Vitol Group aquires 34.5 percent of Ventspils Nafta, state nets 103 million euros

RIGA – The largest privatization in Latvian history was completed on Oct. 6 with the total sale of the Latvian government’s 38.62 percent stake in Ventspils Nafta. The majority of the state held shares were reported by Latvian Economics Minister Aigars Stokenbergs on the day of the sale to have been purchased by international oil and gas company Vitol Group. The sale earned the government 74.2 million lats (103 million euros).

“The auction has taken place, and the selling price was higher than the minimum. Of course we hoped that it would have been even higher, but perhaps the price reflects the real market value,” Privatization Agency board chairman Arturs Grants told the Baltic News Service and Latvian public television.

The deal was the largest privatization deal in Latvia that did not involve the usage of privatization vouchers. The Baltic News Service reported that a total of 43 purchase orders were submitted during the auction and 37 of them had been satisfied, including the largest order for 18 million shares.
President Vaira Vike-Freiberga said in an interview with Latvian public television that it was good that the Ventspils Nafta privatization had finally been completed.

“There was no apparent benefit from the state-held stake in Ventspils Nafta therefore it was better for the state to sell the shares, take the money and invest it in the further development of the country,” the president said.
Speaking to the Latvian public television program “100.pants” on Oct. 5, Stokenbergs announced the purchase of about 36 million of the governments 40.3 million shares, giving the international oil company Vitol Group 34.5 percent ownership of Ventspils Nafta.

Vitol Group had talked to Ventspils Nafta’s management during the road show presentations held in Moscow ahead of the auction.
The Vitol group previously expressed interest in Ventspils Nafta back in 2004. In a letter to then Prime Minister Einars Repse, Vitol president Ian Tailor claimed that Vitol could successfully develop the Ventspils Oil terminal, help develop its business, and gather support from future investors into the business.

On the eve of the Oct. 7 election Repse’s New Era party was criticizing the Oct. 5 privatization of Ventspils Nafta. In a statement published on the party’s Web site, the party claimed that the mismanagement of the privatization by the People’s Party lost the government 12-16 million lats (17.4-23 million euros).

The privatization was completed only two days before the parliamentary elections. The aspects surrounding the economic state of Ventspils Nafta, and the manner in which it was privatized were hot issues during the campaign.
Nonetheless, signs indicated that Russia has no intention of turning the pipeline back on, and even though the asset does not reflect its potential value. Thus, it was likely sold for what it is worth.
Dienas Bizness reported on Oct. 6, that Parex bank’s privatization representative Valery Kargins had met with various Russian oil representatives in Russia and had come to the conclusion that the oil would not be flowing again from Russia for export at Ventspils.

In a game of he said, she said, the paper quoted that Sergey Grigoryev, vice-president of the Russian oil pipeline monopolist Transneft, told Kargins, that his company had no intention of delivering any oil to Ventspils via the pipeline. This was due to the fact that the resumption of delivery would require an investment of more than $2 billion (1.6 billion euros). He purportedly said this, while noting that Transneft is not willing to spend such a large amount of money on the pipeline that feeds Ventspils. The company plans to use these funds to expand their existing pipeline system within Russia.

In the Oct. 6 article, Kargins noted that Ventspils Nafta still has an operational oil storage facility and that the Latvijas Kugnieciba (Latvian Shipping Co.) portion of the multi-business group is still a 110 million lat asset with development potential.
Vitol might have purchased Ventspils Nafta with the idea to expand their storage portfolio in the region. However, concrete plans that Vitol may have for the future development of Ventspils Nafta will be announced after the shareholder meeting to be held in late October. This meeting will see the election of the five new members in the 11-member shareholder council, replacing those that were once held by the state.

Investor owned Vitol Group was founded in 1966 and is one of the world’s largest independent oil traders with a turnover of $80.6 billion (63.5 billion euro) last year. The company has representations in 20 countries.
The auction on the Riga Stock Exchange on Oct. 5 sold all the state-held 38.62 percent or 40,345,556 shares in Ventspils Nafta at a price of 1.84 lats per share, 0.03 lats more than the starting price. The state received 74.2 million lats for its holdings in Ventspils Nafta.

Ventspils Nafta has a registered capital of 104.5 million lats, consisting of the same number of shares with par value of one lat each. The Latvian state was the second largest shareholder in Ventspils Nafta after Latvijas Naftas Tranzits (Latvian Oil Transit), which holds 49 percent.
Ventspils Nafta is not only oil, it has holdings in a number of companies including Ventspils Naftas Terminals oil reloading terminal, LatRosTrans oil pipeline operator, Latvijas Kugnieciba shipping company, and Preses Nams printing and publishing house.