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Russia: Moscow Halts Oil Exports To Latvia's Ventspils, Seeks Ownership

Russia has stopped exporting oil through the Latvian port of Ventspils, which has the largest terminal in the Baltics. Russia's state-owned Transneft says the costs are too high in Ventspils and that it will use its own export capabilities at the newly built Primorsk oil terminal near St. Petersburg. Analysts say Russia is putting economic pressure on Latvia on the eve of the privatization of Ventspils Nafta, the company that owns the port's oil terminal.

Prague, 10 January 2003 (RFE/RL) -- The Latvian port of Ventspils will largely be without crude oil in the first quarter of 2003.

The Russian government has ordered state-owned Transneft to redirect oil to the newly built Russian Primorsk oil terminal, bypassing Ventspils. Transneft formally says it stopped exporting through Ventspils because of high tariffs, but analysts say the ownership of Ventspils Nafta, a Latvian-owned company, is at stake, and Russia might be hoping to acquire Ventspils Nafta at a lower price by cutting off its main oil supply.

Ventspils is the biggest oil terminal in the Baltic states. Analysts say Russia wants Transneft or another Russian company to become an owner of Ventspils Nafta. Latvia is selling 38 percent of the state's shares in the company. The date of the sale is still unknown.

Nicholas Redman of the Economist Intelligence Unit in London told RFE/RL that Russia is putting political pressure on Latvia: "I think it's quite ironic that in the year that Latvia received the NATO invitation, [we] see fairly naked economic-political pressure from Russia. But look at the motive here. The motive is to gain control of Ventspils Nafta and with it, the pipeline running between Russia and Latvia."

Redman says Transneft, as Russia's national oil pipeline operator, oversees all oil deliveries, produces oil-export schedules, and has the power to cut all deliveries. Transneft also owns the Russian oil terminal at Primorsk. Primorsk exports 12 million tons of oil per year, but Transneft plans to expand the port's capacity to 18 million tons or more a year in the near future.

Oil and energy analyst Valerii Nesterov of Troika Dialog, a leading Russian brokerage and investment company, told RFE/RL that Russia wants to take advantage of higher world oil prices and sell as much oil as possible: "Russian oil companies vitally need more exporting infrastructure," he says. "It was a problem of tariffs, of costs, some time ago, but now it is a political problem, a problem of ownership."

Transneft also says it will increase exports by at least 16 percent this year by boosting the capacity of its network and ports. Nesterov says Ventspils Nafta is indispensable for Russian plans to increase its oil exports.

"Russia needs exporting infrastructure, and Ventspils is also indispensable," Nesterov says. "If oil production in Russia increases -- Russia plans to increase oil production radically 35 to 40 million tons [per year], as [Deputy Prime Minister Viktor] Khristenko said -- Ventspils' terminal will be needed. Almost all of these 25 to 30 million tons will be exported abroad."

A spokeswoman for Ventspils Nafta, Gundenga Varpa, says refusing to ship oil through Ventspils is harmful for the Russian companies if they want to expand exports.

"We think that this decision, of course, will affect not only our work but also the work of the Russian companies themselves. Russian export companies have not very favorable situations in [the northern terminals of] Primorsk and Novorosijsk [because of ice]," Varpa says. "Ventspils, which does not freeze in winter, is not being used at a time when the price for oil in the world market is high. I mean, the profits which Russia planned to have will slip away. Of course, we think it is some pressure. It is really not an economically motivated step because [selling oil through Ventspils is profitable] for the Russian companies."

Varpa says that Ventspils Nafta has lowered its tariffs, making them more attractive than Primorsk. Varpa says there has been no official reaction from the Latvian government, and that Ventspils Nafta, as a private company, can do nothing to change Russian state policy.

In the last several years, Russian energy companies have been aggressively acquiring assets in neighboring states. In September, Yukos became owner of 53 percent of the large Lithuanian oil refinery Mazeikiu Nafta. Yukos recently signed a long-term deal with the Polish company Orlen to supply crude oil.

Nesterov says Orlen is considered to be the favorite to win the tender of the Polish oil refinery in Gdansk. Yukos is also a potential buyer of Ventspils Nafta. However, state-owned Transneft might receive more support from the Russian state in Latvia than LUKoil will in Lithuania or Poland.

Some Baltic politicians fear that the presence of Russian energy companies poses a danger to state security. Redman of the EIU says, "I see perfectly the point and the fears over security and in that way perhaps Transneft is slightly more problematic for Baltic security planners than, say, Yukos would be."

However, Redman says Russian companies are more interested in making money than getting involved in politics and pose little direct threat to the security of the Baltic states.

Nesterov agrees, saying Russian companies are seeking to gain control of as many oil terminals in the Baltic states as possible and are often at odds with one another: "Their interests are intertwined and different. The practice indicates that Russian oil companies several times competed with each other abroad -- in Croatia, Bulgaria, in Poland, in Lithuania. It did not happen simultaneously, but it may be seen that Yukos has won over LUKoil in Lithuania, and is more successful in Poland than [LUKoil]."

Nonetheless, the buying spree of Russian companies will be watched warily by many in the Baltic states.