Cigarette maker stubs out factory plans

Mar 02, 2000
Sandra L. Medearis

Latvian tobacco company House of Prince Riga has frozen a $3 million investment in a new cigarette factory, citing obstacles to the company's doing business in Latvia, including unfavorable tax laws, corruption and trumped-up tax bills from the Latvian Revenue Service.

HOP supervisory board chairman Leo B. Sorensen issued a statement based on the board's unanimous opinion blaming the pullback on the present "unfavorable business environment," saying "the basic conditions are missing" for embarking on construction of a factory. The company needs additional capacity to serve a cooperative project with American company Tideline International to market HOP's "Roger" brand.

The state owns 49 percent of the tobacco maker with the lion's share owned by Danish investors who came to Latvia in 1992 with money from the Danish Investment Fund for Central and Eastern Europe. Now 45 percent of the Danish holding is owned by S.A.House of Prince Denmark and 6 percent by the Fund. Sorensen said that although the legal infrastructure for investments was not fully constructed in 1992, there was political will to support foreign investment. However, actions of the Latvian authorities have eroded the fertile fields, he said.

Viktors Kulbergs, president of Latvian Chamber of Commerce and a member of the supervisory board, said in a broad view the erosion comes from a lack of panBaltic export-import regulations.

"We need a common panBaltic business district. As it is, there is different export support among the three Baltic states," Kulbergs said. "There are different duties for importing or manufacturing. It is a mess - such a mess that it is difficult to achieve market balance. Cigarettes imported from Lithuania to Latvia have different prices than cigarettes produced in Latvia."

In lowering excise taxes on imported cigarettes without getting reciprocal agreements from other countries, Latvia's government has hurt House of Prince, Sorensen said. Latvian cigarette makers must pay 30 percent import duty to Ukraine and Russia and 210 percent to Poland. The state Revenue Service refused to comment.

Sorensen said the company since 1996 has been exposed to "what can be seen as economical harassment" in the tax service's attempt to collect 682,000 lats (about$1.4 million). The taxes are not owed by House of Prince, but by trading companies from four to five years ago which have gone out of business and disappeared.

"We are next in line, so the tax service comes to us," Kulbergs said.

The company has also been plagued with violations of its banderole system with 25 percent of cigarettes bearing its seal being counterfeit and their tax not paid, leading to problems with Latvian tax authorities.

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