Shipper placed under intense scrutiny

  • 2002-12-19
  • Thomas Foulquier

Latvian Prime Minister Einars Repse caused an uproar last week when he mentioned the possibility of an investigation into the privatization of the Latvian Shipping Company that was just completed last summer.

Dans Titavs, Repse's assistant, told The Baltic Times that at this point there is no specific information that would in itself justify a full-blown investigation, and that the prime minister's statement should be seen as a criticism of both the company's privatization and several of the company's subsequent decisions.

Considering the public's poor perception of the privatization and Repse's long-standing opposition to the proposed scheme of the sale, the threat of investigation does not come as a surprise to most Latvians.

LASCO was privatized in two stages this year, with 32 percent having been sold for privatization vouchers in February and 51 percent for cash in June. The remaining 17 percent had been set aside for retired workers and state pension funds.

In January Repse, who at the time headed the New Era party, voiced his opposition to the LASCO privatization, saying it would not attract the strategic investor that the company so desperately needed.

The privatization plan, however, had the support of the then ruling coalition, even though it had been put to doubt by shipping experts.

Eventually Hansabank and Latvijas Krajbanka bought 26 percent using privatization vouchers, setting the stage for a dramatic sale of the controlling stake for cash.

On June 25 at a price of 0.35 lats (0.58 euros) per share, just slightly above the minimum price of 0.3 lats, 102 million shares were sold to Ventspils Nafta and Estonia's Hansapank at an open cash auction.

Ventsplils Nafta acquired 31.3 percent of the company and Estonia's Hansapank 19.7 percent. In addition, a third investor related to Latvijas Unibanka bought 46,700 shares, while a few shares were sold to individuals.

In sum, the 51 percent stake in Latvia's premier shipper was sold for a total of 35.7 million lats.

Curiously, a last-minute bid made by a foreign investor at an alleged price of 0.51 lats per share would have filled the state's coffers with some 10 million additional lats, but the bid was rejected after having been made an hour late.

The unlucky investor, Beacon Shipping, was reported to have ties with Sovkomflot, a state-owned Russian shipping company.

Ventspils Nafta subsequently increaseed its own stake at the end of June 2002 when it bought a 18.67 percent stake from Hansapank, giving Ventspils Nafta virtually complete control over the shipping company.

Though criticism sounded even prior to the sale, it picked up afterwards. The government was blasted for decisions that supposedly harmed the interests of the state.

Economy Minister Aigars Kalvitis, who spearheaded the privatization, was taken to task by members of his own ruling coalition, who called for his resignation and for the suspension of LASCO's privatization.

Former Latvijas Krajbanka President Arnolds Laksa claimed the bank's participation in the sale should be investigated by authorities.

The company, meanwhile, suffered from the onslaught. Ranked the third largest transnational company of Central and Eastern Europe in the U.N.'s 2002 World Investment Report, LASCO desperately needs to renew its aging tanker fleet. But because it remained in state hands so long - this year's sale comes after three failed attempts - the all-important issue of renewing its fleet was pushed aside.

Worse, now that Europe is raging after the Prestige tanker disaster off the coast of Spain and leaning toward banning single-hull ships from its ports, LASCO's assets are perceived as a liability.

LASCO currently owns 51 ships, of which 36 are crude-oil tankers. Only five of these tankers, however, meet Europe's toughening standards, according to the daily Diena Business.

LASCO's stock recently plunged on the Riga Stock Exchange amid the news of a possible EU-led ban on single-hull tankers. Traders said the stock could fall to 0.20 lats (almost 50 percent below the price of last summer's cash auction) because of dimsal earnings forecasts and planned losses for the 2002 financial year.

Still, LASCO management has already taken several steps toward renewing its fleet. In September, it sold seven of its reefer vessels, built between 1983 and 1987, for $19.5 million, in order to focus on its tanker business, the most profitable of its operations.

But even LASCO's fleet renewel - new management's core task - has not gone without controversy.

Last year, while still state-owned, company managers bought three new Panamax tankers for a total of $120 million from a Greek company.

The deal, however, was completed without the necessary agreement of the Latvian Privatization Agency.

Also, shipping experts claimed the vessels were extremely overpriced.

Were Repse to carry out his threat, it is difficult to say which way the investigation could go.

In July 2002 the Latvian Prosecutor General's Office said the tanker deal had been done in breach of the law on privatization of state-owned and municipal entities since no permission from the Latvian Privatization Agency was obtained for a transaction requiring external borrowing and collateralization of fixed assets.

The argument was strong enough to force the previous governement to stop LASCO from purchasing new vessels.