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Russia: Moscow Seeking To Exert Influence On Neighbors' Energy Assets

Russia's pipeline monopoly Transneft is taking tough steps to gain a stake in Latvia's oil terminal at the port of Ventspils. The move follows a takeover of Lithuania's oil facilities and a bid for Poland's Gdansk refinery by Russia's top oil companies, suggesting a plan for a new ring of Baltic Sea ports under Russian control.

Boston, 22 October 2002 (RFE/RL) -- Russia is continuing its campaign to control the energy assets of neighboring countries with tough tactics aimed at acquiring Latvia's oil terminal at the port of Ventspils.

According to reports in the past week, the Russian state pipeline monopoly Transneft has been withholding oil from the Ventspils Nafta terminal until it agrees to give up shares in the company.

Although he denied that Transneft planned to buy a stake in the facility, the company's chief executive Semen Vainshtock gave opposite signals in an interview with "Vedomosti." Vainshtock told the Russian daily, "I suppose Transneft will agree to buy controlling interest in Latvia's port if the Latvian shareholders ask for it."

If conditions continue as they have for the past six months, the owners may have no choice. Last week, the industry newsletter "Petroleum Argus" reported, "Since April, Ventspils Nafta has experienced a catastrophic collapse in crude shipments, believed to have been engineered by Transneft to pressure the Latvian side into accepting a Russian shareholder."

In a separate editorial, the London-based "Argus" said, "As a Transneft source points out, the pipeline operator is more than capable of making life very difficult for Ventspils Nafta for a long time to come."

Last month, the terminal received only 95,000 barrels of oil per day, less than one-third of its capacity, despite a post-Soviet record in Russian oil production. All pipelines and ports used by Russia are said to be working at capacity, with Ventspils as a notable exception. Experts say the situation would change if Russia took control.

The Reuters news agency quoted an unidentified Russian oil company official as saying, "Ventspils is set to move under Russian ownership and serve again as a perfect export route."

The Latvian government owns 43 percent of the terminal, the LETA news agency reported. According to "Petroleum Argus," the majority is controlled by six shareholders, including Ventspils Mayor Aivars Lembergs. Privatization of the facility is on hold until the formation of a new government is complete, LETA said.

But whatever the decision, Transneft will have powerful leverage. The company is delaying a decision on the second stage of its Baltic Pipeline System, a network designed to reduce Russia's reliance on non-Russian ports. The first stage has already been built to Russia's new port on the Gulf of Finland at Primorsk. Work was due to start on a second stage to add capacity next month.

Instead, Transneft's Vainshtock hinted last week that the decision could depend on a takeover of Ventspils. An unnamed company official told "Argus": "If Transneft decides to develop Primorsk, Ventspils will dry up. But if we are going to suspend phase two of the Baltic Pipeline System, then Ventspils should be controlled by the Russian side."

The heavy tactics appear to be part of a push to create a new ring of Russian oil outlets around the Baltic Sea as the country raises its exports and reaps huge profits to invest.

In September, Russia's second-largest oil company Yukos gained control over Lithuania's Mazeikiu Nafta oil refinery, including a pipeline and an oil terminal at the port of Butinge. Despite initial concerns, the government backed the takeover, having no choice after the sudden withdrawal of a U.S. company. In the past, the refinery had suffered from a cutoff in its oil supplies by the Russian oil giant LUKoil.

In Poland, the government has been struggling with a decision on its Gdansk refinery. The fuel plant seemed set to become part of LUKoil's empire until the company was dropped from a joint venture with Britain's Rotch Energy earlier this month due to Polish opposition. But on 18 October, LUKoil defied reports that it was out of the running by offering to buy the refinery on its own.

A refinery spokesman told Reuters that LUKoil's offer could only be considered in conjunction with Rotch or a second bid from Hungary's MOL oil and gas company. But here, too, Russia may be combining to spread its influence. Last week, the Hungarian government said it is in favor of selling 25 percent of MOL to Russia's Gazprom.

Last month, Gazprom and LUKoil also announced plans for an agreement on strategic cooperation, raising the prospect that LUKoil could still gain a role in Gdansk through Gazprom and MOL.

Julia Nanay, director of Petroleum Finance Company, a Washington-based consulting firm, said that the facilities at Gdansk are likely to be more practical for Russia than a costly new export terminal that LUKoil and Yukos are considering at the arctic port of Murmansk.

Russia seems to be seeking not only the best ports but also the greatest number of oil outlets in the region with a degree of control that has been unmatched since Soviet times.