WATCHING THE WORLD BALTIC CANDIDATES

With Roger Vielvoye from London The newly independent Baltic states appear to be prime candidates for western investment in their old fashioned refining and marketing businesses. Half a century of Soviet occupation left Estonia, Latvia, and Lithuania heavily dependent on crude oil and products from the U.S.S.R. to satisfy local demand through marketing outlets reminiscent of western European facilities of the 1950s. Low cost supplies priced in rubles have been largely phased out, and priorities

Nov. 25, 1991

3 min read

The newly independent Baltic states appear to be prime candidates for western investment in their old fashioned refining and marketing businesses.

Half a century of Soviet occupation left Estonia, Latvia, and Lithuania heavily dependent on crude oil and products from the U.S.S.R. to satisfy local demand through marketing outlets reminiscent of western European facilities of the 1950s.

Low cost supplies priced in rubles have been largely phased out, and priorities of all three states are to develop secure--although expensive--western sources of oil supply.

STATOIL'S PLAN

Helping to fill this Soviet gap with capital, expertise, and oil from the West is an exercise that requires considerable patience, especially when a newcomer, as in the case of Norway's Den norkse stats oljeselskap AS, does not want to take the joint venture route.

Through its Swedish affiliate, Svenska Statoil, the company has been active in Estonia for more than 12 months and has identified sites in the capital, Tallinn, for the first two of 15 gasoline service stations it plans to build in the country during the next 5 years.

Obtaining final approvals that will allow fast track development eludes Statoil. Delays in getting site approvals pinned down stem mainly from Statoil's decision to build a 100% owned network in Estonia.

Central authorities approve of the 100% path. The problem lies at the local level, where politicians and businessmen want to see downstream marketing advance through joint ventures.

The only other western oil company in the Estonian market, Neste Oy of Finland, chose the joint venture route. It is operating its first gasoline outlets in partnership with the Estonia's state marketing organization.

Undeterred by the slow going, Statoil is persevering. It hopes approval for the first two sites will be forthcoming soon.

Sorting out the real estate side of the downstream business is not the only challenge facing Statoil in Estonia. It also has to deal with the financial limbo created by Estonia's decision in principle to introduce its own convertible currency, the Estonian crown, in 1992 while the economy continues to use the old, largely worthless Soviet ruble.

When the first two service stations open, Statoil will accept payment only in western currencies or by credit card. That will restrict sales to a small group of well connected locals, tourists, mainly from Scandinavia, and visiting businessmen, most of whom need unleaded gasoline that is not available from most local filling stations.

MORE AMBITIONS

Statoil's Baltic ambitions extend across the borders of Estonia into Latvia and Lithuania, where the only refinery in the region is situated at Mazeikiai.

Lithuania also is the location for a crude oil terminal at Klaipeda. It originally was designed as an export outlet for crude oil moved in from the east by pipeline.

The government wants to revamp the terminal to import rather than export oil and has been talking to Statoil about participation in a port modernization project.