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Latvia Needs Infrastructure Investment in Ports, World Bank Says

Latvia should bolster road, railway and other infrastructure to aid its sea ports and strengthen governance or risk losing out to Russian competitors in the future, the World Bank said.

Latvian railways are operating at close to capacity, road traffic is congested in the capital around the port, and access needs to be made for larger ships, the World Bank said in a report today, prepared on behalf of the government.

The transport of goods and commodities from Russia and central Asia to the Baltic Sea has doubled in the last 10 years, with ports in the Baltic states handling 42 percent of shipments, according to a study published by consultancy KPMG on Nov. 20. The Riga port, the fourth biggest in the eastern Baltic, has cut tariffs to compete with Russian counterparts. An increased transit of coal cargo needs investment to attract higher valued cargo like containers, the World Bank said.

“The main challenge is and will remain the competition with Russian ports and to maintain that competitiveness with the other Baltic ports,” said Jean-Francois Marteu, the World Bank’s sector leader for infrastructure for central Europe and Baltic countries, in an interview yesterday. “There is no silver bullet that is going to solve all the problems and that is going to increase the traffic by 10 times or even guarantee the traffic they have today.”

Logistics in Latvia, which borders Russia and Belarus, accounts for about 13 percent of gross domestic product. That ratio is high and means the country “really took some opportunities from” Russia, said Marteu.

Improvements Needed

The World Bank also recommended Latvia improve investment policy and increase port revenue through better land management, reduced costs and possibly higher tariffs. The Latvian ports should also strengthen the accountability of officials through the publishing of audits, it said.

The port of Riga had the highest salary and lowest revenue per employee among its main counterparts of the Baltic states, according to KPMG. It also, along with the Ventspils port, provides far less financial information than its Lithuanian or Estonian counterparts, the consultancy said. The Riga port employs 10 percent of the city’s workforce, according to the World Bank.

Much of the cargo shipped through the Baltic ports comes from Russia, leaving the Baltic countries vulnerable to changes in its policies. In September Russia imposed customs controls on Lithuanian trucks and later banned dairy imports from the Baltic country. Russian oil shipments to Estonia in May 2007 declined after the small former Soviet republic moved a World War II monument, sparking protests among the Russian minority.

“We need to keep a good relationship with the Russian government,” said Robert Kirkup, chairman of Ventspils Nafta, a Latvian terminal operator, in an interview yesterday. “They don’t need any excuse to use Primorsk or Ust-Luga in the north or to use the Black Sea.”

To contact the reporter on this story: Aaron Eglitis in Riga at aeglitis@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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