Shipowners demand lower harbor fees

The Baltic Times, TALLINN
By Kairi Kurm
Nov 29, 2001

Shipowners sent a letter of protest to Estonia’s Transport and Communications Ministry Nov. 24 demanding lower prices at the state-owned Port of Tallinn.

The managers of the port – the fifth largest in the world in terms of passenger traffic and the 24th largest in Europe in terms of cargo traffic – say it is one of Europe’s cheapest.

With the two parties backing their claims with conflicting data, the ministry has established a joint commission to try to resolve the dispute.

The problem, according to ministerial spokesman Aap Tanav, is straight forward. “The shipowners want to pay less, while the Port of Tallinn wants to earn as much as possible under market conditions,” he said.

Enn Kreem, head of the association of Estonian shipowners, highlighted the 20 kroon ($1.12) fee ferry companies are charged per passenger they convey to and from the port. This sum should be halved, he said.

“I would like to hear how they justify these fees. The harbor takes 20 kroons per passenger that passes through the harbor, or 40 kroons for a two-way ticket.”

Erik Sakkov, the port authority’s marketing manager, said the protest was being driven by Hansatee, the largest of the association’s members, which controls 60 percent of passenger traffic. Other companies backing the protest are Eckero Line, Silja Line, Viking Line and Nordic Jetline.

Reducing the passenger conveyance fee to ten kroons would net Hansatee an additional 30 million kroons annually, said Sakkov.

With 6 million passengers passing through Tallinn Port annually, halving the conveyance fee as the association demands would mean the port losing 60 million kroons, he said.

“I’m sure our prices are very competitive, even by comparison with competitors in this region,” he said. “We haven’t changed our prices for the last seven years and are not planning to change them in the near future. Only the rates for roll-on roll-off cargo can be considered average. Sales by sea transport companies operating in our harbor are worth about $1 billion annually. I don’t think it is a sin to earn a cut from such big volumes of trade.

“The shipowners should turn to the government and ask for direct support if money is what they want.”

Cargo handling accounts for 55 percent of Tallinn harbor’s turnover. Of the 30 million tons which pass through the harbor, two-thirds is for transit to or from a third country, said Sakkov.

Almost every second kroon earned by Tallinn Port is profit. In the first six months of 2001 it earned a profit of 255 million kroons on a turnover of 464.2 million kroons. Most of the profit received last year was paid out in dividends.


Luik claims victory in battle for Ekspress Grupp

The Baltic Times, TALLINN
By Kairi Kurm
Nov 22, 2001

Having found enough money to buy a 50 percent stake in Ekspress Grupp from the Bonnier Group, media baron Hans Luik on Nov. 15 became sole owner of Estonia’s biggest media organization.The Swedish-owned Bonnier Group, had offered to sell its 50 percent stake in Ekspress Grupp, which it acquired from Luik in 1998, on condition that it could buy Luik’s half for the same price if he failed to purchase Bonnier’s stake within one month.

“It has been an emotional process,” said a well satisfied Luik. “I didn’t believe I would make it – I thought something might go wrong with the contract or would not find the funds on time. If I had been one day late and not paid by Nov. 15, I would have lost it all. I am proud to be the owner of the fastest developing media company of Estonia.”

Although the price of the sale was not officially revealed the business newspaper Aripaev – Bonnier’s only remaining investment in Estonia – claimed Luik paid around 70 million kroons ($4.04 million), of which 50 million kroons were borrowed from Uhispank bank.

Luik said the Aripaev figure was quite accurate, but Lars-Gosta Juhlin, a representative for Bonnier, had earlier denied it.

According to Luik, Bonnier was hoping until the last moment to obtain Luik’s shares. Erik Monsson, chief information officer at Bonnier, said the company would benefit from a clearer ownership situation.

“From time to time there are different viewpoints on how to look at the competition and investments,” Monsson said “We had other wishes, which were not achievable.”

He said Bonnier was planning to keep its investments in business titles in Estonia, Latvia, Lithuania, Poland and St. Petersburg and in its Polish tabloid and magazine and in a Lithuanian TV station.

Luik’s decision to sell a stake to Bonnier in 1998 had been necessitated by the purchase by the Scandinavian media company Schibsted of a stake in the competing Postimees, he said. “I could either close the office, place a bankruptcy sign on the door and start to cry, or look for support,” he said. He did not expect to make big changes to the company’s management, he added.

Ekspress Grupp has 50 percent stakes in an array of Estonian titles and companies, including the tabloid Ohtuleht, the daily Eesti Paevaleht, the Ajakirjade Kirjastus publishing house, Lehepunkt, Expresspost and Eesti Meedia Foto. The company is sole owner of the biggest weekly, Eesti Ekspress, and owns 89 percent of the biggest Estonian printing plant, Printall.

In the first nine months of 2001 the company netted a 2.3 million kroon profit on a 600 million kroon turnover. In 2000 Ekspress Grupp showed a 26 million kroon loss on a turnover of 504 million kroons.


Estonia has one of world’s freest economies

 The Baltic Times, TALLINN
By Kairi Kurm
Nov 22, 2001

Estonia has one of the world’s freest economies and Lithuania’s economy has shown one of the greatest overall improvements in the last eight years, according to U.S. think tank The Heritage Foundation and The Wall Street Journal.In the two organizations’ annual index of economic freedom for 2002, Estonia together with the United States, Ireland, the Netherlands and Luxembourg tied for fourth place behind Hong Kong, Singapore and New Zealand among 156 world economies.

Lithuania in the 29th place was ranked a “mostly free” country and the second most successful of the former communist countries after Estonia. Latvia was 38th and Russia 131st.

The index of economic freedom is compiled from the most up-to-date information on foreign investment codes, taxes, tariffs, banking regulations, monetary policy and black markets. It aims to be a guide for potential investors and policy makers.

The authors of the publication say economic freedom is the key to economic growth, while excessive regulation and closed borders hinder investments and retard growth.

Estonia rose 14 places this year thanks to an improved monetary policy, loosening of restrictions on banks, and market oriented wages and prices. Its high ranking was also due to the well developed state of its banking sector, 90 percent of which is in the hands of foreign investors.

Estonia also has very low trade barriers, is very open to foreign investment and has no price controls, the 2002 Index of Economic Freedom reported.

The only category in which Estonia lost points compared to last year was for levels of black market activity, which increased.

Siim Kallas, minister of finance, said that preserving Estonia’s current high position would be a great challenge. The government would have to reduce its intervention in the economy, cut spending as a proportion of gross domestic product and reduce taxes, he said. Estonian government spending amounted to 35.8 percent of GDP in 1999, compared to 30 percent in Lithuania in the same year and 40.3 percent in Latvia in 1998.

The survey’s authors characterized Lithuania as a functioning market economy, with a low level of market protectionism and low inflation.

The average annual rate of inflation from 1992 to 2000 was 2.29 percent in Lithuania, 3.37 percent in Latvia and 4.86 percent in Estonia.

A minus point for Lithuania was the slow pace of privatization of its infrastructure, energy sector and banks.

The report shows that Latvia’s economy has grown steadily since 1996, with both foreign and domestic investments expected to increase in the near future as confidence grows.

Latvia has decreased government intervention and black market activity over the last year but reform has been hindered by frequent changes in government, the report found.

Development has also been hindered by delays in privatizing three mayor industries, which represent a considerable share of GDP. Levels of corruption are of particular concern in the region. Lithuania comes 42nd and Latvia 46th in the index’s corruption ranking.

The index says economic freedom has advanced throughout the world, with the economies of 73 countries showing improvement and the economies of 53 worsening. It characterizes 71 countries as either “free” or “mostly free” and 85 as “mostly unfree” or “repressed.” The report’s findings are presented at


Immovables taxed with VAT

The Baltic Times, TALLINN
By Kairi Kurm
Nov 15, 2001

As part of efforts to align Estonia with the European Union, land sales will for the first time be subject to 18 percent value added tax from next year.

Under a new VAT act real estate developers will be able to deduct the cost of their investments from their tax bill but for the first time will have to pay VAT on property they sell. The overall effect will be for property prices to rise, say analysts.

The law, which was enacted on July 13 and comes into force on Jan. 1, 2002, for the first time makes real estate sales, like sales of other goods, subject to VAT.

It is one of a number of ways in which Estonia is watering down liberal fiscal policies to make itself acceptable to the EU.

Houses and apartments constructed in order to sell, as well as land under such houses when they are sold to a first buyer and plots of land on which no structure stands will be subject to VAT.

Jurgen Ligi, member of the Parliament’s finance committee, said the act would rationalize the imposition of VAT, an area which has been clouded with uncertainty, for example on whether VAT should be levied on rent payments.

The new act was not drawn up with a view to increasing the state budget, he said. Neither Ligi nor officials from the Ministry of Finance could give an estimate of how much additional revenue the new taxation would bring the state.

Tonis Ruutel, managing director of the Association of Real Estate Companies of Estonia, was skeptical whether the new VAT law would be any more rational than the old one. “This is a big uncooked thing,” he said. “The act is very badly prepared. It is hard for lawyers to understand it.”

The changes would particularly hit Estonia’s newly emerged middle class, which had taken advantage of low loan rates to improve their living conditions, he said.

The biggest flaw in the new law is that developers who built a house prior to its introduction will have to pay VAT both on their investment in their property up to the end of 2001 and then on the money they get for selling the house.

Ulmre called for a transition period to be introduced for those who started construction work before the act came into force.

Urmas Laur, head of the real estate company Kodumajagrupp, said he was at a loss as to how to understand the new law. Imposing 18 percent VAT on land sales would be a blow for the real estate market, he added.

“These kind of changes should be published at least a year before they come into force,” he said.

Veljo Kuusk, member of the board of real estate developer Arco Vara, said that the announcement should have been made at least three to five years ago, before developers had got established. The average developers’ profit margin of 5 percent is too low for some of the tax no to be passed on to clients, he said. He echoed the complaints of others that much remains unclear about the act.

Forest management certificates kick up rumpus

The Baltic Times, TALLINN
By Kairi Kurm
Nov 15, 2001

The Estonian timber industry association Eesti Metsatoostuse Liit has lashed out at the issuing by the Estonian Fund for Nature (Eesti Looduse Fond) of forest management certificates intended to raise environmental standards among forest owners.The association said the certificates were a money raising scam and that the fund’s criticism of the timber sector was aimed at disgracing Estonia in the eyes of its neighbors in the European Union.

The outburst followed a public letter dated Oct. 31, in which the Fund for Nature said Estonia’s wood processors were using illegally cut wood and called for legislative changes to combat the problem.

Fifty percent of wood traded in Estonia is either stolen or cut without proper regard for the environment, the fund said, adding that traders in forest products are inveterate tax evaders.

“That’s a clear slander,” said Olav Anton, head of the timber industries association. “The share of illegal timber is 5 percent at most.”

Tax fraud is a problem, but one the Ministry of Environment has in hand in the form of upcoming legislative changes, Anton said. He called the Fund for Nature’s criticisms “hysterical.”

He questioned the fund’s motives in trying to increase the sales of the international Forest Stewardship Council certificate, which it introduced in Estonia three years ago and has so far awarded to such international companies as SmartWood /NEPC and SGS.

But the fund’s head, Toomas Trapido, denied the fund was pursuing private interests.

As well as a few private forests, most state-owned forests already have Forest Stewardship Council certificates.

Through certification the Forest Stewardship Council aims to support environmentally sound, socially beneficial and economically viable management of the world’s forests.economic interests. “Wood harvesting in Estonia is very badly controlled,” said Anton. “We have to show which specific companies are dealing with illegal wood at a time when Western companies will soon start demanding certificates for timber.”

The Fund for Nature receives 77 percent of its support from abroad and 23 percent from the Estonian state and private persons. Although it pioneered forest certification in Estonia, a number of other organizations are now also able to issue certificates.

A competing Pan-European Forest Certification certificate, which in countries like Germany can be ordered over the phone, does not guarantee reasonable management of forests, said Trapido. Forests certified by the Forest Stewardship Council are subject to thorough audits every five years and smaller annual audits.

The state is well on the way to having all of its 800,000 acres of forest certified and is paying an audit fee of 0.30 kroons ($0.02) per hectare, said Trapido. Olavi Paide, spokesman for the State Forest Management Center, defended the Forest Stewardship Council’s certificate. The certificate is the only international certificate available in Estonia, while the rival Pan-European Forest Certificate requires a local certification system, which has not been worked out yet, he said.

In addition to the Forest Stewardship Council’s certificates, for which it will pay 248,000 kroons, the State Forest Management Center is also applying for the International Standardization Organization’s 14001 certificate, which costs 132,000 kroons. Both represent a good opportunity for forest managers to raise the level of their professionalism, said Trapido.

Trapido suggested smaller forest owners buy a joint audit, which is cheaper. Metsaomaniku Nouandekeskus is one such company that is applying for certification it would like to share with other small forest owners.

Ando Eelma, head of Metsaomaniku Nouandekeskus, said that only one certificate of forest management had been given out in Estonia and two certificates in Latvia.

The other type of FSC certificate confirms that the whole processing cycle, from cutting the tree to the delivery of the ready product to the customer, is correct. Guntars Skudrins, head of Latvian Forest Owners Consulting, said that 25 Latvian, seven Lithuanian and one Estonian companies had already received such certificates. Skudrins said that wood exports are Latvia’s main export article and since Latvia is trading with the United Kingdom and the U.S.A. it is very important to have these certificates from the very beginning.

“In our opinion FSC sets the minimum standards that are necessary for managing forests. It is no secret that we support them,” said Trapido. According to Trapido cutting in Estonian forests is allowed without appropriate planning, thus making it impossible to check whether the expected forestry activities will result in the deterioration of the forest habitats or not. There have been several cases of recorded nesting sites of protected birds being destroyed, he said.

“The state should make or have someone else make the inventory in the forests and make a 10 year plan of how it should be used,” said Trapido.

Since the Estonian Fund for Nature could not make the state improve the legislature or the management of forests in Estonia, it turned to the European Commission in May with a request to halt the closing of the environmental chapter of the European Union accession negotiations.

In its letter to the European Commission, the EFN along with the Estonian Ornithological Society, Tartu Student Nature Protection Circle and Friends of the Earth-Estonia stated that the harvesting rate is too high in forestry and the present state institutions are insufficient for controlling forest resources.

“The EFN went to Europe to ask for business sanctions on Estonia’s wood exports, but the latter turned them down because they did not have any correct evidence,” said Anton. “We are trying to improve the situation here, while the fund is throwing mud at our face in Europe.”

Wood exports are Estonia’s second biggest export article. About 80 percent of the wood industry’s 7 billion kroon turnover comes from exports, he said.

Trapido told The Baltic Times that the letter did not mention foreign trade sanctions. He said that the situation could be worse in the future when Western companies found out the country’s shortages and stopped dealing with Estonian exporters.

EFN’s statistics show that the harvesting rate in Estonian forests has increased from 2.4 million cubic meters in 1993 to 10.8 million cubic meters in 2000. Currently, 5 percent of the forests are protected in Estonia.

The Estonian timber industries association is a non-profit organization, based upon voluntary membership of companies and organizations engaged in the acquisition of forests, chemical and mechanical processing of wood as well as marketing.


Tallinn mayor blamed for risky lending

The Baltic Times, TALLINN
By Kairi Kurm
Nov 08, 2001

Estonia’s Finance Minister Siim Kallas sent a crowbar to Tallinn Mayor Tonis Palts on Nov. 1 to demonstrate his distaste for the municipality’s borrowing plans for next year.Kallas explained Palts should increase the country’s gross domestic product by means other than borrowing, but the mayor responded by sending Kallas a mirror and blaming Kallas himself for the municipality’s predicament.

The deficit projected in the municipality’s draft budget for 2002 is 1.54 billion kroons ($88 million). At 5.17 billion kroons, total spending would be 23 percent higher than the budget for this year. The planned state budget for 2002 is about 33 billion kroons.

Daniel Vaarik, adviser to the Ministry of Finance, said Kallas’ gesture was the most effective way to draw attention to the financial suicide Tallinn municipality was committing.

“If the city of Tallinn takes such huge loans, we are sure it will not be able to return the money and the city will degenerate,” said Vaarik. “Deficits have always harmed the economies of developing countries and the state has to cover any deficit the city runs up. This is a joint problem and the minister had to interfere.”

Legally the city is entitled to double its borrowing, but such a course would not be wise, added Vaarik.

“The city promises to do good things with the money, but history shows money has been used inefficiently, and there is a lot of wastage. I believe that they will have to borrow again in 2003 and increase taxes,” he said.

In a letter accompanying the crowbar Kallas accused the former entrepreneur Palts of committing himself to too high a level of spending. Productivity in the public sector is low and borrowing might lead to tax hikes, he warned.

The “huge” leap in borrowing would also require a long-term, secure and stable strategy, which is not possible due to frequent changes in the city’s administration, wrote Kallas.

Palts responded that the intention was to invest in areas which would boost jobs and productivity. The city wants to support the development of enterprises, create infrastructure and build schools, he said.

The poor design of the state budget has necessitated spending increases, added Palts. The city of Tallinn spends 50 million kroons on repairing roads near Tallinn Harbor, which pays dividends to the state budget, he added.

Media tycoon Hans Luik, weighed in to the debate on his radio show, saying that building houses and roads was not the kind of investment that would bring big profits.

Estonia’s central bank also warned that due to the global economy’s uncertain outlook future spending must be kept under control and overly optimistic budget forecasts should be avoided.

Janno Toots, spokesman for the Bank of Estonia, said that investments made by the local municipalities this year, which were financed by loans, were bigger than had been forecast.

Kallas has already suggested decreasing next year’s revenue forecast by 538.1 million kroons to 32.91 billion kroons and the economic growth estimate from 5 percent to 4 percent.

Vaarik said savings could be made by ministries decreasing administrative costs and by defense expenditure also decreasing. With the shrinkage of GDP defense spending would remain at the target of 2 percent of GDP recommended by NATO, which Estonia hopes to join.

SPAR Baltic in trouble

The Baltic Times, TALLINN
By Kairi Kurm
Nov 08, 2001

The SPAR chain of food stores, a leading light in the development of the Baltic states’ retail sector, is in trouble.Personnel at 30 SPAR stores in Estonia, 25 in Lithuania and six in Latvia, as well as their suppliers, were in a state of panic last week following the sacking of Guido Parnits, a top manager at Estonia-based Baltic Food Holding, which owns SPAR.

Christjan Thjomi, representative of Norway-based Selvaag Invest, which owns 70 percent of Baltic Food Holding, told The Baltic Times the chain would now be liquidated. He sought to dampen speculation that it might be bought by one of its rivals – possibly the Baltic states’ largest food retailer Vilniaus Prekyba.

On Nov. 1 Parnits was replaced by Peeter Sepper, a veteran bankruptcy administrator.

Speaking to the Estonian business newspaper Aripaev, Parnits blamed the company’s downfall on Selvaag Invest’s failure to support the chain’s expansion by providing extra liquidity.

Sepper told the private TV channel TV 3 the company might file for bankruptcy in a few weeks.

Baltic Food Holding’s other main shareholders are private investors, who own 20 percent, while the remaining shares are owned by Sweden’s Axfood and the European Bank for Reconstruction and Development.

This May, Selvaag Invest made a last ditch attempt to save the company, investing $3.3 million, said Thjomi.

“My role was to save the company, find a solution, find some capital and sell it, but it was not possible,” said Thjomi. “The sales were low and costs were high. The price margins were wrong and the company was mismanaged.”

Baltic Food Holding had promised Selvaag Invest a profit of 16 million kroons ($900,000) by the year’s end, he added. Instead its losses had reached 95 million kroons by the end of September.

“The owners were told Baltic Food Holding was working profitably, but it was actually going more than 10 million kroons further into the red each month,” he said. “At an audit in August it emerged that the managers had been hiding the actual results.”

In total the company owes 200 million kroons to Estonian companies, 170 million kroons to Lithuanian companies and 30 million kroons to Latvian companies, said Thjomi. Spar’s retail shops in Lithuania and Latvia have closed, while most of the stores in Estonia continue to operate.

Lehepunkt, a distributor of newspapers and magazines, was the first creditor to file a petition with the Tallinn City Court on Nov. 2 for the bankruptcy of Baltic Food Estonia, from which it is claiming 800,000 kroons. It expects a response by Nov. 17.

On Nov. 1 food wholesaler ETFC, which is owed around 5.5 million kroons, called on all creditors to pursue their claims and by Nov. 5 a total of 85 creditors with claims totaling 30 million kroons had contacted ETFC.

“All the creditors are depending on us,” said Lehepunkt’s sales manager Allan Liima. “We hoped to come to a normal agreement with the company, but it did not work. Baltic Food Holding is a good seller, but a bad payer. I believe the problem lies in the company’s ownership rather than the management.”

Ruth Roht, spokesman for ETFC, said ETFC had been unable to contact the management of either Baltic Food or its sister company Dagab Baltic.

Sirje Potisepp, head of alcohol distillers Remedia, said his company went to Dagab on Oct. 30 to claim back goods it had supplied. “We took real action, even involving security personnel,” commented Potisepp. “They did not want to return the goods they had not paid for and claimed they were now pledged to Hansapank.”

Liima predicted Lehepunkt would not get much money from Baltic Food Holding because Hansapank, which lent the company 70 million kroons, would take priority over other creditors. The bank has frozen Baltic Food Holding’s accounts.

Hansapank’s earlier suggestion that the company should be sold to a strategic investor had been rejected by the management, said a bank official.

Lithuania-based Vilniaus Prekyba has expressed an interest in adding the Spar chain to its 130 stores in Lithuania, nearly 20 in Latvia and one in Estonia.

“We have never offered to buy Baltic Food Holding or SPAR operations,” said Ignas Staskevicius, head of Vilniaus Prekyba. “But at the same time I can confirm that we are greatly interested in expansion of our retail operations in the Baltics and Estonia in particular. We would be glad to look at any serious offer regarding the take-over of SPAR stores or operations. I believe Vilniaus Prekyba to be in a very competitive position to go for such an option in this period.”

But Thjomi was skeptical of a take-over at this stage. With the company in debt shareholders would have to pay additional money to any buyer, which they would not be prepared to do, having already invested over 200 million kroons, he said.

However, Timm Ritari of the debt collecting company Ad Finem Inkasso, commented that the Spar stores in Lithuania would probably be opened on Nov. 9, if negotiations with a new investor succeeded.