issue with him?
We have met a few times, but it’s been quite a while.
It appears we’ve now started to engage in a very unfruitful exchange of opinions with authorities. I, however, prefer to rather stick with the facts rather than speculation on the end of authorities. In the context of declining cargo volumes in general, these are a waste of everybody’s energy which should instead be concentrated on areas that yield benefits.
Therefore, I am convinced that a more intelligent way in the current situation would be to stick all heads together, apply common sense, and to resolve the issues at the end for the benefit of Latvia and its role in the regional transit business.
One has to understand that VNT is the biggest contributor of liquid cargo in the Port of Ventspils with about 70 per cent of it passing through the terminal. In the context of all Latvian ports its contribution is about 45 per cent. If volumes decline, it will negatively affect not only VNT, but also all the companies we are working with, the Ventspils Freeport, the city of Ventspils, and ultimately the state of Latvia.
The input of VNT in sustainable and environmentally-friendly throughput has been acknowledged by the state of Latvia with the highest platinum award in the Sustainability Index for the second consecutive year. What do you make of it? How important is it for your company?
It is a fantastic result. We are not chasing trophies, obviously, but such achievements reflect the corporate practices being implemented by our company every day. The participation in the Sustainability Index, the special award “Responsible business initiative of the year” received at the event CSR Idea Market, and the status of “Family friendly company” reflects the company’s culture, which manifests in relations with employees and co-operation partners.
You’ve been with VNT for seven years now. Can you speak please of the milestones of your stay?
It’s difficult to point to one single thing, as a matter of fact. I can speak of a variety of things. The areas that I’ve looked at include the entire operations of the company, with the focus on their speed, cost, and efficiency. As a result, our employee count has gone down from 380 in 2006 to 255 employees now. At the end of the day, now we perform our work much more efficiently. For example, we are outsourcing more via collaboration with co-operation partners, although we used to do them ourselves for a long time. The structure of the company we’ve ended up having now is a lot more flexible and competitive from the perspective of costs in the market.
We have oil trading companies as our customers and they use our infrastructure; not being tied to product throughput or storage in other words, they operate according market conditions. As to transhipment volumes, we did well achieving about 10 Mio metric tons on average, which for us represents a good benchmark and a good occupational level.
Before coming to VNT, you worked in a US company APV Systems Inc. managing projects in the USA, Australia, and Uzbekistan, later in Germany, Egypt, and finally at a Nigerian company. How is the business environment in Latvia different in comparison with the other countries?
Every country poses different challenges, therefore they are nothing special. However, unnecessary challenges are unfruitful, to say the least, and are a waste of time. My stay with VNT for now seven years is the longest that I have ever had. It is the best assignment too, as I am privileged to work with really great people and it’s never boring despite some headaches we may be having here.
Should we remove the aforementioned roadblocks, there is plenty to do and VNT’s potential is huge. It just needs to be unraveled — for the benefit of VNT, Ventspils Freeport, and Latvia alike.