State drops out of Baltic Pulp project

The Latvian government decided to sell its stake in a massive pulp mill project, paving the way for the private investor, Finland's Metsaliitto, to accelerate implementation of the 900 million euro project.

Shareholders and industry observers denied that the government's sale of its 33 percent stake in Baltic Pulp would harm Baltic Pulp, the project's name.

"In 1998 the private parties had asked for a Latvian state participation in the project because they needed to be reassured on the Latvian investment environment and its stability," said Maris Elerts, general director of the Latvian Development Agency.

"Things have changed with the European Union and Latvia's greater recognition internationally, and investors have now expressed their wish to increase their stake to 100 percent," he said.

Elerts added that the government's move was logical as its prime responsibility is to secure the investment environment, not to develop projects.

Latvia's Wood Industry Federation President Juris Bikis confirmed this stance, telling the Baltic News Service the time of high business risk in Latvia has passed and that participation of the state in business projects is no longer needed.

Arvids Ozols, deputy state secretary for the Agriculture Ministry, and who represented Latvia in negotiations with Metsaliitto, said the move to increase its stake in Baltic Pulp was initiated by Metsaliitto.

"The proposal to increase its stake was submitted to the working group representing the government at the end of November last year," he said, adding that he believes options are still open for wood supply, and that the question is still to be negotiated. The issue of wood supply for the new mill has been a contentious issue since the project's beginning and still remains unclear in the industry.

"It is up to the company if it wants to source wood supply from private forests. But for state-owned forests - as the Latvian forests have been involved in the project for more than a year - things will not change," Maris Elerts said, referring to tough negotiations between project organizers and state and private wood supplies that took place in the past.

Last week Bikis said that since the government had changed its position on the pulp mill project and was not set to guarantee wood supplies the plant would have to work in an competitive environment, which was what the private sector had been fighting for since the project's inception.

Metsaliitto, which is buying the state's stake in the project, is still waiting for the environmental impact assessment of the pulp mill to be issued in April. However, now that there are less parties involved, the project is likely to be sped up, said insiders.

The government has already approved a task force to work out the conditions of state aid and the plant's construction along with Metsaliitto. Headed by Deputy Prime Minister Ainars Slesers and Economy Minister Juris Lujans, the task force plans to complete talks with investors by March 31.

Metsaliitto plans to entrust the actual pulp mill construction to Metsa Botnia, one of the group's subsidiaries.

The mill, which is expected to create 600 - 700 jobs and produce up to 600,000 tons of pulp per year, was actually conceived over three years ago when Metsaliitto and Sweden's Sodra Group and Latvia's Ministry of Agriculture. Latvia was to provide all the timber needed for the mill in exchange for 33 percent of the joint venture.

When large logging rights in Latvia were claimed by Scandinavian companies, the pulp mill was thrown into doubt. Later issues such as loans, taxes, environmental permits further stalled the ambitious project.