Railroad experts believe the decision to deprive the ports of Ventspils and Riga of Russian diesel, reported also to President Vladimir Putin, also signals the end of the transit business in Estonia in two years' time.
The Kremlin to end transit era in Baltics
14th September 2016, 17:32
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
„Transneft's decision to reroute export to Russian ports has no immediate effect on Estonian Railways as their pipeline does not reach us. However, the decision will lead to even fiercer competition in the transit sector,“ said CEO of Estonian Railways Sulev Loo.
The manner in which head of Transneft Nikolai Tokarev presented the news to Putin suggested that rerouting of transit volumes followed a government order. When asked whether the decision could mean the end of all oil transit through the Baltic countries, including Estonia, by 2018, Loo said: „I believe so.“
Estonian Railways threatened
While oil terminals in Estonian ports continue storing oil products and turning a profit, the most serious blow will be delivered to Estonian Railways as high-turnover mass carriage of goods is cut further. „An era of Estonian business has ended as the nature of transit will change completely,“ said transit expert, former chairman of the supervisory board of Estonian Railways Raivo Vare. Business sporting a 73.5 percent profit margin is no longer possible, which will result first and foremost in a complete overhaul of how the railroad functions.“
In a situation where the current railroad infrastructure fees system is based on major carriage of goods volumes, we can soon no longer count on sums from the transit business.
„We have come to Europe, where the railroad functions based on carriage of passengers and is maintained by the taxpayer. It is another matter how much money our taxpayer has,“ Vare said.
Because the Transneft pipeline supplying diesel fuel for the Port of Ventspils comes through Belarus, Estonian entrepreneurs' chances of securing light crude oil products for Belorussian terminals are also called into question. „The Latvians have a geographical advantage in competition,“ Vare added.
Several participants of the transit business see Estonia's prospects in the new situation in a far more positive light, however.
„What we had was a single pipeline's director's visit to the president that does not concern the whole of the transit business;“ said CEO of Port of Tallinn Valdo Kalm.
Because Transneft is first and foremost cutting diesel volumes through Ventspils and Riga, it will have a modest effect on Estonia as the majority of liquid fuels transit in Estonia concerns mazut.
According to Kalm, Port of Tallinn's oil products volumes fell abruptly already last year, and it is this effect that is only reaching Latvia now. „Our clients have good contacts with oil traders that remain in effect, whereas the pipeline does not reach all refineries,“ Kalm explained. „A lot of the business we do happens on a ship-port-ship basis that will help us stay afloat even in a situation where Russia's own Ust-Luga port constitutes a major investment affecting the entire region.“
Chairman of the board of Port of Sillamäe Tiit Vähi also told BNS that Transneft's decision to end export through Baltic ports by 2018 only concerns pipeline products, in other words only Latvia. „It is less news and more long-term policy. It was announced by Transneft, Tokarev is the head of Transneft, and it concerns oil moved through the pipeline. Therefore it does not directly affect Estonia but rather Riga and Ventspils ports in Latvia,“ Vähi said.
Head of state owned goods carrier EVR Cargo, Raul Toomsalu, told BNS that Russia's decision to end export of oil products through Baltic ports is no surprise as oil transit has already ceased in Estonia.
„Export of oil products through Estonia ended in March of this year, which is why this announcement is in no way out of the ordinary. There have been similar statements before, and it might be aimed more at domestic politics,“ Toomsalu said. He added that there are currently no signs that oil transit through Estonia could be restored in the near future as the ruble's exchange rate and the world market oil price have not changed in any significant capacity. Toomsalu said that Estonian carriers and ports are rather concentrating on other types of goods. „August was a pretty good month for us,“ he added.
CEO of Latvian carrier Latvijas Dzelzcels, Edvins Beržinš, told Latvian television that the company is preparing for the possibility of Russia ending all export through Baltic ports. Beržinš said that because Russia's plans have been known for a while, the company is actively working to replace Russian oil products with other goods, BNS reported. He added that the decision is not political but rather stems from the need to cover major investments made into Russian ports. Latvian Railways stands to lose tens of millions of tons in goods.
Beržinš said that carriage of goods is currently stable in Latvia, even though it has lost 20 percent in volume compared to last year.
Oil transit to end
Last year, Baltic ports moved nine million tons of Russian oil products, which will fall to five million tons this year, and to zero in 2018, pipeline operator Transneft's CEO Nikolai Tokarev told President Vladimir Putin during a meeting on Monday.
Russia started building major ports in Primorsk and Ust-Luga to ensure independent oil export capacity already in the 1990s. The Port of Primorsk that was built specifically for crude oil took off sooner, while Ust-Luga, the effect of which on the Baltic transit business is greatest, struggled for a long time as a result of shady transactions between developers to finally take a big step forward in 2007. Russian politicians, bothered by Estonia's decision to move the Bronze Soldier monument in Tallinn, painted development of the port as an act of revenge. In reality, business plans of Russia's leading transit companies had already designated the Port of Muuga as a place to store oil products as opposed to a massive transit pump.