The move comes after S.P.I's recent take over of LB and its decision to move the company's export production from Russia to Latvia following a dispute with the Russian authorities.
S.P.I President Aleksei Oliynik said in an interview with the business weekly Kommersant Baltic that 3 million euros would be needed for investment in equipment alone.
"Thus, total costs of the project may add up to 10 million-12 million euros, including auxiliary equipment," said Oliynik.
He said LB had to build its own distillery because two existing Latvian spirit producers which sourced LB - Jaunpagasts Plus and Riga Bestsprit - were in fact out of business and could not supply LB with the required amount of spirit.
"Let us leave alone the matter of Latvian spirit quality," Olynik added.
The new LB distillery would buy grain from Latvian farmers, he said.
"I would say more than that - we would create an incentive for grain production and agricultural development. The Latvian farmer will know that his grain will be sold, he will even get funds to sow his fields - and this is no populism," stated Oliynik.
"We will do it not because we want to be liked. We want benefit for Latvia as well as ourselves," he added.
When asked whether LB may change its mind about building its own distillery, Oliynik said it was possible if an existing facility could be bought but this was unlikely.
The S.P.I. president told the business weekly that since this spring LB had been using Russian-made spirit to produce export vodka.
LB hopes to develop designs for the new spirit plant by the end of this year and to complete construction by 2003. The purpose of the project is to ensure a stable supply of spirit to the liquor producer.
A tender has been announced to pick a location of around four hectares for the would-be distillery, and 42 bids have been submitted. The tender commission is now busy with examination of each of the proposed sites to select the best bid
Once a suitable site has been chosen designs and cost estimates will be made for the would-be distillery.
LB shares are quoted on the second list of the Riga Stock Exchange.
The largest LB shareholder, NTBDC LB company, belongs to S.P.I. concern which also includes Russian alcoholic drinks producer Soyuzplodimport.