Despite breaks, catching up is not easy

  • 2004-07-28
  • By Gary Peach
LIEPAJA - No Baltic port has had it tougher than Liepaja's. Twelve years ago it was nonexistent - just a rough business plan, a program dreamed up to resuscitate a militarized seaside town that had virtually no commercial life and seemed doomed to become a no-man's land of abandoned barracks and mothballed submarines.

A decade later, thanks to old-fashioned hard work and a little help from politicians in the capital, the Port of Liepaja, tucked between much larger competitors in Ventspils and Klaipeda, has emerged as a fully functioning trade harbor in southwestern Latvia with a market niche of its own.
Study the port's cargo turnover chart since 1992, and you will see a curve headed in one direction - up. From a meager 100,000 tons in its inaugural year, the port handled 4.8 million tons of cargo in 2003. It now has 80 berths, ample warehouse space and unrivaled experience in handling metallic cargo.
The port is unique in that only 60 percent of cargo its handles is made up of transit, compared with 80 percent at Riga Port and some 98 percent at Ventspils Free Port. This is largely due to the port's synergy with Liepajas Metalurgs, the Baltics' only metal foundry, which ships out some 600,000 tons of goods annually, but also to the sheer amounts of Kurzeme pulpwood exported through Liepaja.
And because of its relatively shallow port and the 190 kilometers to Riga, the Port of Liepaja tries to compensate by handling a large volume of smaller boats and shipments.
"Companies have to go further to get their goods to us," says Aivars Boja, the port's managing director, "so we give them a little discount."
The turning point for the port came in 1997, when Parliament passed a law designating Liepaja a special economic zone, thereby given businesses working there discounts on corporate income, property, value-added and excise taxes. At the time lawmakers understood that if the city, once closed to outsiders, were to ever compete with Ventspils and Riga, let alone other Baltic ports, it needed breaks.
As a result of the law, the special economic zone now covers some 65 percent of the city of Liepaja and has facilitated the flow of investments that eventually turned the Soviet military harbor, in Boja's words, into a "safe, modern European port."
Nevertheless, Boja doesn't like to overestimate the zone's influence. He says the law, in the end, helped the Port of Liepaja "a little." First there was the Russian financial crisis, then Riga's and Ventspils' ports were given the "free status" and then Latvia joined the European Union, which largely evened out the rules of the game, he explains.
Regarding the latter, Boja says the biggest blow was losing the 18 percent value-added-tax exemption on construction. For a port in dire need of infrastructure - berths, warehouses, office space - construction is all-important. Otherwise, the EU has brought significantly higher costs for veterinary-sanitary checks, and inspection commissions are tough on Ro-Ro shipments ("roll-on, roll-off" cargo), adds Boja.
But port management has learned to deal with accession difficulties, and now it is focused on future challenges - and they are daunting. First, the port needs massive investment, without which it will not be able to maintain its growth dynamic. Among its wish list are a cleaner canal, new roads and an additional railroad spur that will help clear up bottlenecks around the port.
But Boja's dream: a deeper harbor. If the Port of Liepaja were 1.5 meters deeper (depth is currently 11 meters), then larger ships could anchor there.
Ivo Kolins, head of marketing and investment at the Liepaja Special Economic Zone Authority, says the port intends to use every opportunity available to utilize EU structural and cohesion funds, though he adds it will be at least another year before the port receives a final answer.
However, the biggest challenge - the one beyond the port's control - is Russia. In order to develop its own ports, the neighbor has implemented discriminatory tariffs, and the last two years Latvia's ports have been feeling the pinch, port officials complain.
"I understand that Russia wants to support its ports, but why should tariffs be two - three times higher?" asks Abi Zhiv, commercial director of Liepajas Osta LM, the Port of Liepaja's largest operator and owned by Liepajas Metalurgs.
"Russia's tariffs are not right," he says.
Reflecting on the discrimination, Boja is honest. "We made our mistakes," he says, suggesting that Latvia's ports maintained an aggressive price policy before Russia started building its capacity on the Gulf of Finland. Eventually, though, "Russia will come to its senses," he adds.
In the meantime, the Port of Liepaja is expanding and reaching out to new clients in Belarus and Ukraine. Liepaja Osta LM, for instance, will launch a new terminal and storage facility capable of handling hundreds of thousands of tons of soybean this autumn.