Bidders circle over Latvian shipping

  • 2001-02-08
  • Ilze Arklina
RIGA - Several undisclosed bidders expressed interest by the Feb. 1 deadline in a 68 percent stake in the Latvian Shipping Company, one of the world's largest oil transporters, Latvian privatization officials announced last week.

"The number of bids is sufficient to make some choices," said Janis Naglis, the head of the Latvian Privatization Agency.

The bidders are from Europe and other economically active regions of the world, Economics Minister Aigars Kalvitis said Feb. 1.

By Feb. 9, the agency's board has to approve the list of bidders, which is expected to be approved by the Cabinet of Ministers on Feb. 13. Qualified bidders will be invited to sign a confidentiality agreement and pay a $5,000 deposit in order to receive the privatization documentation package. They will then have to submit their initial bids, which will determine the initial auction price.

The list will then be whittled down to five.

The winner will be selected at an auction planned for May 11.

The Latvian Shipping Company has been a political hot potato for years. The last failure to sell it triggered a government collapse last spring. The current attempt, the fourth since 1995, has been tainted by controversy, leading some politicians to speculate that none or only one bidder would apply, a situation that thwarted the sell-off in the past.

The heat was turned up last weekend when a $30 million lawsuit surfaced in a London court and some of the media were speculating it might not only ruin the sell-off but also cause the government's collapse.

Lloyd's List International reported on Feb. 1 that England's High Court of Justice determined that the Latvian Shipping Company and its subsidiary Latreefers were liable to the Gdansk Shipyard in Poland for a breach of contract.

The case, involving failed payments for the construction of six refrigerator ships, dates back to 1993. Experts for the Gdansk yard have estimated that its loss was at least $40 million, not including lost interest.

However, part of the judgment alleviates the company's responsibility for the first two vessels, which were later sold by the group, the Baltic News Service reported.

MP Andrejs Pantelejevs, a member of the ruling coalition's Latvia's Way party, said that the court's ruling should not have much effect on the privatization process itself but it may reduce the company's price. The government will decide on the company's minimal price depending on the final judgment.

"None of the bidders should be upset," he said.

Druvis Skulte, the shipping company's council chairman, agreed.

"All those revelations will not affect the privatization process, as all the legal documents are included in the privatization documentation," he told The Baltic Times.

PricewaterhouseCoopers, the international auditing company, had earlier estimated the possible costs from the lawsuit as $4 million to $5 million.

International financial institutions see the sale of the Latvian Shipping Company as a test of Latvia's commitment to privatization, the proceeds from which will be critical in reducing the large current account deficit.

"The privatization process of the Latvian Shipping Company had to be completed, otherwise the image of Latvia would be subversive," Latvian President Vaira Vike-Freiberga said in an interview to Latvian Radio Feb. 5. "If the fourth attempt to privatize the company failed, it would create the impression that the Latvian state is dawdling, incompetent and doesn't know what it's doing."

The company's sell-off regulations require potential bidders to have shipping, oil extraction and refining, transportation and warehousing or shipping management as their main business focus.

The Latvian Shipping Company is a key transporter of mainly Russian oil products to North America and northern Europe. However, the sale to a strategic investor that could modernize the fleet is seen as critical, as many of its old ships will soon no longer be allowed to sail into many Western ports.

The average age of the company's tankers is 19 years. It has 58 ships in all. The company has $70 million in cash set aside to start the renovation of the fleet, a move officials hope the new possible owner will approve of.

"We hope, that our decision will be binding to the new owner," Skulte said.

The company's sell-off regulations require to keep it in operation, which will be impossible without a renovated fleet, he stressed.

The company's 2001 target profit is set at $5.6 million on a turnover of $164.4 million. In the first nine months of 2000 the company posted a profit of $4 million, up by $2.3 million year-on-year, on a turnover of $221.1 million.