The Baltic Course  

Let's be more diplomatic and wealthier

By Helga Balode

Latvian carriers undoubtedly are interested in increasing cargo turnover. This would also add substantially to the national budget. Therefore both businessmen and civil servants have been turning their sights to Central Asia for quite some time. Kazakhstan is one of the most perspective directions. How much the Asian countries need us is another question. This is what the BC discussed with Latvian Transportation Ministry transit policy department head Andris Maldups before the Latvian transport business delegation left for Astana, Kazakhstan's capital Kazakhstan ranks 13th in the world by oil and gas fields. Its oil deposits are estimated at 6-7 billion tons. Raw materials exports in 2001 grew 10 percent, quite impressive even by world standards. What do Kazakhs find interesting in us, a country geographically so remote from their own?

It's the possibility of making exports through our ports. To export goods to Europe and markets on other continents, one needs an outlet to the sea. Latvia with its transit opportunities is very attractive from this angle. There's the competition, though. Recently Iran has been developing its port system very actively, creating competition for our cargo transportation services. Many shipments now go south because of the railway rates set by Russia in respect to Latvia and other Baltic states. 

Has Latvia any trump cards in the game with Estonian and Lithuanian ports?

Competition terms are more or less the same in all Baltic ports, only cargo is specific. The most important Kazakh product would be oil. Latvia's Ventspils and Lithuania's Butringe are rivals when oil  is transported through pipelines. Ventspils port is much safer and can accept vessels with capacity of over 120,000 tons, the maximum for ships entering the Baltic Sea. Regrettably, Butinge with its offshore loading facilities has already had two large accidents and also several minor spills. Lithuanian population does not like it themselves. A closed port like Ventspils has far greater advantages.

According to statistics, cargo shipments between Latvia and Kazakhstan, Turkmenistan, Kyrgyzstan, Uzbekistan make up only 10 percent of the total amount. Kazakhstan sends mostly oil, some cotton and metals.

Kazakhstan cotton exports are small. Latvia receives cotton mostly from Uzbekistan. We lost practically all metal shipments from Kazakhstan due to certain Russian tariffs which made transportation through the Baltics unprofitable. As Kazakh oil refining industry is not growing so fast, crude oil transportation gets most attention. This is what we are working on.  

How much oil products are being carried by railway? How much is being transported through pipelines?

Last year oil products accounted for half of all cargo carried by the Latvian railway or some 16 million tons while 4 million tons of oil products and 26.6 million tons of crude oil were delivered through pipelines. There are two crude oil pipelines - one to Ventspils and the other to Mazeikiai (also via Latvia). Of this amount, 14.9 million tons were shipped through Ventspils.

The Latvian government has been working on the Western Pipeline System project for many years. There are plans to step up things with the project. Could this be the reason why we are looking for partners in Kazakhstan?

If the oil and oil product market is stable and transportation amounts predictable, it is better to use pipelines which are cheaper than railway. But railway is more flexible. When a pipeline stands idle, damages are great. To build a pipeline takes very large investments. Therefore a more or less stable flow of shipments must be ensured. We are working to find partners both in Kazakhstan and Russia.

Latvian delegations have been travelling to Kazakhstan not at all for the first year. What has been done so far and how are the talks likely to develop further?

During the visit of the Latvian prime minister to Kazakhstan in September 2001 both parties declared their interest and willingness to cooperate to increase the amount of oil and oil product transportation. The Latvian-Kazakh trade and economic cooperation commission passed a resolution about setting up a special commission on use of Latvian ports for handling Kazakh export and import cargo. This refers to the pipeline as well as to railway. It is understandable that Kazakhstan, being in possession of oil, is exploring all possible routes for transportation and export: through the Baltics, through Russia. It is now secret that Russia offers Kazakhstan to ship oil through its new terminal in Primorsk. If oil can be taken to Primorsk, it can also be taken to Ventspils. But one has to realize that Russia needs to be involved in this cooperation with the Baltics. Without Russia, nothing will come out of it anyway. Everybody knows it.

Latvijas Dzelzcels (Latvian Railway) company is working on another project - organization of a regular container line to Kazakhstan. Let's see what will be the result. After all, containers are used to transport particularly valuable cargo. In terms of money, the service is also valuable. At present Kazakh imports coming from China or Korea, for example, are shipped to Rotterdam by sea, from there sent on to the Baltic ports and only then taken to Kazakhstan. Today the transportation amount is not large but the overland cargo flow between Asia and Europe is bound to increase.

In presence of a more or less balanced tariff policy, good relations, quality services, low costs tip the scales. If businesses now use our transportation services, it means they get their money's worth.

To increase cargo turnover Latvia chose to join the North-East transport corridor project. What advance have we made?

The agreement signed by Russia with Iran, India and Oman is open to  other countries. The corridor links Iranian ports with Russian ports. Latvia has prepared accession documents but the process of approval is taking too long, although it is just a matter of time. According to different estimates, the corridor can serve 15-30 million tons of cargo - amount not huge but not to be handled by St.Petersburg or Riga alone while it would be a good addition when distributed among all Baltic Sea states.

Cumbersome border crossing often gets Latvia into a disadvantage - due to both failure to sign international agreements and complicated  procedures. What has been done last year to make things better?

Border crossing procedures and customs performance were improved. Last month Russia and Latvia signed the customs cooperation agreement. It is very important for Latvia. And results seem to be visible already - no more extra long queues of vehicles on borders. A project has also been developed about setting up new border checkpoints. The European Union (EU) has already granted funding to this project. New customs checkpoints will also be opened at railway stations and ports - in Riga port and in Ventspils. Riga, Rezekne and Daugavpils railway stations will also have new customs checkpoints. The customs at Liepaja port got a new weighing equipment. Construction of new border checkpoints will be completed in 2004. Last year the parliament passed a legislative package about favorable tax regime in ports and state support. As some provisions are not in line with the EU requirements, amendments are being considered and may be adopted by the end of the year. Then we will be able to take pride in stability of our laws - they will meet the EU standards and will not be changed anymore.        

Why do negotiations with Kazakhstan, Uzbekistan and other Asian countries take so long?

We still have a lot to learn in work with our eastern partners. There are private businesses in Latvia which have experience in dealing with those countries but it's different with the state authorities. The staff has been replaced and young civil servants do not know how to work with the Asian region effectively enough. Also, Latvia does not have an embassy in Kazakhstan. But one has to meet with potential partners, communicate and offer, offer, offer. Just to mail a ministerial letter will never get things moving.

Oil owners and exporters around the world are very rich. Is this the underlying reason also for growth in Kazakhstan?

Oil is definitely a key element in Kazakhstan development but not the only one. Nuclear power production and other branches go upwards as well. All the world's largest oil companies are working in Kazakhstan, making large investments there. European developers invest in construction. Residential buildings, offices, industrial plants are being erected in Astana. Civil servants are moving from Almaty to Astana. The growth is impressive/striking?.

It may not be easy to do business with Kazakhstan yet but, at the same time, it is a stable, respectable country. Kazakhs are interested in cooperating with us and in solution of many common problems of development, and this will bear fruit. In a broader sense, it will also depend on our ability to work with Russia - the most important of Kazakh partners. We have to find a compromise in many issues still unsettled in Latvian-Russian relations, otherwise we can forget about cooperating with Kazakhstan.