RIGA - Latvijas Pasts' vicious circle of tariff hikes and financial losses, which reached a nadir last year, was set to continue after the government announced it would green light another proposal to raise postal rates.
Transport Minister Ainars Slesers told Latvian Radio on Feb. 4 that Latvijas Pasts' rates would increase since the company's business in remote village areas continued to bleed money.
According to the Delfi news portal, Latvijas Pasts, which is wholly owned by the state, posted losses of 10 million lats (14.2 million euros) last year, its worst on record. In 2006 the company posted a 7 million euro loss.
Comparatively speaking, the result is awful. The other two Baltic postal companies, Lietuvos Pastas and Eesti Post, also posted losses in 2006, but far less than their Latvian counterpart. Lietuvos Pasts said on Feb. 4 that it managed to post an operating profit in 2007 despite higher costs.
Still, over the first nine months the Lithuanian postal company announced that losses reached 3 million litas (888,000 euros).
The worsening financials at Latvijas Pasts has the company's partners worried, general director Gints Skodovs told the Dienas Bizness daily.
The postal company lacks working capital, he said, and in order to meet current expenses the company had to take out a 15 million lat loan for four months. The loan has to be paid back in April, but to do that Latvijas Pasts intends to borrow 36 million in a long-term facility.
Skodovs, whose future at the company has been thrown into doubt, admitted the situation was fraught with danger.
"What we're doing now is borrowing money to deliver the press. Can such a business be considered healthy? It's doubtful. We're walking on a razor's edge," he said.
Last year the government approved a plan to create a postal bank together with a financial institution. The plan, though far from ideal, was proposed by the Transport Ministry as the only viable option for Latvijas Pasts' future.
In November the ministry announced that three companies applied to participate in the tender to be named a strategic partner in the postal business 's Lattelecom, DnB Nord Banka and Mono, a multi-business company.
One of the requirements for the tender is that the winner invest 50 million euros in developing Latvijas Pasts, which operates some 900 post offices around the country.
In the meantime, both the ministry and the post office have come under fire for signing bad contracts with leasers of Latvijas Pasts' property.
State auditors have accused the post office of concluding a number of lease contracts that resulted in a 6 million lat shortfall in revenues. For years Latvijas Pasts management has been accused of "undermanaging" its property, though previously it was believed that the income shortfall amounted to 2 million lats.
The Transport Ministry has denied the auditors' accusations.
Overall, the situation in all three Baltic postal companies is increasingly dire as higher energy and labor costs extend beyond control. Lietuvos Pastas has been forced to shorten hours at many offices, including in the capital, as staff flee for better-paying jobs elsewhere.
In Latvia, the number of press subscribers last year fell 4.9 percent, or 42,800 people, to 838,100, the Latvian Association of Press Publishers said.
Looking ahead, the postal services market will only become more competitive after the European Parliament passed a new directive abrogating a state postal operator's monopolistic right to deliver mail weighing up to 50 grams.
The deregulatory measure will go into effect on Jan. 1, 2011 for older EU members, while the newer states, including the Baltics, will be given a two-year grace period and thus will not have to open the "letter market" until December 2012.
European postal services were opened to competition 10 years ago for packages weighing more than 350 grams. This measure was extended in 2003 to items of more than 100 grams, and then three years later to letters weighing more than 50 grams.
