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  • Writer's pictureFirst Port Global (FPG)

Dramatic ports takeover in Latvia

At an extraordinary meeting on 11 December, Latvia’s government called on the nation’s parliament to change legislation to enable the Baltic State to take over the ports of Riga and Ventspils from the respective city councils

Concerned about US sanctions, the Latvian cabinet has already worked out a plan to set up a new company with a minimum charter capital of €35,000 to manage the Freeport of Ventspils and the Freeport of Riga. Under the plan, the Transport Minister Talis Linkaits will appoint new port Boards, while those appointted by Riga and Ventspils’ city councils earlier will step down immediately.

On 9 December, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury imposed sanctions under the so-called Magnitsky Act on a number of “corrupt actors and their networks” across numerous countries in Europe, Asia, and Latin America. Aivars Lembergs, the suspended Ventspils Mayor and prominent Latvian oligarch, has found himself on the sanctions list.

Passed back in December 2012, the Magnitsky Act allows the US authorities to arrest assets owned by people accused of violating human rights and suspected of corruption, as well as deny them entry to the US.

“Lembergs has served as the Mayor of Ventspils, Latvia, since 1988," reads the OFAC statement. "From that time, he has been repeatedly accused of money laundering, bribery, and abuse of office. Lembergs controls entities through political parties and corrupt politicians, and systematically exploits those entities and individuals for his own economic gain.

Aivars Lembergs...
Aivars Lembergs...
...was in charge of the Freeport of Ventpsils as the city's Mayor
...was in charge of the Freeport of Ventpsils as the city's Mayor

"Lembergs has used his influence over leadership of political parties to shape government personnel and place certain government officials in positions, as well as obstruct other government officials from obtaining leadership positions.

"Additionally, Lembergs has leveraged and corrupted law enforcement officials to protect his interests and subvert politicians whom he otherwise was unable to control.”

As long as the OFAC sanctions affect four legal entities, including the Ventspils Freeport Authority (VFA), associated with Aivars Lembergs, the measures taken by the Latvian government are meant to separate VFA from the port’s operations, in the words of the country’s Prime Minister Krisjanis Karins.

As far as the Freeport of Riga is concerned, some "individuals and their legal entities," added the US black list, "have a great deal of influence also in Riga,". The Latvian government, therefore, deems it necessary to take urgent action to protect the port’s business.

Furthermore, the US sanctions against Aivars Lembergs have “created an opportunity to reduce corruption at the ports and sort out their general administration,” said the government. That is why, after the steps that should be taken immediately, the government will consider other changes to help improve port operations and management in the future.

Meanwhile, Aivars Lembergs has left VFA’s board “in order to avoid disrupting its activity and competitiveness,” whilst calling the corruption allegations against him “fake news.”

The US Department of the Treasury has given the companies working at the Freeport of Ventspils 30 days to wind down their operations with the sanctioned entities. After that, Latvia will reportedly be able to ask Washington to extend the 30-day period.

Riga, the country’s largest port, saw a 10.5% y/y decrease in its handling volume (to 23.9 Mt) during the first nine months of 2019. It handled 15 Mt (down 12.8% y/y) of dry bulk, 6.2 Mt (down 3.1% y/y) of general cargo and 2.7 Mt of liquid cargoes (down 12.2% y/y). In 2018 Riga handled 36.4 Mt, down 8.2% on 2017.

Ventspils is Latvia’s second biggest port. During the three quarters of the current year, it increased its total handling volume by 10% year-on-year to 16.6 Mt, including 7.9 Mt of liquid bulk (down 1% y/y), 6.8 Mt of dry bulk (up 35% y/y) and 1.9 Mt of general (down 7% y/y) cargoes, according to the port’s data. Container handling slumped by 90% y/y over the period to 216,000 TEU. In 2018 the port handled 20.3 Mt (up 1% on 2017).

Since Soviet times, Russia’s oil, coal and grain exports to Europe have made up the bulk of cargo flows handled by the Latvian ports. However, since the 2000s, Moscow has been aggressively developing own handling facilities on the Baltic coast, and encouraged them to take export flows over from the Baltic States’ counterparts.

The Port of Klaipeda's success can be emulated, says LLA's Chairman Normunds Krumins
The Port of Klaipeda's success can be emulated, says LLA's Chairman Normunds Krumins

Therefore, Russian market experts tend to believe that the planned change of the Latvian ports’ ownership will not really strengthen their competitive positions, at least in the short run. They point to possible problems in managerial decisions, delegation of powers, transport and logistics bottlenecks.

On the other hand, the future "nationalisation" of the Latvian ports may result in an unforeseen breakthrough in their development, said Normunds Krumins, Chairman of the Latvian Logistics Association.

He believes that port management reform has been a strong point in the policy of other governments in the Baltic countries over the past 15–17 years and that the throughput of this or that port mainly depends on the managerial skills of its administration.

For instance, the state-run Seaport of Klaipeda in neighbouring Lithuania has seen steady increases in volumes and capacity, under well-managed government programmes and development strategies.

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