TALLINN - Nearly a thousand textile workers in Narva will lose their jobs in 2008 as the historic Kreenholm plant, one of the largest employers in Estonia's third most populous city, undergoes a major restructuring that will include shutting down entire segments of its operations.
Kreenholm, which is owned by Boras Wafveri, a Swedish textile manufacturer, announced on Dec. 12 that it would lay off 900 workers beginning in May as the company struggles with a liquidity crisis that drastically worsened after a local court froze two of the company's bank accounts.
Aivar Melders, the company's CFO, said the company was shutting down its spinning and weaving units and curtailing administrative positions. The plant will also cease manufacturing fabrics and instead purchase cheap material on the global market, the company said in a statement.
Workers expressed shock at the decision, particularly the timeframe. While all are aware of the company's financial duress, most expected that the plant would continue operating for at least another year-and-a-half.
Mats Gabrielsson, a shareholder in Boras Wafveri, told Estonian Television that the direct cause of the layoffs was the recent court order freezing the company's bank accounts at the request of the water utility Narva Vesi (Narva Water). The court acknowledged that the textile mill had an overdue water bill of 20.5 million kroons (1.3 million euros).
The move triggered doubts about Kreenholm's financial credibility, which worried the company's suppliers, Gabrielsson said. "Others listened to them and started demanding advance payments from us, which led to liquidity problems," he said.
Kreenholm, which has posted losses for the last several years, has already sold nearly all its real estate in an effort to raise cash. It now operates on leased premises.
The plant's owners and management have expressed frustration at the city's decision to raise the municipal water tariffs without taking into consideration the company's situation.
Gabrielsson stressed that Boras Wafveri, which purchased the plant in 1995, was not planning to close down Kreenholm. He said that plans to shut down the plant's spinning and weaving operations had been under consideration for a year-and-a-half, since these were very difficult segments for any EU company.
According to a statement issued by the company, "The restructuring should be completed in 18 months. However, the decision to arrest the bank accounts, which was initiated by Narva Vesi, has put the company's financial position in such a tight grip that we were forced to resort to such drastic changes and immediately implement all changes."
Gabrielsson said the plant's owners hoped for greater understanding from Narva city authorities in the future.
The two sides have also clashed about the sale of Kreenholm's real estate, with the city accusing the Swedish owners of artificially lowering the price for the property. Gabrielsson said the accusations were absurd.
Mikhail Stalnukhin, chairman of the City Council who has led the charges against Boras Wafveri, denied that there was any connection between the layoffs at Kreenholm and the company's conflict with Narva Water.
"Management and owners of Kreenholm had already been talking about possibly cutting back production in Narva, and a closure was being planned back when no one was even thinking about raising the water tariff," Stalnukhin was quoted by the local Severnoye Poberezhe (Northern Shore) paper as saying.
Kreenholm started the layoffs earlier this year, and the company has said that by mid-year 2008 the plant will have approximately 1,100 workers, which compares to the 3,000 in May 2007, according to the company.
The Economic Affairs Ministry said that the combined layoffs would effectively raise unemployment in East Viru County two percentage points to 10 percent, exacerbating the region's already difficult socio-economic problems.
Boras Wafveri has defended the layoffs, saying they were part of a massive effort to increase the enterprise's effectiveness. When the company took over the plant in 1995 there were 6,000 people employed at the plant.
A total of 40 million kroons (2.5 million euros) in unemployment benefits will be paid out, according to Melders. Yulia Dmitriyeva, head of the plant's labor union, said all those who are slated to lose their jobs will receive four-months worth of compensation.
Preparatory operations such as dyeing, printing and finishing will remain operational.
Stalnukhin said the massive layoff did not mean that Narva would see any kind of social unrest, especially now that the town was launching a massive project to create new jobs.
The project, according to one report, will be a new 40,000 square meter shopping mall operated under VP Market's Akropolis trademark. It is expected to open in the second half of 2009.
The 51 million euro mall will provide some 600 new jobs for the community. "I advise all tenants to use people laid off by Kreenholm who've been retrained," Vadim Semitsenkov, project manager for Narva Akropolis, was quoted as saying in October.
Construction of the mall will begin in March 2008.
"The town will survive the cut-backs at Kreenholm," Stalnukhin said. "Over the last three years some 3,800 new jobs have appeared, and next year 600 more should be created."