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Russia: Moscow Seeks Takeover Of Latvian Oil Port

Russia has ratcheted up the pressure on Latvia's Ventspils port, telling it that it has no other choice but to sell the facility to the pipeline monopoly Transneft. Oil export business is down 99 percent after a costly Russian cutoff, but so far, Western nations seem to be treating the dispute as a bitter takeover battle rather than a political problem.

Boston, 12 February 2003 (RFE/RL) -- After months of pressure, Russia has declared that it is pursuing a takeover strategy for Latvia's oil port of Ventspils, openly telling officials that their only choice now is to give in.

Last week, the vice president of the Russian state pipeline monopoly Transneft issued a public challenge to Latvia, which has been virtually cut off from Russian oil traffic since last April.

The Interfax news agency quoted Transneft's Sergei Grigorev as saying: "Oil can flow only from Russia. You can of course sell [the port] to Westerners. But what are they going to do with it? Turn it into a beach?"

The comment is the starkest statement yet of Russia's plan to choke off the Ventspils Nafta export facility until it gives in. Last month, Deputy Prime Viktor Khristenko said no Russian oil would be shipped through the port before April. Any resumption would not even be discussed before next month, he said. The port once served as a main outlet for some 340,000 barrels of Russian crude per day.

Last year, shipments at Ventspils Nafta dropped by 38 percent, according to Interfax. Profits plunged over 99 percent to an estimated 40,000 lats ($66,700) from 25.7 million lats in 2001, AP reported. Last week, the Russian website said Russia had imposed a "blockade" of the port, adding that the purpose "is to bankrupt it and cause the shares of the Ventspils Nafta oil depreciate."

Transneft has said it would need to invest $143 million in a pipeline from Polotsk in western Russia to the terminal in order to make it viable, suggesting it should receive a controlling stake in Ventspils Nafta in return. The Latvian government owns 43 percent of the company.

While analysts have said for months that the Transneft cutoff is aimed at staging a takeover, the monopoly's president, Semen Vainshtock, denied last October that it was seeking shares. Since then, he has argued only that Ventspils Nafta should be operated by some Russian company before Transneft invests in the export route. Grigorev's statement seems to be a sign that Transneft has now dropped all pretense about its tactics and aims.

In remarks reported by the Reuters news agency, Grigorev also seemed to demand that Latvian officials negotiate a sale with Transneft exclusively. He said the company would not participate in an open tender, adding, "We are only going to discuss this proposal if they address Transneft directly."

The conflict over the port has already given rise to raging debates within Russia. Top executives of Russia's independent oil companies have written to the government, protesting Transneft's isolation of Ventspils at a time when all of Russia's other oil outlets are straining at capacity.

The export crimp may have contributed to last month's decision by giant LUKoil to start swapping oil for export through Iran, a route that has long been on offer but which previously held little appeal for Russian companies.

The Ventspils stoppage has been even more costly for Russia's exports because its Black Sea oil port of Novorossiisk was shut for much of January by bad weather, while approaches to Transneft's preferred alternate port at Primorsk on the Gulf of Finland have been clogged with ice up to 25 meters thick. The problems come at a time when oil prices are soaring due to war fears, while world supplies are tight.

But the costs do not seem to matter to Transneft, which has stayed locked like a laser on its goal. The dispute is also related to attempts by independent oil companies to break Transneft's export monopoly by seeking to build privately operated pipelines to the Arctic port of Murmansk and to China from Russian oil fields in eastern Siberia.

Those issues may have been settled in the past week, after the government insisted that Transneft keep control over all oil lines. Last week in Washington, Yukos chief executive Mikhail Khodorkovskii abruptly dropped his campaign for privately run pipelines, the Dow Jones news agency reported. After months of leading the revolt against Transneft, Khodorkovskii said that "who actually owns the pipeline is not an important issue whatsoever."

This week, the government also compromised with Yukos on the pipeline to China, saying it would also build a long connection for the Japanese market, which Transneft wanted instead.

But the remarkable part of the struggle over Ventspils is how little notice it has drawn among Western countries, which were once on the alert to any move implying Russian pressure on the Baltics. The war on terror and a looming potential U.S. campaign in Iraq have seized the world's attention, while Russia is seen as a cooperating partner and oil exporter instead of the fearsome regional presence that it once was.

Last month, Latvian Foreign Minister Sandra Kalniete wrote to the European Commission seeking relief from the Transneft tactics, arguing that it was "politically colored." But so far, Western countries seem willing to see the standoff as a business dispute, akin to a Western-style hostile takeover.

Adding to the irony last week, Yevgenii Samoilov, head of Russia's Union of Oil Exporters, accused Latvia of resorting to "blackmail" by appealing to the European Commission. In an interview with the newspaper "Vesti Segodna" carried by the LETA news agency, Samoilov defended the oil cutoff and blamed Latvia for its reaction. He said: "I don't understand why the decision provoked such an aggressive reaction from Latvia. Instead of seeking opportunities for negotiations, instead of a calm analysis of the reasons for Russia's decision, a real hysteria was launched in Latvia."