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Viewing cable 06RIGA855, Remaining state shares in Ventspils Nafta sold to Vitol

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Reference ID Created Released Classification Origin
06RIGA855 2006-10-18 14:03 2011-08-25 00:00 UNCLASSIFIED Embassy Riga
VZCZCXRO2963
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRA #0855 2911403
ZNR UUUUU ZZH
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 
 
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