State offers cash for pulp mill project

RIGA - In an apparent response to complaints from the wood processing sector, the Latvian government has decided its equity investment in the Baltic Pulp Mill, to be built by the Baltic Pulp Company near the eastern Latvian town of Jekabpils, may be in the form of cash, rather than cutting rights in state forests.

Arvids Ozols, state secretary at the Ministry of Agriculture, said the decision was a political one. "The equity will now be divided between the three partners."

The state's contribution is now expected to be in the region of 127 million euros ($107.63 million), said Ozols. He said the three partners in the company - the Latvian state, Sodra of Finland and Metsaliitto of Finland - are among them expected to contribute 40 percent of the total investment, which he put at 960 million euros, with the rest coming from lenders. Ozols declined to comment on the source of the state's contribution.

The decision was welcomed by Andris Plezers, executive director of the Latvian Timber Association, which comprises mostly medium-sized wood processing companies. The government had been planning to give too much control of Latvia's forests to the company, he said.

"This is very positive. The mill is needed, but giving a 12th of Latvia's forest to foreigners would have been senseless. There was a veil of secrecy around these negotiations, which has now been lifted."

But the relationship between the state, the Baltic Pulp Company and Latvia's saw mills, remains to be resolved. The state is still committed to supplying wood for the pulp mill, said Ozols.

Jukka Laitinen, managing director of the Baltic Pulp Company, said the mill must have 40 percent of its wood requirements guaranteed, although what that means in practice has yet to be negotiated.

But he expressed confidence that agreements would be reached between the company, the state and saw mill owners on how timber resources are to be shared. The pulp mill will use the parts of the trees normally used in pulp production: chips from the outer part of the trunk and the upper section of the trunk, as well as saplings harvested in the course of thinning the forest. But the main tree trunks will be left for the saw mills - a procedure normal in his native Finland, said Laitinen. "We will have good, cooperative business relationships. Such arrangements work well in other countries."

Loans for the project have yet to be secured and a number of other issues, such as the securing of environmental and construction permits, must also be resolved, said Laitinen. But he rejected suggestions that work was proceeding slowly.

He also said he saw nothing wrong in basing the pulp mill on a partnership between the state and private enterprise, particularly in view of the infrastructure investment which would be necessary in the economically disadvantaged Jekabpils area.

"The transport ministry and the agricultural ministry are powerful organizations which can take responsibility in the project."

He expects the mill to employ 350 people and to strengthen the Latvian economy in general.