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Baltics: Russian Oil Companies Focusing On Ports, Terminals

Some of Russia's biggest oil companies are competing for transit rights through the ports and terminals of the Baltic states. Russia's Yukos company recently bought shares in Lithuania's Mazeikiai Nafta oil refinery, pushing aside another Russian company, LUKoil, which in turn announced it will withdraw from the Baltics and direct its exports through a newly built Russian port outside of St. Petersburg. But transit ports in Latvia and Estonia remain attractive for Russian investors.

Prague, 11 July 2002 (RFE/RL) -- Russian firms are showing a growing interest in acquiring control or seeking shares of oil refining and exporting facilities in the Baltic states.

The Russian firm Yukos recently made a successful investment in the Mazeikiai Nafta oil refinery in Lithuania. There are also reports that Yukos is planning to invest, if not take over, Ventspils Nafta in Latvia, the largest oil terminal in the Baltics. At the same time, the Russian government has begun building or reconstructing ports around St. Petersburg, seeking to be less dependent on the Baltic states and to gain a share of the profits in the transit trade.

All three Baltic states have facilities that export Russian oil to the West. However, not all are equally successful. Lithuania's Mazeikiai Nafta, a 20-year-old refinery, is the first Baltic company to deal successfully with the problem of foreign investments and also with supplies of Russian crude oil.

The Lithuanian government sold 33 percent of Mazeikiai Nafta's shares to the U.S-based Williams International at the end of 1999. Former Prime Minister Aleksandras Abisala, who consulted for Williams in their Lithuanian investments, told RFE/RL that the deal with the U.S. was a success and paved the way for a situation in which business cooperation among the Americans, Lithuanians, and Russians became possible. "If there had been no Williams [investments], we would have no Mazeikiai Nafta now [because it would have gone bankrupt]. Maybe it is hard to believe for some people, but the truth is plain as that," Abisala said.

The deal was controversial and even led to the collapse of the government because of widely held opinions that too many concessions had been made to the American company. Williams had no guaranteed Russian oil supplies, and its losses in 2000-2001 were almost $125 million.

In the beginning of July, Yukos bought a 27 percent stake in Williams. Williams owns 27 percent, and the government's stake is almost 41 percent. Yukos guaranteed an annual supply of 4.8 million tons of crude oil for 10 years. The oil will be refined in the Mazeikiai refinery. The overall capacity of Mazeikiai Nafta is 8 million tons per year. In addition, Yukos will export 4 million tons of Russian crude oil through the Butinge oil terminal, which is part of Mazeikiai Nafta. The deal paves the way for a four-year, $400 million modernization program.

The situation remains murky in Latvian and Estonian ports, and the aims of Russian companies there are unclear.

Latvia's Ventspils Nafta is the biggest oil terminal and port in the Baltic states. Ventspils roughly controls 22 percent of the entire Baltic Sea market.

Recently, Ventspils Nafta bought a 31 percent stake in the state-owned company Latvian Shipping. The Latvian business magazine "Focus" says Yukos is behind the deal and supposes that Yukos has serious intentions in Ventspils Nafta. Yukos has not commented on these statements. The vice president of the company, Bruce Misamoor, said in Vilnius in April that Yukos still has no concrete investment plans for the Baltic states.

The director of commerce for Estonia's Tallinn port, Erik Sakov, told RFE/RL that the port is in the hands of the state and that there are no privatization plans. However, he said private companies conduct the port operations themselves. Sakov said there are many Russian companies operating in Tallinn's port, but that he cannot name them. "It is very hard to know. Some Swiss or other [foreign] companies represent the majority of Russian companies. They are not represented directly," Sakov said.

Sakov said he has no doubt Yukos and LUKoil are operating in Tallinn.

He also said the export of Russian oil is growing. During the first six months of this year, more than 11 million tons of Russian crude oil were exported using the facilities of the Tallinn port, a big increase over the same amount for all of 1998.

Professor Aleksei Kuzmin works in the Moscow-based Institute of Humanitarian and Political Investigation, a nongovernmental organization. He told RFE/RL that the big Russian oil companies have already divided the post-Soviet space and the competition between Yukos and LUKoil in the Baltic states will soon end. "Practically, some kind of geographical division of the post-Soviet space between Yukos and LUKoil is under way. Yukos took the northern direction. That's why they are involved in Mazeikiai. They are very active in Ventspils and develop active relations with Finnish companies," Kuzmin said.

On the other hand, LUKoil is directing its activities south and is investing in Ukraine, Moldova, and Romania.

Meanwhile, Russia is building the Primorsk port near its northern city of St. Petersburg. Primorsk is already functioning, and there is fear that the Russian ports will steal substantial profits from the Baltic ports and terminals.

Kuzmin said the decision to build new ports shows the Russian authorities are seeking to pressure the Baltic states, especially Latvia and Estonia, which Russia most often accuses of violating the rights of Russian speakers. "There is an attitude among Russian authorities that the ports of Latvia and Estonia should lose their importance [as transit places for Russian oil]. That's why the Russian authorities are supplying the Primorsk port with state guarantees," Kuzmin said.

Sakov from the port of Tallinn said Estonia is not frightened by the new ports near St. Petersburg. "All the time they think in Russia: 'Now they will have to pay the price [for independence].' [This] will not happen, because there is a lot of work for every port," Sakov said.

Former Lithuanian Prime Minister Abisala is also skeptical about the possibilities of the new Russian ports' taking away big profits from the Baltic terminals and ports. "There is no doubt that the decision to build the terminal in Primorsk is a political decision. However, this terminal cannot be more effective than the Baltic ports, which do not freeze in winter," Abisala said.

LUKoil recently announced it may stop exporting oil through the Latvian terminal and start working the ports of St. Petersburg. However, the chairman of the board of LUKoil Baltija R, Haim Kogan, told RFE/RL that Lukoil is not inclined to leave Latvia.