Poor subcontracting results drag exports down

The Baltic Times, TALLINN
By Kairi Kurm
Feb 27, 2003

The effects of a global economic slowdown that sapped demand in the European Union, the United States and Japan were felt in tiny Estonia in 2002, with exports falling slightly year on year.

According to figures from the Ministry of Economic Affairs, overall exports last year amounted to 56.9 billion kroons (3.7 billion euros), a 1.7 percent decline.

Subcontracting services, also known as re-exports, took the biggest hit, falling by some 20 percent year on year.

Traditional exports of local production actually increased by 9.4 percent, the ministry said, a bit of silver lining on an otherwise dark cloud, officials said.

“Although growth was slow, it is positive that exports of local production grew steadily throughout the year,” said Finance Ministry analyst Liis Elmik.

A drop in the sales of mobile phone parts producer Elcoteq-Tallinn was the biggest drag on re-exports, usually about one-third of all Estonian exports.

The company, a subcontractor for Finland’s Elcoteq Network Corporation, saw sales drop in the first half of 2002 due to the overall global slowdown in the telecommunication sector.

Company officials said sales rallied in the second half but refused to comment on concrete figures.

Imports of raw materials for subcontracting fell by 16 percent while imports for the internal market grew by 13 percent to 63.3 billion kroons.

Total imports increased by 5.8 percent to 79.5 billion kroons, resulting in a 22.6 billion kroon foreign trade deficit.

Maris Lauri, an analyst at Hansapank, said that in monetary terms, it was the biggest gap in the history, but compared to the gross domestic product, it was in line with results of previous years.

The high increase in imports was caused by increased consumption and investments.

Elmik of the Finance Ministry said imports for investment projects such as transportation and machinery, undertaken to meet EU requirements in these sectors were three times larger than imports of consumer products.

But automobile imports increased by more than 22 percent year-on-year.

On the export side of the ledger, sales of wood and wood products, plastics and overland transport vehicles saw the largest increase.

Textile export growth was modest due to limited demand, while exports of fish products fell by 8 percent, mainly, analysts said, because of the declining value of the U.S. dollar.

Lauri said she was worried about the slow increases in the services sector. Revenues related to tourism and transit, she said, have traditionally been higher than overall imports, but cheap foreign travel packages had undercut the former.

Estonia’s largest exporters, according to the Estonian Trade Council, include Elcoteq Tallinn, seat belt manufacturer Norma, paint producer ES Sadolin, textile company Kreenholmi Valdus, and wood/pulp companies Stora Enso Mets and Imavere Saeveski.

Most employ cheap labor and are 100 percent foreign owned. Last year was successful for most; ES Sadolin, Norma and Imavere Saeveski grew by more than 20 percent, according to official figures.

Several companies were against disclosing their export numbers but said average export turnover in 2002 was about 500 million kroons. The three biggest exporters had figures two to three times higher.

The biggest markets for Estonian exports in 2002 were Finland (25 percent), Sweden (15 percent), Germany (10 percent), Latvia (7 percent) and Great Britain (5 percent).

Top importers were Finland (17 percent), Germany (11 percent), Sweden (10 percent) and Russia (7 percent).

Source: http://www.baltictimes.com/news/articles/7663/

Have oil, won’t let it travel via Latvia

By Vladimir Socor

Russia’s oil production and exports are growing spectacularly in response to strong international demand, high prices and Western strategies to reduce dependence on OPEC oil. The Russian oil flow is about to overtake the capacity of Russia’s pipelines and export terminals. New pipeline routes and oil ports are urgently required in order to handle the growing exports. Yet construction of such infrastructure is not keeping pace with the growth in exportable oil volumes. Bottlenecks are already apparent, constraining Russian oil deliveries to Western markets.


In this situation, you’d think that the government in Moscow would encourage the country’s oil-producing companies to use every available pipeline and port, to maximum capacity. Instead of doing that, however, the Russian government and its fully-owned pipeline monopoly, Transneft, are forcing a major export terminal for Russian oil to shut down.


That terminal is Ventspils in Latvia, the largest oil port in the Baltic region and the second-largest (after Novorossiisk on the Black Sea) maritime outlet for Russian oil. Ventspils boasts an annual handling capacity of at least 16 million tons of oil and oil products, modern installations, and proven high-quality service to tankers carrying Russian oil to points West. The oil port is owned partly by Latvian private investors and partly by the Latvian state; the latter had planned to auction off most of its shares this year.


This month, Transneft cut Russian oil exports via Ventspils to zero. The Russian government then announced what amounts to a death threat against the Latvian port — namely, that it would not export any oil through Ventspils in the coming months.


These are only the final moves of what has been a methodic asphyxiation. Between January and December last year, for instance, the Russian government reduced the oil transit through Ventspils from a once-healthy volume to a trickle. It seeks to force the oil port into bankruptcy and asset depreciation, and thus to blackmail the Latvian owners — both state and private — into selling a controlling stake to Transneft at a fraction of the real value. Moscow also undoubtedly calculates that Russian state control of Latvia’s single largest economic asset would translate into economic and perhaps political leverage on this small country.


Moscow claimed all along that it was merely rerouting the flow from Ventspils to the newly built oil port of Primorsk, owned by Transneft, at the Russian end of the Baltic Sea. By now, however, it turns out that Primorsk — and indeed Russia’s overall export infrastructure — is insufficient for handling the existing — let alone the projected — oil export volumes. This is especially true in winter, when Primorsk freezes for several months, while operations at Novorossiisk are also being severely disrupted for several months by storms and high waves, endemic in winter to that area.


By contrast, Ventspils is ice-free and ideally suited for year-round operations. Thus, to force it to shut down in winter is to exacerbate the deficit of infrastructure for Russian oil export. The infrastructure deficit will be felt even more in the spring when Russian oilfields ramp up their production in response to rising Western demand.


An oil glut is already in evidence and growing within Russia, seeking outlets to international markets. Thus, the Russian government’s moves against the Latvian export terminal hurt not only Latvia, but Western interests, and, indeed the interests of Russian oil-producing companies, most of which are private by now.


Earlier this month, five of Russia’s largest oil producing companies — Lukoil, Yukos, Surgutneftegaz, Tyumen, and Rosneft — petitioned Prime Minister Mikhail Kasyanov to authorize them to resume exports of oil and oil products through Ventspils, using Transneft’s pipeline. Kasyanov demonstratively ignored the petition; while Deputy Prime Minister Viktor Khristenko, who is responsible for the energy sector, turned down the request. Russian government officials indicated that the Kremlin backed Transneft and so authorized the government’s negative response to the producer companies.


To be sure, Ventspils can only handle a relatively small part of Russia’s total exportable oil volume. But it can at least alleviate the situation in the short term, enabling Russian producer companies to increase exports in keeping with their recently assumed commitments.


The United States and other Western countries want to boost Russian oil exports as a price stabilizer on the world market, a substitute for the shortfall in Venezuela’s output, and a hedge against possible disruptions in supplies from the Persian Gulf in the event of war in Iraq. While Russian companies seem ready to respond to market demand, the Kremlin authorizes the government and Transneft to cut off the Latvian outlet at a critical time.


Russian producer companies are currently sending small amounts of crude oil and refined products to Ventspils by railroad, which is outside Transneft’s authority. But rail transport is expensive, and the volumes are too small to make a difference on international markets — or to rescue the Latvian port from the stranglehold.


This month, the Russian government has discontinued the transit of Kazakhstani oil via Russia to the Latvian terminal. The amounts involved were meager in the first place. The issue of shipping Kazakhstani oil from Latvian and Lithuanian ports is a perennially vexed issue.


Russia insists on retaining a near monopoly on the transit and shipment of oil from Kazakhstan. By cutting off Ventspils from Kazakhstani oil as well, the Russian government confirms the doubts with respect to Russia’s reliability as a transit route for Caspian oil.


Latvia, soon to become a member of the European Union, naturally seeks EU support against such extortion. In a recent letter to EU External Affairs Commissioner Chris Patten, Latvia’s Foreign Affairs Minister Sandra Kalniete expressed concern that the Russian government’s moves against Ventspils are politically motivated, and also incompatible with Russia’s aspiration to become a member of the World Trade Organization (of which the three Baltic states are members). The minister underscored Latvia’s wish to resolve these issues jointly with the EU and to become actively involved in the EU-Russia energy dialogue.


Thus far, the EU does not seem to have devised a policy answer to the massive entry of Russian energy giants in the energy sectors of the Baltic states and other prospective member countries. While those Russian companies function as energy exporters to EU member countries in Western Europe, the same Russian companies act or seek to act in the Baltic states in the multiple role of energy suppliers, distributors, and part owners of generating plants and transport systems.


Moreover, while the EU’s Western members are in a position to diversify their energy supply sources, Russia enjoys a near-monopoly as energy supplier to prospective EU members such as the Baltic states. This economic clout seems to be growing, and can potentially be misused for gaining political influence.


The EU must forestall any trend toward a division of EU territory into two zones — western and eastern — that do not enjoy the same level of energy security and immunity to political misuse of supplier’s leverage. The answer should be a program of targeted investment by the EU in the energy sector of the Baltic states and other prospective member countries.


Mr. Socor is a senior fellow of the Washington-based Institute for Advanced Strategic & Political Studies.

Source: iasps.org