May 23, 2017 / 6:37 PM / 3 months ago

Exclusive: Russia refusing to send some rail freight to Latvia - sources

An employee looks out of a train carriage, owned by Russian Railways company, on the side tracks in Moscow, Russia, March 1, 2017.Maxim Shemetov - RTS10ZVR

MOSCOW/RIGA (Reuters) - Russia's state-owned railway monopoly is refusing most requests to take cargo from Russia to ports in Latvia, industry executives said, a serious blow to the Baltic state which depends on the transit trade.

The monopoly, Russian Railways (RZhD), has in many cases offered no explanation to customers for turning down the cargoes, mostly oil products, fertilizer, coal and metals which had previously been transported relatively easily by rail to Latvia, nine people familiar with the situation told Reuters.

Asked for comment, RZhD said it had not introduced any restrictions on transporting freight to Latvia, and that it looks at each request to transport freight on its own merits.

Russia has a long history of testy political relations with Latvia, a former Soviet republic now in the European Union.

Several of the sources, and a Latvian local official, said they suspected Russia was hindering the cargoes in retaliation for Latvia snubbing a Russian-led pipeline project, although they offered no direct evidence.

Latvia is among several eastern European states opposing Nord Stream 2, a Russian-led initiative to build a new gas pipeline under the Baltic Sea to Germany. Latvian media said the project's backers had wanted to use Latvia's port infrastructure to help develop the pipeline.

Internal Russian Railways data, provided to Reuters by logistics firms, point to a 90 percent drop in the volume of metals, coal and oil products transported by rail from Russia to the Latvian ports of Riga and Ventspils. None of the other Nordstream opponents have reported such changes.

The volume of goods usually falls in the second quarter because some freight is diverted from Latvia to northern Russian ports, where costs fall in the spring once the sea ice has melted.

But the industry sources who spoke to Reuters said the drop was much sharper this year and was being driven in large part by RZhD refusing to take the cargoes.

In the first half of May 45,700 tonnes were transported by rail from Russia to the Latvian ports of Riga and Ventspils, while for the full month of April the total was 750,000 tonnes, compared with 1.2 million tonnes for March, the data showed.

Russian Railways said in its statement: "RZhD has not introduced any restrictions on transport to Latvia, you have to look at each concrete case where despatch has been declined."

Latvian Prime Minister Maris Kucinskis told Reuters he had no evidence that the decline in freight was linked to his government's opposition to Nord Stream 2. "At the moment I see it as speculation," he said.

Russia's foreign, energy and transport ministries did not respond to requests for comment.

CARGOES TURNED DOWN

The Reuters sources included people from three companies which send their goods via rail, two traders, and four executives at logistics companies that send freight via rail for their clients. All spoke on condition of anonymity because of the sensitivity of the situation.

They said that RZhD had been accepting orders for taking freight to Latvia without problems at the start of the year, but that when additional orders were submitted in March and April, they started receiving refusals.

The rate of refusals accelerated in May, the sources said. They said that RZhD either offered no explanation at all, or cited repair work on the tracks as the reason for declining the request.

"Now they are taking orders for (transporting) coal and fertilizer for only 10 percent of the requested volumes," said one of the sources, who works for a logistics company.

Another source, a trader, said of the disruption to freight: "It's all very serious ... No one knows how long it's going to go on for, or what to do about it."

The sources said the requests that RZhD was rejecting came from long-standing customers and were identical to requests that the railways monopoly had in the past approved.

RZhD is wholly-owned by the Russian state and its chief executive is Oleg Belozyorov, a former deputy transport minister in the Russian government. He was born in Latvia, which at the time was a Soviet republic and which still has a substantial Russian-speaking community.

Edgars Suna, director of the marketing department at Riga port, told Reuters the flow of cargoes of coal, oil products and fertilizer reaching the terminal by rail from Russia had fallen by around half since mid-April.

Speaking earlier this month, the mayor of the Latvian port city of Ventspils said he expected Russia to reduce freight volumes in response to Latvia's decision to oppose Nord Stream. "Russia will certainly react," the mayor, Aivars Lembergs, told a news conference.

Rail freight was worth 263 million euros ($294.67 million) to the Latvian economy in 2016, according to the central bank, or about 1 percent of gross domestic product.

Swedbank, in a research note last year, said that falls in Russian freight flows, which it said account for 80 percent of all rail transit in Latvia, could impede the country's economic growth.

Additional reporting by Anastasiya Lyrchikova in Moscow and Natalya Shurmina in Yekaterinburg; Writing by Christian Lowe; Editing by Philippa Fletcher

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