Cablegate: Remaining State Shares in Ventspils Nafta Sold to Vitol
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RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRA #0855 2911403
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R 181403Z OCT 06
FM AMEMBASSY RIGA
TO RUEHC/SECSTATE WASHDC 3452
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS RIGA 000855
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E.O. 12958: N/A
TAGS: EPET ETRD PGOV LG
SUBJECT: Remaining state shares in Ventspils Nafta sold to Vitol
Group.
1. On October 5, the Latvian government sold its entire 38.62%
stake in Ventspils Nafta (VN), a large holding company known mainly
for its oil terminal and extremely convoluted shareholding
structure. Besides the oil transit business, VN owns a number of
real estate businesses, several printing and publishing businesses,
and a 49.94% share in another large company, Latvian Shipping. The
state shares were sold for a total of LVL 74.2 million
(approximately $150 million), only slightly above the stipulated
minimum price of LVL 73 million. VN shares were not sold in one
block; instead, 37 different bids were submitted, with bid sizes
varying from the minimum lot of 19,415 shares to over 40 million
shares.
2. Vitol Group, an international oil trader based in the Netherlands
with turnover exceeding $80 billion in 2005, emerged as the largest
buyer. The company announced that it has bought 34% of VN shares
through its daughter company Euromin. Vitol Group is made up of
separate affiliated companies engaged in a variety of commodity and
financial businesses. Headquartered in Rotterdam, we understand that
Vitol has a presence in 20 countries, including Russia, Kazakhstan,
and Azerbaijan. Vitol owns several crude oil producers, oil
terminals, and oil refineries around the world. Vitol Group
companies are privately owned by oil industry professionals.
According to press reports, Vitol has been a long-term client of
Ventspils Nafta and may have purchased the shares in order to use VN
terminal to store, blend, and ship oil products.
3. The October 5 auction put an end to the nearly ten-year long
privatization saga of Ventspils Nafta. "Better a horrible end, than
an endless horror", commented Latvian journalists. The press, as
well as government and business representatives, were somewhat
divided over the results of the sale. Economics Minister Stokenbergs
noted that he was happy the dragged-out privatization process of VN
was finally completed, but he also admitted being slightly
disappointed about the lower-than expected share price. Prime
Minister Kalvitis was more enthusiastic, calling the auction a
"historic event that finally cut the knot that had tightened around
the company." One of the strongest negative statements came from
leader of the opposition New Era party, Einars Repse, who claimed
that the state should have received at least LVL 20 million more,
and that in his opinion this has been a case of "state capture."
4. Industry analysts, however, pointed to the fact that many of VN's
assets are non-liquid, particularly in the view of Russia's 2002
decision to shut down crude oil flow to VN through the pipeline.
Moreover, the murky shareholding structure and the protracted feud
between several groups of VN's private shareholders further
detracted from the value of the company.
5. Comment: While the results of the auction are not stellar, this
appears to be a satisfactory outcome. The most important thing was
to get these shares sold because the government stake in VN was too
often a tempting target for people looking to make some extra money
on the side. Although a different auction model or a better timing
might have resulted in a higher price for the VN shares, these
speculations are purely hypothetical. The company, just as the whole
oil transit industry in Latvia, is very opaque, and some of its
assets have lost value after Russia turned off the crude oil
pipeline to Ventspils. Though the mayor of Ventspils, Aivars
Lembergs, is widely believed to have a large financial stake in
Ventspils Nafta, the hazy ownership structure makes it impossible to
verify this or to analyze the impact of the Vitol purchase on his
finances. The fact that the auction attracted a reputable Western
buyer without any known ties to Latvia's oligarchs is in itself a
modest success. End comment.
BAILEY