Remaining state shares in Ventspils Nafta sold to Vitol

UNCLAS RIGA 000855 SIPDIS SIPDIS 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