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Latvia: Riga Fights To Maintain Control Of Oil Port

Latvia's port of Ventspils is fighting off takeover pressure from the Russian pipeline monopoly Transneft by handling record amounts of Russian oil by rail. Transneft's tactics may be proving costly for Moscow's image as Latvia turns to the European Union and the United States for diplomatic help.

Boston, 7 March 2003 (RFE/RL) -- After struggling against Russian pressure for nearly a year, Latvia is fighting to keep control over its port of Ventspils with a little help from Russia's private oil companies.

The Ventspils Nafta port terminal, which was once a main outlet for Russian oil, has been locked in a long battle with Russia's state-owned pipeline monopoly Transneft. Since last April, Transneft has cut back on shipments to the facility and cut them off altogether so far this year.

Last year, profits dropped dramatically at Ventspils Nafta, which is 43 percent government-owned.

The Russian pipeline company has openly acknowledged that it is trying to gain a stake in the business. Last month, Transneft spokesman Sergei Grigorev told Interfax that the Latvian government's only alternative was to "turn it into a beach."

But, although capitulation was widely predicted a month ago, Ventspils Nafta seems to be snapping back and defying a takeover. This week, Reuters reported that February throughput at the terminal rose 15 percent from January after rail shipments of oil to Ventspils hit an all-time high. The port is now handling 288,000 barrels of oil per day, compared with about 340,000 that it used to get from Transneft.

Privately owned Russian oil companies have apparently come to the rescue after protesting the Transneft cutoff in a letter to Russian Prime Minister Mikhail Kasyanov in January. While Russia's oil production rose 9 percent last year, much of the oil remained trapped on the Russian market, where prices plunged to as low as $5 per barrel. Export pipelines are at full capacity, and Russia's Black Sea port of Novorossiisk has been frequently closed by storms.

Transneft has stuck to its boycott of Ventspils. Russian oil companies have responded by loading the rails. This week, second-ranked Yukos said it had leaned heavily on rail and river shipments to beat the restrictions last year, posting a 31 percent gain in exports. It is unclear whether Yukos is behind the Ventspils comeback, but the company has been the ringleader in efforts to circumvent Transneft.

In recent months, Yukos has waged a two-front campaign to break the Transneft monopoly by pushing a privately run pipeline project from eastern Siberia to China while promoting another private project at the Arctic port of Murmansk for exports to the United States. Both plans may now be headed for compromise after Kasyanov categorically backed Transneft as Russia's pipeline operator.

Transneft has been pushing a $1.2 billion project to expand its Baltic Pipeline System to the port of Primorsk on the Gulf of Finland as a counter to both Ventspils and Murmansk. The government is due to decide on both the Primorsk project and the pipeline to China at a cabinet meeting on 13 March. Deputy Prime Minister Viktor Khristenko has said that no Russian oil will be delivered to Ventspils by pipeline before April at the earliest.

Transneft has argued that Ventspils' transit tariffs are too high, a case that may be undercut by the rush of Russian oil companies to the port by rail, which generally costs more than pipeline delivery.

But the Ventspils saga has also become something of a diplomatic spectacle in Europe. In January, Latvian Foreign Minister Sandra Kalniete wrote to the European Commission complaining about Transneft's tactics. Kalniete argued that Russia's moves were incompatible with its bid to join the World Trade Organization. The Foreign Ministry also told the LETA news agency that the boycott violated the "nondiscrimination principle in respect of Latvia."

Last month, EU External Affairs Commissioner Chris Patten replied by offering to mediate the controversy at a meeting later this month. Andrew Rasbash, head of the European Commission's Riga office, told AP, "We're going to raise the issue, and we'll be interested to hear [Russia's] explanation." Kalniete also claimed backing from the United States after a White House visit by President Vaira Vike-Freiberga with U.S. President George W. Bush.

Kalniete said of Bush, "His attitude was that Russia had been recognized as a market economy, and in a market economy the rules of the market must apply." Last month, the Russian Foreign Ministry rejected Latvia's charge that Moscow's measures violated a 1993 intergovernmental agreement, calling it "totally groundless." Russian Ambassador Igor Studennikov charged that Latvia had tried to politicize the issue by taking it to the European Commission and other organizations.

So far, Russian President Vladimir Putin has steered clear of the question, although this week he told a conference in Tyumen that Russia "should take the place it deserves in the world petroleum markets." He also ordered the cabinet to respond more quickly to market changes, RIA-Novosti reports. The remark may be a sign that the port limits have gone on too long.

Russia also does not seem to have considered the effect on its image in other countries where it is trying to widen its holdings. In the past week, for example, Putin promoted a role for the state gas monopoly Gazprom in the energy privatization of Bulgaria.

Transneft's toughness in Latvia may do little to ease fears about Russian investment in countries like Poland, which are already wary about ownership of energy assets. The price for Ventspils could carry a high political cost.