The most absurd is that already during the previous procurement, the discussion became relevant that storing the state oil reserves outside Latvia is completely useless, because in emergency situations the borders may be closed and the fuel belonging to Latvia cannot be physically returned to the owner. But in the event of war, the available resources can still be mobilized for the needs of the country in which they are located. And the Latvian state would remain in the beige again, although in theory it is the owner of the priority right to purchase this fuel.
The fuel must be located in Latvia!
A new tender has now been announced for merchants for the right to store the Latvian reserve, and once again the possibility is allowed that this emergency fuel is located hundreds and thousands of kilometers away. Yes, in theory there are also some oil drums that exist in nature and do have fuel reserves. This is found in inspections ordered remotely from Latvia. However, there is no guarantee that they will be accessible at hour X, except for contracts for astronomical sums. Papers.
Last year, when the issue of holding strategic reserves abroad came to the fore, the current procedure was sharply criticized by the Latvian Federation of Security and Defense Industries. Its head Elīna Egle admitted to the Independent: “Over time, the minimum reserve system has slipped from one ditch to another. And now, thinking about secure deliveries, the decision to hold reserves outside Latvia needs to be re-evaluated. Yes, perhaps entrepreneurs also offer some security guarantees and a solution, but in general this is an unacceptable situation. The current regulation was created when there were absolutely different geopolitical circumstances. At present, the physical location and availability of reserves are decisive. They must be in Latvia, and it must be part of our strategic infrastructure! ”
Do not meet as with masks
The Ministry of Defense takes a similar view. The security reserve must be physically located in Latvia:
“Currently, 59% of the state oil reserves are stored in the territory of the Republic of Latvia. The issue of holding oil reserves in full has been considered several times in the context of the Ministry of Defense Comprehensive National Defense in various inter-institutional formats.
The common position on the part of the Ministry of Defense is that the storage of 100% oil reserves in Latvia would be a very important guarantee for national security, as blockades and supply cuts are possible during the threat.
It must be acknowledged that the complete non-integration of oil reserves into the country’s territory has been the common EU policy to date. However, crisis situations such as the Covid-19 pandemic and the related shortage of raw materials for the production of personal protective equipment on their own are a clear example of the lack of strategic raw materials leading to inability to perform certain functions in exceptional circumstances, Internal borders of the EU. At the same time, the Ministry of Defense is also aware that the storage of 100% of oil reserves in the country requires significant budgetary resources, which must be found in the event of such a decision. “
The reserve maintenance service is still very expensive today. It costs Latvia from 3.31 to 6.69 euros per tonne per month, and the total amount for two years is 39 million euros. In addition, an important nuance – this is just a charge for storage, not the product itself. The fuel itself will have to be bought separately and at stock exchange prices at the time of the crisis, when everyone may need oil at the same time.
Foreigners take care of foreigners
The Ministry of Economics commissioned a special study from the British audit company Deloitte, hoping to find the best way to store the country’s oil reserves. However, foreigners have only studied financial considerations, reaching a conclusion that would probably be even more advantageous for foreigners. Namely, the money for the maintenance of strategic reserves should not be distributed to the state directly through its institutions, but a special agency should be established for this purpose.
“Involving private companies in the management of the agency would add value to more efficient procurement procedures and expertise,” the study said. But the fact about storing fuel abroad is just as established without further evaluation. Merchants store Latvian oil product reserves in Latvia (59%) and abroad (41%). In addition, regulatory enactments allow further reduction of the share stored in Latvia. Specifically – Cabinet of Ministers Regulations No. 286 “Procedures by which merchants provide and provide security reserve services for the establishment of state oil product security reserves in a certain amount” prescribes:
“2.1 Not less than 25% of the total amount of stored security reserves shall be stored in the territory of the Republic of Latvia.”
But you can also read the other way around, namely that 75% of strategic oil reserves may be held abroad.
Procurement overwhelmed by construction inspectors
The previous purchase of reserves at the end of 2018 was performed by the Ministry of Economics. Instead of a competition, a negotiated procedure was organized with selected bidders. A new procurement is to be made this year, and this task has been entrusted, but it can also be said to be overwhelmed by the State Construction Control Bureau (BVKB). It is an institution that is attacked by various unpleasant things, which have no connection with the construction. For example, controlling fraud with renewable energy production. And now construction experts are also entrusted with “oil product administration issues”.
The State Construction Control Bureau has announced a procurement for the provision of the state oil product safety reserve service for 2021 (instead of two years immediately as before). The total amount of stocks required is 370 500 tonnes, which corresponds to 90 days of total fuel imports. The estimated contract price is 16 million euros without value added tax. So with the hope that the service will be able to get cheaper than before. Entrepreneurs or their associations that have registered their activities in the territory of the EU Member States and the European Economic Area countries are invited to participate in the procurement, provided that the safety reserves of Latvian oil products must be stored in the territory of the EU Member States and Latvia.
Currently, only 1 thousand tons are stored in the category – petrol and aviation fuel – in Latvia, but the remaining 90 thousand tons required for the reserve are located in Lithuania, the Netherlands and Sweden. On paper – you can get to it at any time. Will it be possible in X hours? Maybe yes, maybe no. But paying for such uncertainty at such a high price really doesn’t make sense.
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