Estonian shipping company up for sale

The Baltic Times, TALLINN
By Kairi Kurm
Jan 31, 2002

ESCO Holding, owner of the shipping company Eesti Merelaevandus, Estonia’s largest privately owned shipping company, is up for sale for a minimum price of $1.5 million with starting bids accepted until Feb. 6.

The heavily indebted company claimed the real value of its shares to be around 260 million kroons ($14.44 million) in its invitation for written bids published in the Estonian newspaper Postimees and in international newspapers.

But in the view of Axel Eitzen, chairman of the board and part owner of Tschudi & Eitzen, current owner of a 77 percent stake in ESCO Holding, this is an overestimate.

Tschudi & Eitzen will be attempting to win complete control of the company from its other share holders – Eesti Uhispank and private individuals – in the sale.

Currently 20 percent of the company which its shareholders pledged to buy from the state remains in state hands because the shareholders failed to pay up.

The company’s current debts total some $17 million to $18 million, he said.

“In order to find a solution to the problems we have to bring money into the company. The only way out is to find a stable owner, who is financially sound and can provide ESCO with stability and liquidity.

We’re making a bid for 100 (percent) or 80 percent of ESCO, depending on what the government wants to do with the 20 percent shares pledged to the state.”

“If we win the bid we can give ESCO the required liquidity, which will safeguard its future. We cannot do this at the moment as shareholders because the money would all go to the creditors. The company is at present controlled by creditors because the value of ESCO is smaller than its debts.”

In 2000 ESCO had 400 million kroons in losses on sales of 1.1 billion kroons and in 1999 it incurred a 322 million kroon loss on sales of 1.1 billion kroons.

ESCO Holding’s owes about 100 million kroons to Eesti Uhispank and 170 million kroons to the state, of which 40 million should already have been paid off.

ESCO Holding purchased 70 percent of the shipping company in 1996 for 700 million kroons and obtained the right to buy the rest of the shares in 1999.

But it paid only half of the 300 million kroons required for this second stake and asked for the payment deadline to be extended.

Tschudi & Eitzen acquired ESCO Holding through Baltic Sea SA, which it bought from the U.S. company Stanton Capital in 1999 having earlier been a minority shareholder.

Veiko Tali, head of the financial services department at the Ministry of Finance, said that the state wanted to maximize gains from its claim against ESCO Holding.

“What we do next depends on how much money is returned by any concrete action,” said Tali. ” We can reverse the results of the tender if they damage the creditors’ interests.”

The state would not want the company to go bankrupt because the claims might then be left unsolved, and the state would be left with outstanding debts.

“It’s also not ethical for a creditor to try to escape its liabilities by side roads,” he said.

Tschudi & Eitzen’s aim is to support its Eurolines commercial routes and increase its third party ship management and crewing services, said Eitzen.


Russia may yet ban timber exports to Estonia

The Baltic Times, TALLINN
By Kairi Kurm
Jan 31, 2002

Estonian timber importers breathed sighs of relief after a Russian customs committee pulled back – at least temporarily – from banning Russian exporters from sending timber to Estonia.

“The Russian customs committee sent us a fax, which said that the introduction of the regulation had been postponed until March 15, 2002,” said Mart Riistop, vice director of the Estonian Forest Industries Association.

“I can’t say what will happen afterwards. We haven’t received any formal explanations.”

On Dec. 29 last year the committee produced a list of 107 border checkpoints from Finland to the Far East through which Russian timber could be exported by road and rail. Estonia’s three border crossings with Russia were not included.

The list was due to take effect on Jan. 28, 30 days after its publication. Riistop told The Baltic Times he did not know whether Estonia’s omission from the list had been accidental or intentional.

Estonia’s Foreign Ministry had received no reply from Russia to its inquiries into the matter, said Foreign Ministry spokeswoman Tiina Maiberg.

“A ban on Russian timber exports would have a significant impact on Estonia’s economy,” said Riistop.

In 2001, 350,000 cubic meters of timber and 289,000 cubic meters of sawed timber were imported from Russia, or a fifth of the total amount of timber and sawed timber used by Estonian companies. According to Riistop, sawed timber from Russia is comparatively cheap, while unprocessed timber is more expensive. An alternative to importing Russian timber by road and rail would be to import it by sea or via Latvia, but neither option would be good for Estonian businesses.

“Road transport through Latvia would extend the trip by another 400 to 500 kilometers, which is time consuming and costly,” said Riistop.

“Prams on the other hand move in summer time only, but wood is cut in winter.”


Estonian exporters threaten to halt business

The Baltic Times, TALLINN
By Kairi Kurm
Jan 24, 2002

Estonian exporters of processed fish, dairy and meat products threatened last week to close down after incurring losses they attributed to changes in procedures for reclaiming value added tax payments.MP Neinar Seli, who is lobbying for the processed-food exporters, is drawing up legislative amendments which would restore a system of VAT repayment which until Jan. 1 exporters used to reduce the amount of import duties they paid to Russia when exporting to that country.

Seli said fish processor Viru Kalatoostus had threatened to dismiss 500 employees, another – Maseko – 1,000 employees, Haapsalu Kalatoostus 250 employees and Makrill 70 employees.

Until Jan. 1 processed-food exporters could reclaim VAT charges they incurred in purchasing fish or other raw materials as soon as their products entered Estonia’s free economic zones, which act as staging posts for goods entering and leaving the country.

Once inside the zones the processed food for export would be resold to front companies at low prices, thus lowering the duty that could be levied by Russia’s customs authorities.

But now VAT can only be reclaimed when products actually leave the country so if processed-food exporters want to claim all the VAT they are owed, products must leave Estonia bearing the price agreed with the Russian purchaser, rather than a lower price fixed with a middle man.

Seli defended such methods, saying they were a response to a recent decision by Russia to double customs duties on Estonian imports. According to the Estonian Fishery Association two-thirds of Estonian fish processors were accustomed to exporting through free trade zones and the present system is incurring the industry losses of 10 million kroons ($571,400) per day.

The association sent letters to President Arnold Ruutel and to outgoing Prime Minister Mart Laar on Jan. 18 pleading for the restoration of the old system.

But Marek Uuskula, assistant director of the Ministry of Finance’s tax department, defended the new system. Free economic zones were created to streamline procedures for importers, rather than to benefit exporters, he said.

“Why should the exporters store their goods in the free zone if they know who they’ve produced them for?” he asked.

Agu Laanemets, director of Viru Kalatoostus, which sells most of its production in Russia and Ukraine, said: “My only reproach to the ministry is that the changes happened too soon. No one noticed the amendments in the VAT act after they were made in June last year. It’s very difficult to change the well developed logistics system so fast. The customs authorities should start checking certain transactions if they know tax fraud is occurring.”

Jaan Bender, board member of veneer exporter Balti Spoon, said the company had now resorted to exporting its products to Germany from Latvia, with which Estonia has a free trade agreement and where VAT can be claimed as soon as goods arrive in the country’s free economic zones.

“It is a big mess,” said Bender. ” The amendments were not hidden anywhere, but we couldn’t see them.”

He estimated the cost of paper work in the Latvian free trade zone used by his company to be 6.2 times higher than in the Estonian free economic zone it used formerly. Balti Spoon will lose 1 million kroons per year as a result, he said.

“Several people will lose jobs at the Estonian free trade zones and at the transport companies,” he added.

“The arguments of the ministry are not convincing. It makes me wonder whose side they are on – Russia’s or Estonia’s? Exports are a holy thing which should be handled carefully.”

There are three free economic zones in Estonia: Muuga in northwestern Estonia, Sillamae in the northeast and Valga in the southeast. The zones are expected to remain in place until at least 2011.

Latvia has four such zones.

Pension funds ready to rally

The Baltic Times, TALLINN
By Kairi Kurm
Jan 24, 2002

Financial institutions are gearing up to win customers under Estonia’s new state pension scheme known as the “second pillar.”

Thousands of Estonians have until June 1, 2002, to decide whether to take out a pension under the compulsory endowment fund and to choose between six institutions offering such pensions.

Joining the compulsory endowment fund is mandatory for people below the age of 18 while those over that age have a fixed period of time, based on their age, in which to choose whether to join.

People aged 51 to 60 must decide by June 1, 2002, those between 46 and 50 by Nov. 1, 2002, and those between 42 and 46 by Nov. 1, 2003.

Sums paid into the scheme can be inherited and people can change funds.

The six financial institutions which have expressed a desire to manage the compulsory pension funds include Estonia’s three biggest banks – Hansapank, Eesti Uhispank and Sampo – as well as the LHV investment bank and the life insurance companies Ergo Elukindlustus and Seesam Elukindlustus.

According to an anonymous source Hansapank and Uhispank will spend about 20 million kroons ($1.14 million) each on marketing the scheme. Otherwise, they remain tight-lipped about their attempts to win the public’s faith.

“There’s going to be a lot of fighting,” said Andres Parloja, sales director at Eesti Uhispank’s Asset Management.

“We do not want to publish our sales campaign ideas in case we lose our advantages.”

Eesti Uhispank’s parent company Skandinaviska Enskilda Banken is willing to devote a level of expertise to marketing its second pillar pensions unmatchable by Swedbank and Sampo, he added.

Indrek Neivelt, director of Hansapank Group, retorted that “unlike other banks Hansapank is not accustomed to losing money.”

Hansapank, which currently controls more than 70 percent of private client deposits, believes it can win a 60 percent share of the second pillar pension funds market.

LHV’s strengths are its professional fund management skills and employees, said Robert Kitt, fund manager at LHV. “I don’t want to disclose any other information since none of our competitors have yet revealed their cards,” he said.

Ergo Elukindlustus’ second pillar pension schemes appear to be still at the drawing board stage.

“Yes, we’re interested, but we need time to plan this all before we can give any comments,” said Kaido Kepp from Ergo Elukindlustus.

What is certain is that demographic trends mean Estonians will not be able to make ends meet from state pensions in the future.

“Research shows that there are 1.5 employees per every pensioner today and in 30 years there will be an equal number of employees and pensioners, whereas in the United States there are 3.5 employed people per pensioner, so it is vital to secure retirement benefits for oneself rather than depending on the state pension or the first pillar of the pension reform,” said Loit Linnupold, chairman of Eesti Uhispank’s Asset Management.

All of the six companies currently preparing to participate will offer at least two funds because the state has set strict restrictions on how they invest money paid into the funds.

Each pension provider is required to supplement its aggressively managed “balanced fund” with a conservatively managed fixed income fund.

Money deposited in fixed income funds can only be invested in deposits and bonds, while up to 50 percent of the balanced funds can be invested in stocks and up to 10 percent in real estate. All the fund managers cautioned that fixed income funds are barely profitable.

Legislation forbids fund managers from giving any estimates about the future profitability of their funds, but some offered general hints.

“If we take the average profitability of bonds, which is 5 percent, and subtract the company’s expenses, which are 1 percent to 1.5 percent, we receive a 3 percent to 3.5 percent profitability margin from fixed income funds,” said LHV’s Kitt.

“The average profitability of stocks in the last 100 years was 12 percent, so if we invest half of the money from the balanced fund in stocks and the other half in bonds we could expect their profitability to be 6 percent to 7 percent.”

Seesam Management predicts profits from its funds will be 4.4 percent to 6 percent while Hansapank predicts its fixed income fund will produce yields of up to 4 percent and its balanced fund profits of 8 percent.

“With the fixed income fund we aim at beating inflation, which should drop from the current 5.7 percent,” Hansapank’s Poldoja.

Under the second pillar employees will pay 2 percent of their income and the Tax Board will contribute 4 percent of the 20 percent social tax which they currently pay under the first pillar.

The state will cover such payments by the Tax Board, which are expected to total up to 1 billion kroons per year.

Uhispank is the only company that has publicly announced it will raise by 2 percent the salaries of those of its 1,300 employees who decide to join the pension fund.

Ulla Ilisson, director of life insurer Sampo Elukindlustus, warned that a lack of clarity in the pensions legislation means that questions remain over pensions payments.

When distribution of pensions begins in 2007, claimants will be able to choose between two contracts.

Annuity contracts lasting for a fixed period will enable claimants’ heirs to inherit a pension during that period while another ordinary annuity contract will not allow pensions to be inherited but will offer higher payments.

According to research, 15 percent of working age people – some 100,000 people – would like to join the system in the first year and by the end of the fifth year half of all employers say they will have joined the second pillar. By the end of the fifth year the amount of money in the pension funds should reach 7 billion kroons, said Linnupold.

The third pillar of the voluntary endowment pension, which was introduced last year, enables people to pay up to 15 percent of their income tax free into one of four licensed pension funds (Hansapank, Uhispank, Sampo and LHV).

Only about 5 percent have made use of this, but their number may increase with the introduction of the second pillar as pension endowments become more widely understood.

U.S.-Estonian energy deal falls through

The Baltic Times, TALLINN
By Kairi Kurm
Jan 17, 2002

After six years of talks a deal between the U.S. energy company NRG Energy and the Estonian state to privatize the country’s Narva power plants was canceled Jan. 8 after NRG failed to secure financing as agreed by the end of 2001.Abandoning the deal was Mart Laar’s last act as prime minister and one which denied his successor the kudos that dropping the unpopular deal would have brought. He resigned later the same day.

Under the privatization agreement NRG Energy was expected to borrow 285 million euros ($254.91 million) for renovation of the two Soviet-era oil-shale fired plants in Narva, which are the largest in the world, account for 90 percent of electricity production in Estonia and have been rubbished by environmentalists on account of their poisonous fumes.

The government refused to wait any longer and called off negotiations.

“If this tool does not work, new opportunities have to be found,” said Kersti Kaljulaid, adviser on economic affairs to the prime minister.

“The members of the syndicate of banks requested additional guarantees which the Estonian party could not accept, including for example a state guarantee to cover losses in the event of terror attacks.”

The banks involved in the deal were worried about the unstable state of the world’s financial markets and the worsening of NRG Energy’s financial situation, she added. The collapse of the deal is the second setback in as many months to NRG’s Eastern European ambitions.

In December the company pulled out of bidding for CEZ, the Czech power producer, citing market volatility following the collapse of Enron, the world’s largest energy trader.

In a press statement NRG Energy expressed surprise at the decision.

“NRG has fulfilled all its responsibilities and is ready to conclude the deal,” said Hillar Lauri, NRG Energy representative in Estonia.

“We’ve repeatedly expressed our readiness to the Estonian government and to Eesti Energia. Our primary plan is to wait for the final text of the decision, study it and consider further actions.”

The deal’s cancellation had long been demanded by former Estonian President Lennart Meri, Estonian scientists, environmental organizations and the opposition Center Party.

In the view of Peeter Kreitzberg, deputy chairman of the Center Party, NRG Energy went to unacceptable lengths to secure the deal, its president Dave Peterson at least twice telling the government that backing down would jeopardize the country’s NATO and EU membership bids.

“It does not,” Kreitzberg commented.Laar had himself linked the privatization to NATO membership in a speech to Parliament last August.

“Securing the NRG deal couldn’t lead us to NATO, but thwarting it could badly shatter U.S. support for our aspirations,” he said at the time.

The U.S. government expressed disappointment on Jan. 9 that the deal had not been concluded during the term of the current Estonian government.

“We believe that NRG’s investment is a great opportunity for Estonia’s economy, and we continue to support NRG’s efforts to find a mutually beneficial way forward,” read a news release from the United States Embassy in Tallinn.

Under the deal, the U.S. firm would have acquired a 49 percent stake in Narva Elektrijamaad, a subsidiary of Eesti Energia which owns the two Narva power plants, for $70 million.

It would also have got a 51 percent stake in the Estonian oil shale mining company Eesti Polevkivi.

Together with the renovation expenses the deal would have cost NRG 4.5 billion kroons ($256.56 million).

The state proposed guaranteeing to buy the station’s output for 15 years and guaranteeing NRG Energy a return on its investments of 12 percent annually.

The Estonian government does not have to compensate NRG’s losses because the agreement had expired without any contract being signed.

The country’s Economy Ministry now has three months in which to come up with alternative ways of financing the renovation of the plants.

“We should not forget that preparations for the renovation work have started, and it is not wise to waste any more time until Eesti Energia becomes insolvent,” said Kaljulaid.

The state spent around 50 million kroons preparing the NRG deal, money which members of the negotiating committee said had not been wasted since most of it went on research and development.

Several politicians including the prime minister believed an electricity price hike planned by NRG Energy for April could be averted, but Eesti Energia has now decided to go ahead with the new tariffs in order to improve the company’s borrowing capacity.

“In the long-run the price hike could be smaller than planned by NRG,” said Erki Peegel, spokesman for Eesti Energia.

Juri Kao, chairman of the council of Eesti Energia, acknowledged that Estonia’s oil shale-based energy is expensive and uncompetitive, but nevertheless insisted it was a pillar of the country’s foreign trade balance and economy.


Estonian hockey sticks swing into world arena

The Baltic Times, TALLINN
By Kairi Kurm
Jan 17, 2002

Estonia’s Viisnurk signaled its determination to stay on top by signing an agreement last month with the International Ice Hockey Federation allowing it to supply hockey sticks to participants at the Olympic games and the world championship.

“We might see Latvian Gregorijs Pantelejevs and Finnish female players using our ice-hockey sticks as soon as the coming Olympic games in Salt Lake City,” enthused Siim Talmar, a marketing manager at the company which is already one of the world’s leading suppliers of cross country skis.

Although Viisnurk’s Maxx hockey sticks have been used at international games before they have been disguised under a different brand name or covered with a black label.

It cost Viisnurk 500,000 kroons ($30,000) to join the federation’s supplier pool and to win the right to display the IIHF logo on its products for two seasons, said Talmar.

Vladimir Makrov, general secretary of the Estonian Ice Hockey Association, said that though expensive, membership would help Viisnurk make its mark.

” We felt it was the right time for us to use this as a marketing tool. It should help us increase sales to hundreds of thousands of sticks in the coming two or three years.”

Viisnurk produced 40,000 hockey sticks in 2000 and more still in 2001 although Makrov declined to be drawn on the precise figure ahead of the official release of the publicly listed company’s results.

In addition to producing its own brand products Viisnurk currently supplies sticks bearing the brand names of other companies to two goalkeepers in the United States’ National Hockey League.

With contracts to supply the National Hockey League costing a hefty $20,000 per season Viisnurk has yet to throw its own brand names into that ring.

“We can pay that sum and find some NHL players to sponsor, but it is not our aim this season,” said Talmar, who presented the company’s MAXX sticks at a “Let’s play hockey” fair last week in Las Vegas, California.

Such events should prompt NHL club members to start using MAXX hockey sticks in future, he said.

Talmar has great expectations for the giant U.S. and the Canadian markets, which buy half of the world’s hockey sticks and themselves produce such famous sticks as Easton, Koho and Sherwood.

The company started exporting its sticks to the United States at the end of last year. Its other export markets include Latvia, Finland, Sweden, Israel, Italy and Japan, with only 5 percent of output being sold in Estonia.

Viisnur decided to start producing hockey sticks three years ago when it purchased the equipment of a bankrupt Finnish hockey stick manufacturer and retained that company’s employees.

It has proved a wise move, said Talmar.

“Demand for skis depends on the amount of snow, but hockey is mostly an indoor game so demand fluctuates less,” he explained.

Viisnurk is a world leader in cross-country ski production, producing every fifth ski sold, or 300,000 skis in 2000.

By contrast its share of the world’s hockey stick market is a mere 0.4 percent.

The company produces 20 models of off-the-peg ice-hockey stick, ranging in price from 150 kroons to 800 kroons, but also makes sticks to the specifications of particular players and teams.

Ice hockey is becoming increasingly popular in Estonia and the country now boasts three ordinary ice rinks and six ice palaces.

But even with another five ice-halls due to open this year competitive pressures mean Viisnurk has no choice but to go global.

“There are 200 ice palaces in Finland. The situation here would be okay if we had 20 to 25,” said Talmar.

The Estonian Ice Hockey Association has 1,200 members and 27 member clubs.

According to Makrov hockey is played mostly by Russian speakers but is becoming more popular among ethnically Estonian children.

Nation interrupted: expectations for 2002

The Baltic Times, TALLINN
By Kairi Kurm
Jan 10, 2002

A recent poll carried out among Estonian decision-makers and business people revealed their expectations for the coming year. Emotional events like the Eurovision Song Contest and the winter Olympics came top of the list of things to look forward to in 2002.

But arguably the most important decision to be made this year will be whether Estonia is to be extended an invitation to join NATO at the Prague summit in November. A long-held dream of Estonian Foreign Minister Toomas Hendrik Ilves, many fear that with the government about to change it could stay unfulfilled.

Since Mart Laar announced his resignation, most Estonian residents are puzzled about who will replace him. Laar himself expects any new government to carry on with projects already launched, especially the path to the European Union and NATO, and the privatization of major national assets.

If the president fails to name a person to form the next government, elections are an option. Politicians and observers doubt, however, that this would make the picture clearer. Polls say there would be no clear winner.

Other political experts say that elections would hamper the work of the entire state administration machine for at least six months. All bills now under consideration will have to be terminated.

“I predict that a new government with a richer variety of parties will be created,” said Evelyn Sepp, who has reason to be optimistic; she is spokesman for the Center Party. “Whether Estonia receives an invitation from NATO this year or gets good news from the EU depends on integration processes globally,” she added.

Likely changes in managing the energy sector can, according to Sepp, be seen to after the current government crisis is solved. “Since we can’t absolutely exclude extraordinary elections I can’t give any preliminary prognoses,” said Sepp.

Toomas Reisenbuk, chief analyst at the investment bank Trigon Capital, said that the forming of a new government is the only thing he expects something from, because it will determine the development of the economy and changes in taxation.

The Estonian Genome Project team hopes to finally get investor agreements signed in 2002. According to Krista Kruuv, head of the Estonian Genome Foundation that runs the project, investors have already been found and the contract drafts are ready.

She declined to reveal the investors’ identities, apart from saying they come mostly from abroad.

After the investment channels start to work, a pilot project can be launched in three Estonian counties this year. Genetic data from 10,000 voluntary donors will be collected and analyzed. This will put the real project, its security and quality, to the test.

From Jan. 1, 2002, three Estonian financial supervision agencies – the banking supervision department at the Bank of Estonia, the Securities Inspectorate and the Insurance Inspectorate – formed a single watchdog called the Estonian Financial Supervision Authority.

The new body should help to enhance the stability, reliability, transparency and efficiency of the financial sector.

Daniel Vaarik, an adviser to the Ministry of Finance, said the formation of a new government, local elections in October, Estonia’s integration to NATO and other international structures and Eurovision are the most important events.

“For the Ministry of Finance, the implementation of the second pillar of pension reforms and preparing a state budget for 2003 are the priorities,” he added.

This next stage of pension reform, due to be put into place on March 1 and which will be mandatory for youngsters starting on the employment market, foresees funding pensions by paying monthly installments into a pension fund.

A new trading system that has allowed from Jan. 1, 2002, the trading of listed securities on the Tallinn Stock Exchange in the Helsinki Stock Exchange trading system, should liven up the Estonian stock market.

Juhani Seilenthal, manager at Nordea Bank Estonia, said the new trading system and the pension reform are the most important events for him.

“Where trading is concerned, on the one hand an era of ?independence’ is coming to an end, but on the other there will be a brighter future for Estonian securities,” he said. “It’s hard not to see this as a positive development.

“And as the trading will start in euros, this is the start of a new era within the bigger euro framework.”

The introduction of the euro as common currency by most of Western Europe should have positive implications for the Estonian economy. The growth predicted by many in the euro region will have a knock-on effect for Estonia’s own economic outlook.


Ruutel says it was greed that split the nation

The Baltic Times, TALLINN
By Kairi Kurm
Jan 10, 2002

Estonian President Arnold Ruutel held his first New Year speech on the national television station ETV minutes before the arrival of 2002. Ruutel, who is a former member of the opposition Estonian People’s Union Party, had a number of rebukes for the falling ruling coalition, which in his words has placed party interests before the interests of the nation.

Ruutel said that the ethical and political crisis in Estonia had split the nation in two. Each side had totally different opportunities and lived with different value systems.

“If some people do not care what others think about the privatization of the power stations in Narva or Estonian railways, if the shutdown of railway traffic in south-east Estonia and the permission to generously rise prices for those enterprises with a market monopoly are regarded as just economic experiments, it makes no sense to call for national consensus. It’s already there,” he said.

“Fortunately, there are parties and entrepreneurs in Estonia for whom the interests of the Estonian state are the top priority. But their voices have remained weak amid the greed and egoism, which is unfortunately still prevailing.”

He stressed that every individual of every age and interest group has the right to self-esteem. The September crisis in Parnu, when dozens of people died after drinking methanol-tainted moonshine, was a sign of too many people in Estonia living on the edge of an abyss seeking comfort or oblivion in drugs.

“We are flattered by the knowledge that when it comes to the openness of its economic environment Estonia is one of the top countries in the world. Our human development index is continually on the rise. But in spite of all this, the quality of life in Estonia is determined by the happiness of our people and by their capability to manage,” said Ruutel.

“To link it only to a hefty income, material security, or heavy consumption would be too simple. The quality of life depends on whether a human being can feel dignified at any age and in any situation.”

According to Ruutel, Estonia has had a lot to learn from its Nordic neighbors, which, owing to their well-balanced, people-centered economies and efficient regional policies, were turned into affluent societies with national self-esteem.

Ruutel, who, unlike his predecessor Meri, prefers inland trips to foreign ones, also preached the work of local municipalities, which to a great extent are shaping the face and the future of Estonia.

Foreign landowners not welcome

The Baltic Times, TALLINN
By Kairi Kurm
Jan 10, 2002

A survey conducted by the ES Turu-Uuringute research company shows that two-thirds of Estonian residents would ban or limit the sale of land to foreign residents.

Out of the 950 people questionned 43 percent would ban the sale of any kind of land, 26 percent would ban only the sale of agricultural or forest land and 2 percent the sale of real estate plots, while 18 percent support the sale of land to foreigners.

The survey shows that every third person aged 15 to 33 and every second one over 50 would ban the sale of land to foreigners. The biggest nationalists are among less educated people with smaller incomes living in rural areas. The supporters of land sale to foreigners are mostly wealthy and educated.

One-third of the people questionned were non-Estonians (non-citizens and foreigners living in Estonia). The percentage of non-Estonians speaking in favor of the ban of land sales to foreigners was smaller, 38 percent compared to 46 percent among Estonians. Twenty-four percent of the non-residents would withdraw all limitations, while the respective figure among Estonians was 15 percent.

At present foreigners can buy building sites under the same conditions as local residents. In order to buy forest land or agricultural land they have to send a petition to the governor of a province.

The sale of land on smaller islands or along the Estonian boundary is prohibited. Permission granted by the Estonian government is necessary for acquiring these lands, said Karin Madisson, layer at Sorainen law office.

Foreigners need the government’s permission if they want to get the right to use the land near the Estonian border for longer than 10 years or purchase real estate there. Once a foreigner has acquired real estate (not near the border) it is possible to obtain the property without the government’s permission.

With a company registered in Estonia foreigners have no restrictions for obtaining land. The government’s permission is then required only when land is obtained near the border.

“Since foreigners can easily establish companies in Estonia and companies do not need a governor’s permission for purchasing land, they very often buy land through companies,” said Madisson. She said that foreigners living in Estonia or planning a business in Estonia very often turned to their office with the wish to buy land.

“We find that there should be no restrictions on the sale of land to foreigners like it is common in developed European countries,” she said. “The present legislation does not give much opportunities for the state to control or limit the sale of land and thus does not fulfil its goal. The restrictions bring along the use of intermediaries and creates a shadow economy, which is not normal in developed countries. Permitting the sale of land would foster investments, create jobs and improve general wealth.”

It is very difficult to define how much land belongs to foreigners, because the owners are not registered according to their nationality, said Urmas Glase, spokesman for the Ministry of Environment. Most foreigners trade through intermediaries, he said.

According to his estimations the share of land sold to foreigners is about 3 percent. The island of Saaremaa is the biggest attraction, especially among Finnish citizens. The other popular region purchased is Ida-Virumaa county, which is inhabited by Russian speaking non-citizens. Ida-Virumaa county is the most northeastern county of Estonia surrounded by the Gulf of Finland in the north, Lake Peipsi in the south and the Narva River together with the Estonian-Russian border in the east.

Estonia’s accession to the European Union would at once abolish all restrictions on foreign residents. Several politicians believe a transitional period delaying the implementation of the freedom of land sales is necessary.

Evelin Sepp, spokesman for the opposition Center Party, said that Estonia needed a transition period since Estonian farmers have yet not reached a required profitability and competitiveness compared to EU countries and they should be given a chance to buy their land. She said that Estonian agricultural land was 30 times cheaper than in Europe.

Mart Nutt from the ruling Pro Patria Union said “Estonians want to limit the sales of coastal area rather than agricultural area, because their purchasing power is considerably smaller than this of neighboring citizens. Estonians are in an unequal condition.”

He said that Estonians wanted equal realistic opportunities and it was not protectionism or hatred behind the desire of imposing restrictions.

“In this respect the legislation has to be overviewed and a transition period established for the sale of certain land,” said Nutt. “At the same time I should admit that administrative restrictions do not offer enough protection because it is not possible to hinder the privatization of land through intermediaries.”

Nutt said that the above mentioned restrictions should not hinder the flow of investments or the activities of foreigners whose business is useful for Estonian agriculture and creates jobs. Estonia has acknowledged the freedom of land purchase that is common in the European Union countries and retreating from this position would be unjustified, he said.

Arnold Ruutel had, according to daily Postimees, said before he was elected president of Estonia that the sale of land should be hindered for at least 10 years because the preservation of landed property was the precondition for the existence of Estonia as a nation state. A week ago he told the Estonian dailies that he had been misunderstood. “I meant that we should fight against the speculators who purchase dozens of hectares of land in order to resell it,” Postimees quoted him. He said that the adoption of the bill which regulated the sales of land to foreigners should have been postponed for a few years.

Several companies want to quit bourse

The Baltic Times, TALLINN
By Kairi Kurm
Jan 10, 2002
Prompted by changes in their ownership structures the number of companies listed on the Tallinn Stock Exchange may decrease from the present 17 to 10.

“There are no certain leavers,” said Veikko Maripuu, head analyst at the investment bank Suprema, “but there are some companies which have not fulfilled all the necessary terms of the exchange and want to leave.”

This doesn’t mean, however, the exchange is in danger of disappearing, he added. “The situation would be problematic if Hansapank and Eesti Telekom decided to leave, but in the present situation it would become stronger by getting rid of those companies which are trailing behind.”

According to Maripuu trading in stocks looks set to increase as a result of cooperation between the Tallinn bourse and Finland’s HEX stock exchange and in tandem with the development of the second pillar of Estonia’s pension process, which obliges new employees to hold private pension plans.

He predicted that such state-owned companies as the Tallinn port Tallinna Sadam, Estonian power utility Eesti Energia and railway concern Eesti Raudtee would at least in part be listed on the exchange in future.

The companies preparing to quit the bourse at once are those with a big core of investors, where only a small number of shares – mostly with low liquidity – are traded.

The largest holders of shares in such companies as Sampo bank, meat packer Rakvere Lihakombinaat and cold store Tallinna Kulmhoone already have stakes of almost 95 percent.

Tallinna Kulmhoone wants to leave the exchange, but its majority owner Lithuanian Kauno Pienas Centras would have to increase its stake by another 0.7 percent to 95 percent before the exchange accepts the withdrawal, said Evald Karu, member of the board at Tallinna Kulmhoone.

“These few shares are hard to get,” commented Karu. “Stock exchange rules to protect small shareholders are understandable to some extent. But since the stock is not changing hands, I can’t see any reasons for staying at the exchange.”

Olle Horm, chairman of Rakvere Lihakombinaat, said the company’s majority owner, Finland’s HK Ruaokatalo, wanted to leave the Tallinn Stock Exchange because the stock was not freely traded on the bourse. “Getting on the stock exchange was a good idea, but it hasn’t given any additional value lately,” he said.

Eva Palu, spokeswoman for the Tallinn Stock Exchange, said the idea that 95 percent of a company must be owned by a single entity before delisting was considered was not set in stone. Each case was decided by the listing committee separately, she said.

So far none of the companies in which one owner holds a stake of more than 95 percent has turned to the stock exchange for delisting, she said, adding that a couple of companies wished to leave the exchange a year ago but failed to meet all the necessary requirements.

Many of the companies Maripuu believes will delist are remaining tight-lipped about their plans.

But ownership changes at the clothing manufacturing company Baltika and the wood processor Viisnurk could logically result in their core investor Baltic Republic Fund holding onto the companies for a couple of years before reselling to a new strategic investor by 2003, he said.

Andrus Aljas, finance director at Viisnurk, downplayed such claims. “BRF, which controls almost 60 percent of Viisnurk, has been in the company for seven years now. If someone wished to buy BRF’s stake an offer would also have to be made to other owners in order to protect the interests of the small shareholders. We, the management, do not want the company to be delisted. How else would a company outside the capital of Estonia be noticed if not through the exchange?”

Ulle Jarv, member of the board at Baltika said “We have no plans to leave the stock exchange, at least not in the near future.”

Estonian seat belt manufacturer Norma is another potential stock exchange leaver, said Maripuu. “History shows that Norma’s core investor Autoliv purchases companies in full after three years.”

But Autoliv spokesman Mats Odman denied there was any plan to delist. “We’re satisfied with the current situation. There are several examples where we have not bought out the whole company,” he said.

Maripuu said that the confectionery Kalev, construction company Merko and Tallinn department store Tallinna Kaubamaja were attractive Estonian companies that would probably find a new foreign investor.

But Katrin Muhls, finance director at Tallinna Kaubamaja, also denied the company was about to delist.

Nonetheless, Maripuu believes consolidation is now the name of the game. “Tallinn pharmaceutical plant Tallinna Farmaatsiatehas and the Latvian pharmaceutical Grindex are tied to each other so densely that they should be listed under one name,” said Maripuu.

The clothes manufacturer Klementi and the IT company XXL have also expressed desire to leave the exchange, said Maripuu.

Since 1999 nine companies have left the exchange, including EVEA Bank, insurance companies ASA Kindlustus and Leks Kindlustus, Estonian fair organizer Eesti Naitused, construction company EMV, Reval Hotel group, Uhispank, car dealer Fakto and the real estate developer Pro Kapital.