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Latvia has no oil reserves following procurement dispute

Latvia has no oil reserves since mid-summer, after a procurement dispute has disrupted the annual procurement. Currently the government would have to announce a state of emergency to obtain oil needed for hospital generators, telecoms hubs and other places, reports Latvian Radio on September 14.

The situation not only carries risks for the country but also falls within a violation of EU laws. Meanwhile the Economics Ministry, which is responsible for the situation, says the state could declare an emergency should anything unforeseen arise.

Each year Latvia spends €14m on diesel and petrol fuels as per an EU requirement, with Latvia opting for an annual procurement, said Economics Ministry representative Olga Bogdanova.

For that money local and international energy companies operating here can freeze about 336,000 tons of petroleum products, enough to last the country 90 days, and locals pay about €40 per ton of petroleum products that are reserved for Latvia's needs, said Bogdanova.

She says that to date Latvia has never had to dip into its oil reserves.

"There has never been such need, to date. But there have been several cases in Europe. Some European countries have used the reserves to scale down market fluctuations. A country may decide to use its reserves to cover the price range..." said Bogdanova.

She added that oil reserves are not exclusively maintained for wartime scenarios but may also be used during storms, severe flooding and other cases. 

However now Latvia has been doing without oil reserves since June 30 when the previous contracts ran out - and there are two causes to this.

First of all, the Economics Ministry has found shortcomings in public procurement law, which they say does not include rules for the timetable in which agreements with foreign companies have to be harmonized.

Secondly, the oil trading giant Vitol has disputed this year's procurement. It was the preferred partner to the ministry for years but was not chosen this year as it offered the highest price.

The company clarified its position in writing:

"Sadly this year's reserve procurement has been an unpleasant surprise to us with that the approach over reviewing procurement documents has changed. The procurement committee is no longer as scrupulous over the quality of the submitted documents and reviewing the information found in them. We've turned to the Procurement Monitoring Bureau. We'll offer further comment after our submission is reviewed," said Vitol.

Meanwhile the Economics Ministry cannot conclude agreements with any of the 11 companies that were awarded contracts in the €14m procurement.

Bogdanova said that Latvia is still safe should an emergency arise, as the state could announce a mobilization that would allow it to seize available oil resources. 

Ojārs Karčevskis, the head of Latvian Petroleum Traders' Association, confirmed that the reserves are already available from the traders that partook in the procurement. 

A decision from the Procurement Monitoring Bureau over the contracts for storing Latvia's emergency oil reserves is pending within about a week. 

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