There are Russian grain wagons sitting at Čiekurkalns station

Two trains of Russian wagons transporting grain have been sitting in Čiekurkalns for several days. The wagons are indirectly owned by Деметра-Холдинг, a company whose shareholders include VTB Bank, a sanctioned bank belonging to the Russian Federation.

While Latvian Railways and the Financial Intelligence Unit are scrambling to explain what these wagons are doing in Čiekurkalns, Neatkarīgā looked for links between these wagons and Russia's war in Ukraine in publicly available sources. And there is indeed one.

The day after the war

There is always important information written on railway wagons. From technical information - when they were built, when tested, how the hatches are to be used - to the indication of ownership. The owner is АО Русагротранс. The company's website states that in 2021 it became part of Деметра-Холдинг, Russia's largest grain exporter. This holding company was owned 50% plus one share by ВТБ/Внешторгбанк, a bank of the Russian Federation listed under the Latin alphabet name VTB Bank in the sanctions lists.

On February 25, the day after Russia re-invaded Ukraine, first Russian media and then Western sources reported that VTB Bank had stopped controlling the grain business Demetra-Holding in response to the sanctions imposed by the UK and the US. By issuing additional shares, the sanctioned bank reduced its stake to 45%. Also according to point 55a of the EU Sanctions Guidelines, a legal person is considered to be owned by a sanctioned entity if the sanctioned entity has more than 50% ownership. It was therefore necessary to reduce the size of the shareholding by increasing the share of the Russian companies Marathon Group and Granum, which are not yet sanctioned partners.

Why the sanctions were implemented

However, the sanctioned bank is still a co-owner of the grain holding and thus indirectly of the wagons parked at Čiekurkalns station. In turn, through this bank, the Russian Federation is a co-owner, which is the target of various sanctions by Western society. The European Union sanctioned VTB Bank later than its allies. Only on April 8. The reasoning behind the sanctions is available here: COUNCIL IMPLEMENTING REGULATION (EU) 2022/581 of 8 April 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. The Regulation clarifies, inter alia, that restrictive measures should also apply to undertakings which materially or financially support or benefit from the Government of the Russian Federation and materially or financially support activities that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine. In total, 217 persons and 18 entities are included in the sanctions list referred to in the Regulation. This includes VTB Bank and is based on the following grounds:

Why the bank is sanctioned

"The VTB Bank is a systemically important financial institution for the Government of the Russian Federation, which in turn is a major shareholder of VTB Bank. The bank itself has close ties to Russian intelligence, and its CEO was appointed by President Vladimir Putin and has defended his actions including the annexation of the Crimean peninsula. As one of Russia’s leading financial institutions, largely owned by the Government of the Russian Federation, VTB furthermore generates high revenue for the Government of the Russian Federation. VTB Bank is therefore an entity or body supporting, materially or financially, or benefitting from the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine as well as a legal person, entity or body involved in economic sectors providing a substantial source of revenue to the Government of the Russian Federation, which is responsible for the annexation of Crimea and the destabilisation of Ukraine." This is stated in the sanctions regulation.

Not enough wagons for everyone

This is the link between the grain wagons at Čiekurkalns station and the war in Ukraine, as explored by Neatkarīgā, and the question is whether the formal transformation of the controlling stake in the grain holding owned by the bank in question into a smaller package makes the grain wagons at Čiekurkalns station more Ukraine-friendly. It looks like formally the answer is yes.

Meanwhile, from the point of view of the Latvian grain industry, the issue is quite different: how to get the Latvian wagons back home so that in the autumn, after the harvest, there is enough to transport grain to the export countries. The association Farmers’ Parliament is raising the alarm about this. At the moment, grain farming is not on Russia's list of sanctioned industries, because everyone needs to eat. That is why Russian wagons travel to Latvian ports and are also in Čiekurkalns, while Latvian wagons are rented as needed in Russia, Kazakhstan, Uzbekistan and Ukraine. Whoever needs them can rent and use them. Wagons make money. Mārtiņš Trons, a board member of the Farmers’ Parliament, explains that this arrangement has been in place for 30 years, but the Russian invasion has changed the situation significantly.

Latvian wagons must be brought home

Currently 245 Latvian wagons are stranded in Ukraine, and the chances of getting them back are slim. The rails have been blown up. Maybe we can get them out via Belarus. But there is also the risk that the wagons will be nationalized. In wartime, Ukrainians nationalize Russian wagons and Russians nationalize Ukrainian wagons. And it is just as likely that, with the sanctions regime affecting the whole grain sector, Russia will decide to take wagons belonging to other countries, including Latvia, which are on its territory. The only consolation is that Latvia will then be able to do the same with the Russian grain wagons parked at Čiekurkalns or elsewhere. However, the forecasts for the availability of wagons in the autumn are generally not encouraging. Mārtiņš Trons says that Latvia owns about 1000 grain wagons in the person of LDz Cargo, but if the Ministry of Transport does not act now, maybe half of them could be available in autumn. The missing ones will have to be replaced by road transport, which will be expensive, inefficient and environmentally unfriendly. Farmers therefore believe that Latvian wagons should be sent home from abroad as soon as possible. In particular from Russia.