Baltic airlines eye price hikes

The Baltic Times, TALLINN
By Kairi Kurm
Oct 11, 2001

Citing an increase in insurance costs connected to the Sept. 11 attacks, Baltic air carriers are considering raising ticket prices 3 percent to 6 percent.Estonian Air raised prices between 3 percent and 5 percent on Oct. 3, an increase of 200 ($12) – 400 kroons, said spokesman Raimond Made.

Unlike Latvian and Lithuanian airlines, Estonian Air canceled flights and operated leased aircraft on its most popular routes from Sept. 26-28, while it was negotiating new insurance coverage.

Insurers worldwide increased costs for coverage of terrorism and acts of war, which is required for air carriers. Estonian Air said last week that costs for the insurance had risen seven-fold since the attacks.

Like airlines around the world, Estonian Air has seen a drop in ticket sales.

?We have less passengers than usual. It’s the general unstable situation on the aviation market, which keeps people from flying,? said Made.

Estonian Air, which had previously planned to make its first profit since its privatization in 1996, is now facing the likelihood of less optimistic results this year. According to Made, profits could be 5 million to 10 million kroons lower.

Estonian Air is partly owned by Denmark’s Maersk Air (49 percent), the Estonian government (34 percent) and the investment bank Creso Investeerimisgrupp (17 percent).

Latvia’s national airline airBaltic is considering fare increases of up to 5 percent beginning Nov. 1 to cover higher insurance costs.

But the company has managed to keep its planes flying.

?We managed to negotiate with the insurance brokers within a short period of time and could thus handle services without any interruption,? said Vija Dzerve, the company’s spokeswoman.

According to Dzerve, ticket demand increased 16 percent in September compared to the previous year and the figures for October were promising.

?With this unstable situation it is hard to predict whether we will keep this trend,? said Dzerve. ?Maybe the rise would have been bigger if the Sept. 11 tragedy would not have happened. We hope to end the year breaking even.?

In 2000 the company reported its first profit , 77,000 lats ($125 000), on a turnover of 24.94 million lats.

The airline is majority owned by the Latvian government. Scandinavian Airlines Systems is the second largest shareholder. Lithuania’s national carrier, Air Lithuania, is 100 percent state owned.

?We don’t know whether we will increase the prices at all. Maybe we can find another solution,? said Romas Gegznas, general director at Air Lithuania. ?It depends on how our competitors will do. The increase may be between 4-6 percent, no more.?

He said ticket sales have not yet declined.

?The demand has been increasing every month, even in September. We expect a 10 percent increase in passenger traffic for 2001 compared to last year,? said Gegznas. ?It’s hard to predict economic results for 2001. The first half of the year we operated unprofitably, but for the third quarter we predict a small profit. The turnover will rise 5 percent over the previous year.?

Wood processor looks for investors

The Baltic Times, TALLINN
By Kairi Kurm
Oct 11, 2001

Plans for a share issue by Viisnurk, Estonia’s leading wood processing company, have been canceled due to continuing market instability.

Instead the company is to focus on attracting specific, large investors to finance the expansion of its furniture factory.

The subscription period was initially planned for Aug. 21 until Sept. 10, but due to steep falls on equity markets and increased volatility in share prices the issue was at first extended until Oct. 1 before being canceled entirely on Sept. 28.

According to Toivo Kuldmae, development director at Viisnurk, the issue was canceled after the emergence of a number of serious investors who were interested in acquiring bigger stakes than those on offer.

?Despite the cancellation, Viisnurk will continue to implement its expansion plans, taking into consideration changing conditions in the external environment,? said Kristel Kivinurm, director of Trigon Markets, which was to organize the issue. ?The cancellation will have no impact on the company’s day-to-day economic activities,? he continued.

Viisnurk intended to issue 850,000 shares at 44 kroons ($ 2.59) each, slightly higher than the price of its existing shares at the time of the issue. A sale would have increased the company’s share capital by 16 percent to 53.49 million kroons.

Viisnurk (meaning ?pentagon? in Estonian) produces a quarter of the world’s cross-country skis. In the year 2000 its ski factory produced over 300,000 pairs of cross-country skis and about 40,000 hockey sticks.

Its skis are mostly exported to Finland, Austria, Norway and North America under such brand names as Karhu, Peltonen, Jarvinen, Rossignoli, Atomic, Intersport and Madshusi.

Due to unfavorable weather conditions the ski market has declined in recent years, but because hockey is mostly played indoors, demand for the company’s hockey sticks has increased. They will shortly be used by teams in the National Hockey League, though under a different trade mark.

?We’ve been engaged in hockey stick production for two years and reached the top level very fast,? said Kuldmae. ?In the future we plan to market our production more under our own trademark.?

As well as increasing its share of the Baltic states’ furniture market the company hopes to use the money raised at the share issue to boost hockey stick production.

Although Viisnurk’s stock is of a low liquidity, analysts believe the company will grow substantially in the long term. It ended the first half of 2001 with net sales of 144 million kroons, 18 percent higher than last year, and a net profit of 18.5 million – 35 higher than last year.

?The company is fundamentally in a good sector,? said Urmas Riiel, analyst at Hansabank Markets. ?Employment conditions and the climate in Estonia are very advantageous for Viisnurk.?

Kivinurm said that Viisnurk had one of the best growth potentials among companies listed on the Tallinn Stock Exchange.

?It has continuously increased its turnover and maintained good margins. The company’s management has started new development projects, which are well planned. They have a good and motivated management and with its investor web site, Viisnurk is also one of Estonia’s most investor friendly companies. Furniture sales will continue to be behind the company’s rapid growth.?

The company’s major investors are Baltic Republic Fund, with a 59 percent stake, and Merita Bank, whose clients control 11 percent.

A number of investors are thought to be interested in buying the Baltic Republic Fund stake.

Kuldmae said the company was planning to focus on its four major business units, including furniture and to outsource technical services and heat energy production.

Only a small part of the company’s furniture production is sold in Estonia, while its biggest export markets are Sweden, Finland and Germany. In the first half of 2001 Viisnurk’s furniture factory made a 13 million kroon profit on a 77 million kroon turnover.

The sales of the softboard factory amounted to 38 million kroons in the same period, while the ski factory’s turnover reached 16 million kroons during the first half of 2001, 8 percent less than the previous year.

The fourth major business is the new wood panels factory, which cost about 100 million kroons to the company.

Hansabank Markets predicts a 385 million kroon turnover and a 42 million kroon profit for Viisnurk in 2001, while Trigon Markets estimates its turnover will be 354 million kroons and its net profit 35 million.

Medieval building – home for rich tourists

The Baltic Times, TALLINN
By Kairi Kurm
Oct 11, 2001

Tarmo Sumberg, an Estonian businessman, is planning to turn Tallinn’s medieval building complex Kolm Ode (Three Sisters) into a small exclusive hotel.Sumberg, who had been the CEO of the Reval Hotel Group for 10 years and owned part of the construction company Koger and Sumberg, bought the building at an auction in July from the city of Tallinn for 9.8 million kroons ($576,000).

Sumberg, who presently runs the Estonian Tourism Board and is a consultant for Prime Minister Mart Laar, was the only bidder for the property.

He said it was going to be his major business concern in the future.

Renovations are expected to begin in 2002 and the hotel, which will include 15 to 20 rooms, is to open sometime in 2004.

Sumberg says he plans to make the hotel the most expensive one in Estonia and will invest up to 30 million kroons in it.

?Why did I buy this? Because I liked it,? said Sumberg. ?It’s beautiful, precious and stately. It’s going to be my pet project. I’m not expecting a fast profit from it.?

Paul Oberschneider, head of the real estate firm Ober-Haus, which operates two hotels in Tallinn’s Old Town, said that Sumberg’s hotel is too small to be profitable.

?You need geographic scope and size,? said Oberschneider. ?Fifteen rooms is a hobby.?

Sumberg said that Ober-Haus’ hotel Park Consul Schlossle, which is also in a medieval building, is ideologically similar to his plans, but he doesn’t see it as a competitor.

The Kolm Ode building consists of three similar three-story houses that were built at the beginning of the 15th century. The biggest house was built around 1415 and the smallest one in 1451.

The triplex, which once belonged to three families, was turned into a one-family building after the son of one of the families and the daughter of another were married, said Sumberg.

The building has been reconstructed several times and belonged to several owners. It has a baroque door dating from 1651. The facade was partly changed in the 19th century and the inside was rebuilt in the 60s.

Kalli Holland, head of Vana Tallinn, which examined the architecture of the house, said: ?I wish the renovation had not taken place in the 1960s. There was a different attitude toward old things at that time. Everything was changed according to the fashion. The wood was painted dark and now we have a lot of work to do to get this paint off.?

She said that a nice rococo painting with two angels was found on the ceiling during the renovation a few weeks ago. Sumberg said that he was happy about the discovery, which he would like to expose to his guests.

?I hope the hotel will have a room with such a function that many people can go there and see the building from the inside,? said Holland.

Holland is happy about the investment being made in the building because it was in a run-down condition.

?It was gorgeous from the outside but disgusting from the inside,? she said.

Juri Kuuskemae, a curator at the Foreign Art Museum, said that he had dreamed of establishing a ?citizen’s house? museum in the building, where people could get a glimpse of life in medieval times.

?Rakvere and Tartu have such museums, but we miss it in Tallinn. The city of Tallinn isn’t rich enough to afford it. There are a lot of other medieval buildings in Tallinn where we could carry out this idea,? he said.

One-third of the buildings in Tallinn’s Old Town were built in medieval times, many serving as homes for the city’s merchants.

?These houses were built according to a single scheme,? said Holland.

The first floor was usually used as a business room and there was a door with a hook for hoisting bags onto the top floor. You can’t find similar buildings anywhere else in Estonia because of the destruction caused by frequent wars and fires.


New power cable to unite Baltic and Scandinavian power supplies

The Baltic Times, TALLINN
By Kairi Kurm and Aleksei Gunter
Oct 11, 2001

Work on a new underwater power cable between Estonia and Finland is set to begin next spring after the signing of a contract between Estonian, Finnish, Norwegian and U.S. companies on Oct. 9 in Tallinn.

The 315 megawatt, 70 kilometer long sea cable will start operation in 2004.

The projected capacity of the cable was increased from 200 megawatts to 315 megawatts because of strong interest from Nordic power engineering companies.

The undersea cable project called Estlink involves Eesti Energia, Finland’s Pohjolan Voima and Helsingin Energia, Sweden’s Granige AB, Latvia’s Latvenergo, Norway’s state-owned Statkraft and TXE Nordic Energy, a subsidiary of the U.S. company TXU.

Eesti Energia spokesman Erki Peegel said the Finnish company Pohjolan Voima would choose the final contractor in about a month. ?It will be a large international company, either Siemens, ABB or Pirelli,? he said. ?Next spring, work should begin.?

Commenting on the benefits of the project to Estonia, he said, ?For Estonia as a state, it is a chance to export its oil shale energy to Scandinavia and it is a significant step toward integrating with the European power engineering environment.?

Karlis Mikelsons, chief executive of Latvenergo, said: ?We are trying to participate in this project, because it is something new from a technological point of view as well as politically. It is also important for us to cooperate with such companies. The project is a new step toward the liberal market.?

Although Latvia mostly imports energy, it would be possible to sell energy generated by the country’s hydroelectric plants on the Nordic market during the three or four months when water levels are at their highest.

The Scandinavians’ motives are simple, said Peegel. ?According to their forecasts, in the next five years the production of electricity in Scandinavia will become less profitable and too expensive. They just plan to get cheap electricity.?

He declined to comment on the effect of the cable on energy prices in the region. ?Our energy prices would not rise to Finnish levels. On the contrary, in the long run, over 5-10 years, the cable will help stabilize electricity prices in Estonia.?

The cable is a step toward greater independence from Russian power supplies since once complete, electricity may be bought from Scandinavia in the event of a crisis. But, cautioned Peegel, ?The cable itself is not sufficient to separate ourselves from Russia’s energy system.?

The 100 million euro project is expected to pay for itself in about 10 years. A special company will be established to manage the project and take a loan to pay for it. According to Peegel, it has not yet been decided how much each participant will contribute.

First nature-friendly real estate project started

The Baltic Times, TALLINN
By Kairi Kurm
Oct 11, 2001

A peculiar environmentally friendly village is being established near Tallinn in Leppneeme to promote sod roofed houses and solar power.Real estate developer Kodumajagrupp, which asked the Estonian Fund for Nature for help, heads the project. Urmas Laur, Kodumajagrupp’s manager, said that many people are interested in buying homes surrounded by sea and forests.

According to Laur 44 plots will be sold on the 24-hectare land in Leppneeme, ranging in size from 3,000 square meters to 13,000 square meters and costing 100 kroons to 150 kroons per square meter. According to Sven Soomuste from Hansa Liising (Hansa Leasing), which is financing the project, there will be a large demand for the plots thanks to their privacy, surroundings and relatively low cost.

He said that a couple of kilometers closer to the city of Pirita prices range from 500 kroons to 600 kroons per square meter.

Hansa Liising offers loans to future occupants at 7 percent interest for up to 30 years.

?Most of the plots have two functions, with 10 percent to 20 percent being used as residential areas and the rest kept as forest,? said Laur. ?This solution is very advantageous for future villagers because the land is taxed in different ways.?

The Fund for Nature will set up landscape architecture that will be obligatory for all villagers, said Laur. The villagers will also be responsible for preserving nature on their plot.

?We hope that the competitive environmentally friendly technologies will be widely used in this project,? said Toomas Trapido, director of the fund. ?If this vision comes true, it is the environment that many people have subconsciously been dreaming of.?

Urmo Lehtveer, spokesman for the fund, said that it was possible to use solar batteries for producing hot water, heat and lightning. He said that a couple of homes would also be equipped with sewage treatment facilities, which is five times cheaper than traditional sewage treatment methods. Rainwater will also be collected from roofs and used in toilets.

Wind power could also be an option.

?Thanks to the sea breeze it is possible to use small wind generators for producing electricity for street lightning,? said Lehtveer. ?In the future it will be possible to separate houses from the joint energy networks and connect them to small private power plants.?

The first house is expected to be completed next year.

Aljona Kozlova, who lives in Leppneeme, said that she was happy about the newcomers and hoped they would bring more money to the county that could help to improve the roads, transportation connections and entertainment facilities.

?But from another side, I am not really happy about the forest becoming private property,? she said. ?If everything is sold out, despite their promises to take good care of it, all the old inhabitants will be annoyed with signs like ‘private property’ and ‘restricted area.?