LASCO's privatization in rough seas

  • 1999-11-04
  • By Benjamin Smith
RIGA - After four years of haggling, Latvia's second largest business
may actually be privatized; and the opponents of that privatization
are throwing every wrench they can find into the works.

Late last week, the Latvian Socialist Democratic Workers Party
announced that they had assembled the signatures required to form a
special investigatory panel on the privatization of the shipping
company Latvijas Kugnieciba, a.k.a. LASCO. Almost simultaneously,
LASCO executives learned that the Latvian Privatization Agency's
board would force them to wait another two months to invest in new
oil tankers.

But the fight over the details of privatization has also revealed
deep divisions over whether the large, successful enterprises now in
state hands, like Latvijas Kugnieciba and the power company
Latvenergo, should ever be privatized.

The current deadline for bids on LASCO is Dec. 20. The LPA is looking
for a "strategic investor," who would buy a 44 percent stake for at
least 45 million lats ($78.9 million) and would then pay market
prices for the rest of the controlling stake.

Resistance to privatization

"Too much importance is given to the privatization process," said
Social Democrat MP Imants Burvis.

Burvis, a heavyset former seaman who pushed for the vaguely defined
investigation, argued that the failing government enterprises have
already been sold off, and many have been liquidated.

LASCO, on the other hand, has competed successfully in international
markets. Its ships carry more oil products between Northern European
ports than any other company's, and it ranks fifth for oil product
tonnage in American waters.

LASCO first turned a profit in 1998, and more than 3,000 Latvians
work on LASCO's ships.

Burvis said privatizing more successful businesses like LASCO "is not
necessary" and "was not the primary purpose" of privatization. He
said he feared LASCO would be sold to a rival and operated without
the interest of Latvia in mind; as an alternative to this sort of
privatization, he proposed a "public capitalism" in which the
controlling interest in LASCO could be bought by the Latvian public.

"A political game"

To principled privatizers - including Latvia's ruling coalition -
doubts like Burvis' are beside the point, as is his committee.

"This is a political game," said LPA chief Janis Naglis, whose
organization is shepherding LASCO into private hands. The committee
will not have judicial power, Naglis said.

"The main obstacle to privatizing the remaining companies is
political unwillingness," Naglis said. He expressed his confidence
that LASCO would sell, if offered at the 51 cents per share
established by the Latvian government after a PricewaterhouseCoopers
examination of the company.

A previous attempt to privatize LASCO failed when the company was
offered at $2 per share - "because of the unprofessional action of
the Cabinet of Ministers," Naglis said.

A spokesman for Economics Minister Vladimirs Makarovs expressed
approval for the current LASCO privatization plans, and Naglis said
he still hoped that LASCO could find a strategic investor in December
and go to an initial public offering, perhaps in Oslo, sometime next

But he said he was disappointed at the recent vote of the board of
his own organization to postpone LASCO's planned purchase of new
tankers until after a strategic investor had been found.

Frustration at LASCO

"We are just looking for a decision," said LASCO spokeswoman Linda
Pukite. "Either privatize us, or stop the process, say it, announce
it," she said.

The political debates, she said, make it hard to run the shipping
company as a business, and LASCO's executives are furious that their
plan to spend $200 million on 5 new oil tankers has become a matter
for the politicians.

The average age of Latvijas Kugnieciba's fleet is 17 years, Pukite
said, compared to the average of 7 to 8 years for most of its
competitors. Their age makes it particularly difficult and expensive
to meet the American safety regulations that sprang up in the wake of
the Exxon Valdez disaster.

And the company's 12 largest oil tankers, its most important assets
will be forced into retirement in 2003 at the age of 23. LASCO hopes
to replace them with 5 even larger "Panamax" tankers, the 70-ton
vessels which are the largest allowed in the Panama Canal.

"It's an economic issue, whether or not to buy a ship. The company
should be allowed to make that decision," Pukite said.