Riigi Kinnisvara wants to manage state real estate

The Baltic Times, TALLINN
By Kairi Kurm
Jun 28, 2001

Estonia’s Ministry of Finance is planning to establish a real estate company, Riigi Kinnisvara, to administer the state’s real estate holdings more effectively and sell unnecessary plots.

Finance Minister Siim Kallas presented legislation forming the company to the state chancellery on June 20 and it will be discussed by the government in a week.

The state owns about 15,000 pieces of real estate, which are managed by different ministries and state institutions. The new company will cut administration costs, maximize revenues, sell unnecessary buildings and improve transparency, ministry officials say.

According to Enn Teimann, the ministry’s deputy secretary general, the new company would acquire most of the real estate managed and owned by the state. It would then renovate them, and rent them to state institutions or sell them. Similar companies have already been established in Latvia and Finland, he said.

“Its primary task is to set the administration in order,” said Teimann. “It is much easier to draw a state budget when the managing of the household is transparent. It would enable comparison of the different ministries. It is not reasonable to reside where the expenses are high.”

Teimann said that the Estonian Border Guard is currently located in the offices of the Estonian Customs Board, which pays for its maintenance.

Some of the specific cultural, educational or historical buildings like the government building on Toompea or the president’s office in the Kadriorg palace, would not be given to Riigi Kinnisvara.

The Ministry of Finance is planning to give away its buildings this year. The share capital of the company would rise each time it acquires a new building. It would start with a 93 million kroon ($5 million) share capital and 6 buildings.

According to Teimann, the state does not expect the company to earn much profit.

“It would be like moving money in the same pocket. If it rents the building out on the real estate market, it should take into account the market prices and make profit. The other source of revenue would come from the sale of real estate,” said Teimann.

Teimann admitted that the state had had a number of unprofitable rental contracts since the beginning of the 90s, when rental prices were low. “A contract is a contract and it cannot be changed,” he said “We rented our cellar to a restaurant for 2 kroons per square meter until the contract ended this year.”

Teimann said that state institutions would also have the right to rent bureaus from other real estate companies, but he doubts any of the ministries would want to do it.

The Ministry of Justice is presently the only state institution that rents rooms from a private company.

Urmas Laur, head of the company that operates the real estate portal http://www.city24.ee, said that Riigi Kinnisvara would regulate the market if it worked effectively and was not influenced by the personal interests of the people behind it.

Ain Kivisaar, an analyst from the real estate company Uus Maa, also feared that corruption might become a problem.

Laur suggested not creating a big administrative unit.

“They should decide on what to do with the buildings and buy the rental and services from real estate companies,” said Laur.

He said that the supply of state buildings might decrease the rental prices of midlevel bureaus, where the prices range from 120 kroons to 160 kroons per square meter.

Kivisaar believes that the foundation of Riigi Kinnisvara would provide more intermediate work to real estate companies. The new company would not threaten their business but activate the market instead.

“Real estate companies usually do not own the property so they have nothing to lose when the prices drop,” said Kivisaar.

Source: http://www.baltictimes.com/news/articles/5144/

Finns support Estonian spa business

The Baltic Times, TALLINN
By Kairi Kurm
Jun 28, 2001

 Estonian spas have become one of the biggest tourist attractions for foreigners in the country, with 77 percent of the 80,000 people visiting spas last year residing outside Estonia.

“Estonian spas are mostly (frequented) by the Finnish tourists,” said Vello Saar, head of the Estonian Association of Health Resorts and Rehabilitation Treatment.

In the future, Saar said he would like to see more clients from Central Europe and Russia.

He said that 90 percent of the clients at spas in western Estonia are from abroad, while in eastern Estonia the number of foreign clients is smaller.

Saar, who also heads the Varska spa in eastern Estonia, said that two-thirds of its visitors are local. Varska is famous for its mud and natural mineral baths.

The foreign clients help to keep the rate of occupancy high year round. The average rate of occupancy at spas is 65 percent to 70 percent, but during the summer it jumps to around 90 percent.

“The occupancy rate of the Kuressaare, Haapsalu and Parnu spas, which depend on foreign tourists, does not drop below 50 percent from autumn until spring, while in Varska, Toila and Narva-Joesuu it is sometimes 30 percent,” said Saar. “The Tervis Rehabilitation Center in Parnu, the leading spa in Estonia, has already booked most of the nights for the next year.”

Tervis, which has 320 rooms, had a 70 million kroon ($3.9 million) turnover last year. It was followed by Estonia, a spa in Parnu, which after expansion is completed will have 360 rooms.

The prices at the spas vary from 270 kroons at Toila to 770 kroons at Bergfeldt. The prices are high at Bergfeldt spa in Haapsalu because it is small and there is a high demand for rooms there.

The average price for a day at the Estonian spa, which includes three meals and three treatment procedures, is 400 kroons.

The patients are examined by doctors, who suggest special exercises, massage treatments, mud and baths. Estonian spas employ a total of 1,129 people, one-third of whom are medical personnel.

Besides the treatment programs most spas offer entertainment and conference facilities.

Some spas have different prices for foreigners.

“I would not say that foreigners pay high prices. We have discounts for Estonians,” said Vello Luts from the Laine health spa in Haapsalu.

Jaak Prunes, head of Toila spa, said that foreigners are charged one-third more for the same services. “The Estonian people could not afford it for that price. We give them the package for the cost price, which is 270 kroons,” said Prunes.

Toila Sanatorium was originally established to provide preventive treatment to workers from the oil shale mining company Eesti Polevkivi.

Prunes said that the company incurred a 450,000 kroon loss each month before it was taken over by new investors. The spa is famous for its salt chamber, which is the biggest and oldest in Estonia.

Enn Rettau, head of Kuressaare AS, said that they would no longer offer better prices for local people because the Estonian media had made too much noise about it. The company’s spa Saaremaa Valss charged locals 400 kroons and foreigners 600 kroons.

Most spas belong to Estonian private investors. Three spas – Parnu Mudaravila, Estonia and Soprus – belong to the town of Parnu and the Laine spa in Haapsalu is also partly owned by the municipality. Pohjarannik, the only state-owned spa in Narva-Joesuu, was closed at the end of May due to financial difficulties.

“The business was not profitable with the prices set by the state,” said manager Ivan Litcman.

In the past, most of the spas belonged to the state or the trade unions, and the state paid for the treatment of sick and retired people.

Today the funds paid by the state health insurance fund and social security are only 4.8 million kroons or 2 percent of the total turnover of Estonian spas and cover the treatments of about 2,000 patients.

According to Saar the 13 Estonian spas made an 80 million kroon profit on 260 million kroons in turnover last year. It reinvested some 116 million kroons.

Saar believes that the number of beds would soon reach the level Estonia had during the Soviet era. Today there are 2,376 beds in Estonia.

Source: http://www.baltictimes.com/news/articles/5145/

Norwegians take over Estonian shipping company

The Baltic Times, TALLINN
By Kairi Kurm
Jun 21, 2001

An international shipping concern, the Tschudi and Eitzen Group, acquired majority ownership in Eesti Merelaevandus (ESCO), the largest privately-owned shipping company in Estonia and the Baltic states, on June 7.

The Tschudi and Eitzen Group purchased ESCO shares through the U.S. company Stanton Capital from Baltic Sea SA, which owned 80 percent of ESCO before the deal. The Tschudi and Eitzen Group, privately owned by Norwegian businessmen Axel C. Eitzen and Felix H. Tschudi, controlled 12 percent of Baltic Sea SA before the purchase.

According to ESCO’s managing director, Tom Stage Petersen, the company is planning to establish a foothold in St. Petersburg within the next six to eight months and is looking for new possible alliances with other industrial partners in the Baltic states.

“We’re going to focus on our core business, which is Eurolines,” said Petersen. “We’re also going to concentrate on international ship management services, because ESCO in cooperation with Tschudi and Eitzen has a higher (level of) competence in this field.”

According to Petersen, ESCO withdrew from the passenger ferry market at the end of last year and chartered its passenger ferries Baltica Kristina and Regina Baltica to Hansatee.

“ESCO controls over 50 percent of container movement in Estonia. Besides its direct competitors, it’s also competing with various gateways to Baltic ports,” said Petersen.

ESCO is a leading Ro-Ro and container operator in the Baltic region and Estonia’s largest ship owner with a fleet of 27 vessels, more than half of which were built in the 1990s. The company employs more than 800 people.

The company was established by the state in 1991 and wholly privatized in 1999 by American, Norwegian and Estonian investors. Since the start of its privatization process back in 1997, the company has sold half of its fleet and reduced its personnel by 50 percent.

According to the business daily Aripaev ESCO has in the last four years accumulated a huge debt, and its main shareholders are being suspected of siphoning capital out of the company. A source claimed that at least one of ESCO Holding’s subsidiaries, Baltic Sea SA, borrowed $13 million from the parent company, which in accordance with Estonian law is illegal.

“Our lawyers and auditors see to it that the company does not do anything that is illegal,” said Felix Tschudi. He told The Baltic Times that it was normal for a shipping company to have big debts as long as the value of its ships was higher than the debt level. He said that most of the ships sold dated back to the 1970s and were too old for ESCO, or they didn’t fit in the company’s strategy.

ESCO’s management didn’t wish to disclose its unaudited economic results, but according to Aripaev the company incurred a 100 million kroon ($ 5.5 million) loss on 1.2 billion kroons in turnover last year.

“ESCO experienced another difficult year in 2000 but managed to considerably improve its operational results. The outlook for 2001 is, however, much better due to the steadily improving Baltic and Russian economies,” said Petersen. He said that shipping is a cyclical business with periodic downturns and that the restructuring would help meet the changes on the market.

The Tschudi and Eitzen Group is an old Norwegian company operating in more than 10 countries. It owns and operates more than 100 vessels worldwide within the tank, bulk, container and ocean-going tug sectors. The company is also involved in third-party ship management and crewing services. The group employs close to 3,000 people worldwide.

Source: http://www.baltictimes.com/news/articles/5113/

Coca-Cola Company acquires kvass production

The Baltic Times, TALLINN
By Kairi Kurm
Jun 14, 2001

Beverage giant Coca-Cola will increase its share of the Estonian soft drink market from 50 percent to an estimated 60 percent thanks to the acquisition of the successful kvass brand Linnuse Kali from its main competitor, AS Osel Foods.

The deal, which will cost Coke more than 20 million kroons ($1.08 million), according to sources, will also include Osel Foods’ Latvian kvass brand Pilskalna.

Kvass – an old Russian concoction of rye, sugar and yeast – was a very popular drink during the Soviet era, when it could be bought for a few cents a cup on the street directly from half-ton metal tanks.

The drink disappeared from the market in 1988 and was re-introduced again in 1998. The Linnuse Kali brand became very popular among local consumers when it was introduced three years ago.

Today, Linnuse Kali controls about 62 percent of the kvass market and 10 percent of the soft-drink market.

According to Kuldar Leis, Osel Foods’ board chairman, kvass is not so popular today and its sales are very much influenced by the weather.

“The hot summer of 1999 was our peak sales period. The demand was very high. The brand came quickly and successfully on the market, but it has not stayed at that level. Last year the drink was not so popular,” said Leis.

This year the company expects to produce 4 million liters of Linnuse Kali. Pilskalna’s market share is about 2 percent, Leis said.

Osel Foods official said they decided to sell the brand to Coca-Cola and concentrate on the production of the fruit juice Aura, which hit the market last fall.

During the next few months Osel Foods will continue to produce Linnuse Kali under agreement with Coca-Cola at its plant in Tartu until production is moved to Coca-Cola’s plant in Tallinn.

Aki Hirvonen, marketing manager for Coca-Cola Baltic Beverages, said that his company was interested in acquiring the two brands because of their potential in Estonia and Latvia. Coca-Cola is at present producing kvass in Lithuania under the brand name of Frisco.

“Kvass has a lot of growth opportunities in the Baltics,” said Hirvonen. “The traditional Coca-Cola products strongly appeal to younger Estonians, and now we can attract even more Estonians, namely the people on the other side of 30.”

He said that Coca-Cola hopes to extend kvass production to Western markets in the future.

According to Hirvonen, soft drink consumption is low in the Baltic states and Coca-Cola’s aim is to increase the volume of the overall soft-drink market.

“Our biggest competitors are outside the soft drink market. The consumption of coffee, tea and milk is really high,” he explained.

Coca-Cola ended last year with a 20 million kroon loss in Estonia, while in Latvia the loss was nearly twice as high.

Although the price of the deal was not disclosed, Olari Taal, the CEO of AS Osel Foods, told the weekly newspaper Eesti Ekspress that it was a profitable deal.

“Would you sell your shirt if you were offered 10,000 kroons? Of course you would,” said Taal.

Besides kvass and juice, Osel Foods makes lemonade, mineral water, mayonnaise and ketchup. The company employs about 80 people and its turnover was 80 million kroons last year. Osel Foods ended last year with a loss of 2.6 million kroons caused mostly by the investments into its juice production. Half of the company belongs to the Finnish businessman Carl-Eerik Sunbald, while the other half is shared by Estonians Tullio Liblik and Toivo Alt.
Source: http://www.baltictimes.com/news/articles/5082/