At an improvised rally in Riga on March 14, 2024, dozens of people demanded an end to the transit of manganese ore, leaving their handprints on a banner to remind of the role of this commodity in weapons production and the killings of Ukrainians. Photo: LETA
Next week the European Commission will propose a ban on manganese ore shipments to Russia, which can be used in the manufacture of arms. Before EU takes decision, Re:Baltica reports who are the main exporters, who will bear the brunt and why Latvian state companies are still in this business.
While Russia keeps killing Ukrainians and diplomats talk in Brussels, ships – full of manganese ore – in the Baltics keep sailing. Coming from Gabon and South Africa, they dock in the ports of Ventspils and Riga. Cargo is loaded onto wagons by Latvian companies and shipped away by rail. In the past it went mainly to the plant in Chelyabinsk, but also to Satka and Tula. Ferroalloys return to Latvia along the same route, which Russia sells to customers in the West to raise money for its war machine.
Very soon we will see if this business is over. On Monday, the European Commision will adopt the proposal for the 14th package of sanctions against Russia which also includes manganese ore, sources in EC told Re:Baltica. The ban needs a unanimous vote of all EU member states.
State companies involved
After a scandal broke following Estonian media reports about the leading role of Latvia and Estonia, two of the sharpest critics of Russia’s war in Ukraine, in transit of manganese ore to Russia, the focus never moved to the important role played by Latvian state companies “LDz Loģistika” and “LDz Cargo”. Few people have heard of the former, a subsidiary of “Latvian Railways” (LDz) that organizes freight transport in the Baltic and CIS markets. The other subsidiary, “LDz Cargo”, ships the freights.
Re:Baltica has obtained Russian customs data that, for the first time, paint a full picture of what exactly the government owned company has been transporting to Russia since the war began.
Tires from India. Chemicals from China. Nuts from Brazil. From Portugal and Spain, spare parts for “Opel”, “Citroen” and other Western-made cars. Manganese ore from South Africa, Gabon, Ivory Coast, Brazil. The destination of all the shipments is the same: Chelyabinsk Electrometallurgical Plant, which has by now been nationalized by the Russian state.
In the first two years of the war, “LDz Loģistika” delivered USD 137.4 million worth of freight to Russia. Manganese ore accounted for USD 119 million of this amount, according to the data obtained by Re:Baltica.
Currently it is clear that the state will wait for the European Union’s (EU) decision and not ban state companies from trading with Russia. Officially, this is explained by the need for the ban to be effective (if Latvia does not ship these freights, someone else will). The other reason that is mentioned far less frequently is the expected impact on LDz.
However, there is also a third reason that the government is well aware of but does not talk about. Manganese ore can be shipped by either state or private companies. Companies indirectly owned by local oligarchs Andris Šķēle, Aivars Lembergs or the family of Ainārs Šlesers are the only private railway companies and companies transshipping manganese ore at the ports of Riga and Ventspils.
The government of Evika Siliņa (New Unity) therefore faces a dilemma of continuing to act immorally, with the state effectively providing Russia with commodities that can be used in the military industry, or handing over the entire revenue to those that the state does not want to become yet more powerful.
Former allies of New Unity protesting outside the government building against manganese ore transit. Photo: LETA
Who benefits?
“Steel made from manganese alloys is widely used in the manufacture and renovation of armored vehicles and artillery systems,” sources in Ukraine wrote to Re:Baltica in their first letter with which they wanted to turn attention to brisk trade which in Latvia and Estonia flourished since Russia’s invasion of Ukraine. “That is why activities of these companies should be considered as a threat not only to the security of Ukraine, but also to the security of the Baltic countries.”
Latvia and Estonia, which have become the EU’s biggest exporters of manganese ore to Russia since the war began, supplied 1.9 million tons of manganese ore to Russia last year, industry sources said. 78 percent of this amount went through Latvia and 22 percent through Estonia, where a company linked to ex-premier Tiit Vähi handles the freights at Sillamäe Port.
In Latvia, too, an ex-premier is involved in manganese ore shipments.
Šķēle and the Šlesers family indirectly own Rīgas Ogļu Terminālis (Riga Coal Terminal), a company that last year was the fifth largest transshipper of manganese ore in Latvia (the company’s CEO Miķelis Lapše earlier told Re:Baltica that volumes had been falling since 2021, and last year manganese ore accounted for only a quarter of the company’s turnover).
“LDz Loģistika” is the fourth largest company, following “Alpha Shipping Company” (the Voroņevičš family, Valdis Siliņš, Arnis Ančupāns), “Ventspils Commercial Port” (indirectly owned by Lembergs and Meroni’s people), and the largest company, “BLC”.
This 20-year-old company is virtually unknown to the wider public. However, for “BLC” the first year of the war has been particularly successful. According to its annual report, the company’s turnover increased by 80 percent to almost EUR 10 million, and profit grew 348 percent (EUR 190,000). The company belongs to Žanna Boldaveška and Ieva Ķimene who are not among business people one can find in industry magazines.
Apart from the top five, a few more companies are involved in handling manganese ore at Riga and Ventspils ports: “KS Terminal”, “Eurohome Latvija” and “Stena Line Ports Ventspils”, according to information that the ports provided to Re:Baltica.
Who are the shippers?
There are not many options for rail transport in Latvia. One has to hire either “LDz Cargo” or one of the private companies that can be counted on the fingers of one hand – and all are linked to the oligarchs.
The Šķēle and Šlesers families, together with Lembergs’ long-time associate Ivars Sormulis, indirectly own private rail freight carrier “Baltijas Tranzīta Serviss” (Baltic Transit Service), whose annual report says though that the company’s business volumes have decreased due to the war. Another private carrier, “Baltijas Ekspresis” is indirectly owned by lawyer Rudolf Meroni’s men and Lembergs, according to the Register of Enterprises (Lembergs disputes it). This company is doing well. In 2023, it shipped almost twice as much cargo as the year before, but it is mainly down to coal, not ore.
The third private carrier, “Euro Rail Cargo” is also linked to Sormulis and Lapše, who industry sources described to Re:Baltica as a manager of Šķēle’s businesses. The company has yet not submitted its 2023 annual report.
However, the data show that “LDz Cargo” in any case is the leading carrier. More than half of freights carried by the company are linked to Russia (53.1 percent) and also Belarus (7.4 percent), says the company’s report for 2023. Grain accounts for the largest share of the company’s transit from Russia, but ore is also an important commodity at 19 percent.
Who will be hit first?
LDz will not say how much its subsidiaries earn from cooperating with Russia – the profits are “proportional to shipments on other routes”, as the company’s CEO Rinalds Pļavnieks told Re:Baltica.
In Latvia, there is no single source of data on what the financial impact of a ban on the transit of manganese ore could be. Re:Baltica’s estimate is based on information provided by several sources.
LDz will be the first to suffer. First of all, it will no longer receive such large dividends from its subsidiaries (neither of them is doing well and their business has been in decline since the start of the war, but both were profitable last year and paid LDz EUR 1.9 million in dividends). Second, it will have to lay off employees involved in freight handling, mainly in Latgale (the company did not provide a number). Third, it would no longer receive such a high fee for the use of railway infrastructure (operators paid LDz around EUR 35 million last year).
“In this scenario, with freight volumes continuing to fall dramatically, the railway infrastructure maintenance subsidy and the financial stability payment by the state would increase significantly, that would be unavoidable. LDz continues to work on its cost-cutting program, but it would only cover part of these potential losses,” said Pļavnieks (Finance Minister Arvils Ašeradens (New Unity) said previously that LDz would need a subsidy of around EUR 100 million annually after shipments to the east are discontinued).
In order not to damage its reputation, LDz board in mid-March advised the management not to make new commitments regarding freights that could potentially be subject to sanctions, and recommended the company’s subsidiaries not to sign new contracts with Latvian forwarders for such freights. However, it is clear from the statements made by the company’s management that it will not take any decisions on suspending transport of such freights, as this is a matter for the Ministry of Transport. “Various scenarios have been considered since the first day of the war, including a scenario where freight flows across the Latvian-Russian border come to a complete halt. However, LDz has not received any instructions from the shareholder regarding freight transport,” said Pļavnieks.
Transport Minister Kaspars Briškens (Progressives) declined to be interviewed by Re:Baltica on the subject, providing just some general phrases through his press secretary. In an interview with Latvian Television, the politician, who had worked in the railway industry for several years, claimed that he was not aware of “LDz Loģistika” involvement in the transit of goods to Russia, only that “LDz Cargo” had some part in it.
Private companies operating at ports, which transship and transport manganese ore, would be hit next. “A request does not mean anything in business language,” says Jānis Kasalis, chairman of the council at the Latvian Stevedoring Companies’ Association (LSA). “If LDz council is really that bold, they should make a decision and suffer the actual financial consequences.” According to the LSA’s estimates, a ban on transit of manganese ore would cause the industry direct losses of at least EUR 30 million.
Kasalis says that the flow of manganese ore has not stopped, but companies handling it have slowed down before the EU decision. “On a ten-point scale, I would rate the impact at six or seven, because it does not matter whether it is manganese ore or something else. We are simply not able to generate new freights at that rate. Central Asia is our last cooperation partner, but there is Russia in the middle, and they are no fools either. If we shut something down, they will retort,” said Kasalis.
Among the ports, Ventspils would be hit the hardest (in the port of Riga this cargo makes up less than 3 percent of total cargo turnover). In Ventspils, however, transit of manganese ore grew rapidly after Russia’s invasion of Ukraine.
The Freeport of Ventspils Authority explained to Re:Baltica that the ban could reduce the port’s annual revenues by 4 – 5 million EUR. The impact is related to the transit of Kazakhstan’s coal which travels to Ventspils and then trains return to Russia with manganese ore. “This is about one-third of the port’s cargo turnover. If there is a ban on one thing, there is a high probability that transport of the second could also become economically unfeasible,” said the port. “We cannot rule out that subsidies would be needed in the short term to stabilize the port’s operations.”
What’s next?
Prime Minister Evika Siliņa (New Unity) is as tight-lipped as Briškens when it comes to banning at least state-owned companies from shipping goods to and from Russia. When Re:Baltica first asked this question after a government meeting, Siliņa switched to talking about need to have effective ban which only EU can provide. Only if that fails, the government could consider doing something locally. When Re:Baltica repeated it a week later, the PM started to talk about the need to discuss re-orientation of Latvian transit directions with the industry.
The only government minister who did not shy away from the topic was Minister of Economics, Viktors Valainis (Greens/Farmers) He admitted that the government has informally discussed banning state companies from this business, but decided against it. “If we cannot ban it outright, restricting activities of state companies and then watching other businesses with questionable reputation take over is, in my opinion, not the right step, he said”
He cited the example of Estonia where, after the government’s decision to withdraw from transit to Russia, the movement of goods has not stopped as other players have emerged (he did not mention that one of the companies which took it over is “LDz Cargo”). Valainis believes that either there is a universal ban for all, or for none. He does not see a contradiction between Latvia sending arms to Ukraine with one hand and components for Russian armaments with another.
In the meantime, the European Commission will adopt the next sanctions package for Russia next week and then it is down to EU member states.
Latvia has at least two allies in neighboring Lithuania and Estonia. “Lithuania continuously calls for strong and impactful next EU sanctions against Russia, including an import ban for LNG, aluminium, and uranium from Russia and an export ban to Russia of manganese and aluminium ores,” said spokesperson of the Lithuania’s Ministry of Foreign Affairs (MFA). Estonian MFA said they had also submitted a proposal to ban manganese ore exports, and backed a Lithuanian proposal for additional sanctions on aluminum products. “We constantly exchange ideas with the EU member states on how to further increase the price of aggression on Russia.”
Corrected 3.05.22. The original article incorrectly stated that Ansis Sormulis owns shares in “Baltijas tranzīta serviss”. They belong to his brother Ivars Sormulis.
Author: Sanita Jemberga Re:Baltica
Contribution by Inese Braže, Re:Baltica
Data analysis: Greete Palgi
Technical support: Madara Eihe
Russian and English translation by news agency LETA
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