Latvian Shipping Company privatization fails

  • 2001-05-03
  • TBT staff
RIGA - The fourth attempt to privatize the state-owned Latvian Shipping Company has failed unexpectedly, as no potential bidders paid the required security deposit of $5 million by the deadline of April 27.

One of the bidders had sent the Latvian Privatization Agency a package of documents, confirming its board's resolution about further participation in the privatization process and indicating that an order had been made to transfer the required security deposit before the deadline.

Privatization officials expected the payment over the weekend but it had not arrived by April 30, ensuring the disqualification of the bidder.

The other potential bidder sent a letter, saying that the minimum sales price for a 68-percent block of the company's shares as established by the government was too high. The government had set the minimum sales price at 70 million lats ($111.5 million), the prime minister's spokesman Arnis Lapins confirmed to BNS.

The responsibility for the privatization failure of the shipping company should be taken by the government and the privatization agency, along with the privatization consultant, BDO New Markets, Latvian President Vaira Vike-Freiberga said May 1 after her return from the United States.

She suggested involving a well-known international investment bank as a consultant, but it hasn't been done, the president stressed.

The over-politicized environment around the privatization process is blamed for the failure by Latvian Shipping Company's representatives. "The political environment leaves an impression on everyone who would like to invest in Latvian shipping," said the company's spokesman Sandris Grasis.

He stressed that the Latvian Shipping Company is in desperate need of investment in order to stay competitive on the world market.

The privatization agency will ask the shipping company's privatization adviser to prepare recommendations to the government about a further course of action. The government will be asked to decide on further steps in the privatization of the Latvian Shipping Company on May 8.

Latvian Privatization Agency's Director General Janis Naglis told reporters April 30 that the shipping company privatization cannot be regarded as being over yet as there was no government resolution about stopping the privatization process.

The shipping company has a registered capital of 200 million lats divided into just as many shares at a par value of 1 lat. The company's uncommitted funds are estimated at $43 million.

The auction for 68 percent or 136 million of the company's shares was set for May 11.

This is the government's fourth attempt since 1995 to sell one of Europe's major oil-products transporters. The issue was crucial to several governments and the sell-off failure last year triggered the collapse of the governing coalition.

This time, the political climax came April 27 when five hours before the deadline the opposition Social Democrats submitted to Parliament a call for Economics Minister Aigars Kalvitis' resignation in an attempt to stop the shipping company's sell-off.

The failure of the sell-off made Social Democrats even more vigorous, and Juris Bojars, chairman of the party, said the chances for a no-confidence vote have increased.

"There is a possibility that MPs of government factions could vote in support of Kalvitis' resignation," said Bojars.

The Fatherland and Freedom party, a member of the three-party ruling coalition, was the most vehement opponent to the shipping company privatization regulations.

"The prime minister and Kalvitis should carry political responsibility, because it was their parties that were most convinced about successful privatization of the shipping company. The privatization agency also should assume responsibility," said Maris Grinblats, chairman of the party. However, on May 1 there were only 37 votes in the 100-seat Parliament secured for the planned no-confidence vote on May 8, with opposition party For Human Rights in a United Latvia being the only supporter of the Social Democrats.

Lapins told BNS that Prime Minister Andris Berzins still feels safe about the stability of his Cabinet.

He said the government will have to return to the question of the shipping company's privatization and two scenarios are possible. First, drawing up new privatization regulations, taking into account that something may have been wrong with the latest regulations or the price may have been too high.

Under the second scenario the government would have to consider that at this stage there is no demand for the Latvian Shipping Company on the international market and a possibly high price cannot be received for it. Therefore the company should be retained as a state-owned company for a while and a decision on its privatization will have to be made by a new Parliament.

The term of the current legislature expires in autumn 2002.

The Social Democrats, who won the municipal elections in Latvia in March and still top the popularity polls with 17 percent of voters' support, have suggested stopping the privatization process and leave the shipping company in state ownership at their party conference on May 1.

In the meantime, experts have noted that the government can decide to give a green light to the public offering of privatization vouchers which was foreseen in the privatization plan but only after the strategic investor was found. If 15 percent of the company's shares are sold openly for vouchers, it will significantly change future privatization attempts.

The audited loss of the Latvian Shipping Company in 2000 was $20.5 million.

The Latvian media reported that possible bidders for the Latvian Shipping Company were the FAL company from the United Arab Emirates and the Danish concern Maersk, the toughest rival of the Latvian Shipping Company in Northern Europe.