Fiber plant saved by local fuel firm

  • 1999-10-14
  • Benjamin Smith
RIGA - Good news for Daugavpils may be bad news for Latvia's foreign investment hopes.

The court-appointed administrator announced Oct. 8 that she would turn over operations of the bankrupt textile factory Dauteks to a locally-owned fuel company.

The announcement was welcomed by 2,600 textile workers, who have been out of work since early June; it was also a happy reversal for the Latvian Privatization Agency, which saw the huge Dauteks factory in Daugavpils falter to the brink of renationalization before moving to temporary private operation by - best of all - a Latvian company.

But the decision left the company's previous owner bitter, who suggested that Latvia continues to be a difficult place for foreign investors. The Singapore-based Tolaram group had invested millions in the plant and claims that two local firms cost the company more than $1 million by misleading it through the state's regulatory maze.

Tolaram has turned operations over to the six-year-old Stalkers fuel concern, which operates out of the east Latvian city of Daugavpils. The new operator has promised put more than half the employees back to work within a month.

Stalkers was chosen over four other competitors - including a French and an Indian company - both because of its local base and because it promised to revive the plant without any government aid. Stalkers president Rihards Eigims said that his company has committed between $3 million and $5 million to Dauteks, and that he is currently negotiating for support from unnamed Western European investors.

"This is a success for the state," said the head of the Latvian Privatization Agency, Janis Naglis. He called Stalkers' move "brave" but also pointed out that the four-way competition demonstrated the plant's viability.

Tolaram Fibers, the division of the Tolaram Group which ran Dauteks, folded with more than $30 million in liabilities, including $12 million to trade creditors, said the group's Baltic chief, Urmas Reimand.

The latest court decision marked the second round of insolvency proceedings against Tolaram, which weathered the first but has now relinquished control of Dauteks.

"We had many unexpected problems to face in Latvia," Reimand said. He pointed to outdated equipment, to the difficulty of finding qualified managers but particularly to the country's troubled banking sector.

"In regard to banking, we have certain views in Latvia," said the diplomatic Reimand, who is based in Estonia. Tolaram ran into particular difficulty with the troubled Latvian banking sector. Reimand claims Tolaram lost $700,000 to a collection agency operated by Parex Bank that took advantage of complicated local regulations; and Reimas has also sued to recover $400,000 from a loan that was mishandled by Rietumu Bank.

Neither Rietumu nor Parex returned calls asking for comment on the accusations.

"I wouldn't blame everything on Latvia," Reimand said, pointing to relative ease of bankruptcy and insolvency proceedings. But he said he would think twice before investing again in Latvia.

The company's complaints reflect the continuing disparity between small, tentative foreign investment in Latvia and the four-times greater foreign investment in Latvia's northern neighbor, Estonia. Tolaram operates four manufacturing concerns in that country.

The long-term investment climate is of little concern to Dauteks staff, some of whom returned to work as early as Monday morning. Stalkers will lease the facility, Naglis said, and will pay "rent" amounting to the debts of the plants' owner, coming to about 30,000 lats ($51,725) per month. The rent will go toward paying off Tolaram's creditors; then, after an estimated 6 to 7 months, the plant will go to auction. Any money Stalkers invests now will count toward its bid at auction, and Stalkers's Eigims pointed to his investments to prove that he is in Dauteks for the long haul.