Russia's oil trade shuns Estonian ports

By Laura Sheeter
BBC News, Paldiski, Estonia

Aarto Eipre is proud of the state-of-the-art oil transit terminal he runs, specialised in handling light oil products, petrochemicals and liquid gas.

The Alexela terminal is unnaturally quiet at the moment

He says that within a few hours, they can unload a train and pump its cargo into a tanker, ready to sail anywhere in the world.

The terminal has been running for six years and business had been growing. But today it is very quiet.

One train is being unloaded, but the other tracks are empty.

That's because, just over six months ago, the Alexela terminal in Paldiski South harbour lost about a quarter of its business almost overnight.

A row between Estonia and Russia about a Soviet war memorial meant the Kremlin encouraged Russian companies not to do business in Estonia.

And almost immediately, a technical problem was discovered which closed the railway line linking Russia to Estonia.

"At the moment, we don't get any cargo from Russia at all," Aarto says. "We haven't lost any jobs yet, but we're really just trying to survive."

Never mind?

Alexela is not the only company affected. Overall, the Estonian oil transit trade has seen some 40% of its business dry up, with the loss of several hundred jobs and about 1% of the country's GDP.

Many of the other transit firms were Russian-run and they have simply left Estonia. But the Estonian government says it's no big deal.

The row with Russia has stopped Alexela in its tracks

The Russians, they say, were planning to divert their business through Russian ports anyway. They are building new oil terminals of their own on the Baltic Sea.

But Aarto Eipre disagrees. He says that the quality of Estonian service would have kept them competitive - and with a wry smile, he expresses his disappointment with the Estonian government.

"We haven't been - how shall I say it? - very happy, regarding their opinion on transit," he says.

"I haven't seen that they're doing much to get it back. They say that Estonia doesn't need it, then that's the end of their actions."

And apart from saying that there is little they can do to help, it seems the Estonian Economy Minster, Juhan Parts, agrees. He says it's time for Estonia to find new things to trade in.

"At the end of the day, these decisions are made in Russia, so it's very difficult to influence," he says. "We can say, let's look at the other types of transit.

"If the oil will change to container transit, I think this is a very positive development, because oil transit is environmentally very risky, economically it is not very high-value - so we are not too much interested."

Empty vessels

Container transit through Estonia has been growing, as in neighbouring Latvia and Finland, fuelled by the growth of consumption in Russia. So at Estonia's biggest container port, Muuga, you would expect happy faces.

Fewer goods are coming through Muuga these days

But the chairman of Muuga container terminal, Sergei Artyomov, is not a very happy man.

He says that in fact, his business has also been hit by the row with Russia.

And he laughs when asked if, like the Estonian government, he is optimistic about the future of container transit.

"I don't know why the government is optimistic," he says. "We are optimistic too, but half a year ago, our position was more optimistic.

"If we handled, for example, three or four months ago, 3,000 TEU [the standard measurement of container volume] to a vessel, which included Russian transit exports like paper products, rubber and so on - now we're loading empty containers. Same number of containers - but empty."

Nonetheless, Muuga container terminal is hoping that the long-term growth in consumer demand in Russia will compensate for any unpredictability in the trade.

Mr Artyomov is planning to double the port's capacity over the next four years.

Economic fears

So is the row with Russia just a temporary setback? Most Estonian economists seem to think so, but some warn that the timing is bad.

The global credit crunch is heightening fears that the Estonian economy - which had been growing rapidly - will crash.

Maris Lauri, chief economist at Hansabank in Estonia, says that the problems with oil transit have made other local businesses feel even more vulnerable and have affected investment in the country.

The gloom over Estonia's ports has yet to lift

"We saw that investment went down in the third quarter, and it will probably affect investment figures in the fourth quarter and maybe in the first quarter [of 2008] as well," she says.

But, she adds, problems with Russia are nothing new for Estonia and there are already signs that the worst could be over.

"The events of a few months ago were one reason why business morale fell," she says.

"But this pessimism is no longer deepening - now businesses are starting to act. I hope that in spring or summer there will be new ideas coming out and investments will start to grow again."

To a large extent, that will depend on how Estonia fares over the winter, but it is of little comfort to Aarto Eipre and his colleagues in the oil transit business.

They seem to have found themselves an unwanted part of the Estonian economy - an unwelcome reliance on Russia, as the country turns further away from its big neighbour.