News highlights from February 8—February 15, 1999
* Public shares in Estonia’s monopoly telecommunications company were put on the auction block on February 11, dramatically increasing turnover on the Tallinn Stock Exchange and raising hopes that Estonian share prices overall will start heading back up.
The sale of a 24 percent stake in Estonia Telecom to public shareholders raised over 200 million dollars and was by far the largest international equity offering in the Baltic states ever. It was also the first major international offering from Eastern Europe this year.
The Estonian state is holding onto 27 percent of Estonia Telecom, and two strategic partners, Sweden’s Telia and Finland’s Sonera have acquired a combined 49 percent share.
Estonia Telecom has a majority stake in Estonian Telephone and in the No. 1 mobile company in Estonia, Estonian Mobile Telephone.
Analysts say investors buying up stocks in Estonia Telecom were impressed by the professional management of the company, and were optimistic that company profits would double and triple over the next few years.
Heavy demand for Estonia Telecom shares allowed the government to set an initial offering price at the high end, around six dollars. But on the first day of trading, its share price shot up to over eight dollars in extremely heavy trading.
Analysts said buying interest from the United States and Western Europe was a vote of confidence in the Baltic economies, and suggested that foreign investors were beginning to distinguish between the Russian economy and the relatively healthy Baltic economies.
Overnight, Estonia Telecom became the most heavily traded company on the Tallinn Stock Exchange, dwarfing the trade turnover of all other public companies combined.
Overall, the Tallinn stock exchange has been in the doldrums for over a year, with many share prices falling more than 60 percent. Observers say many investors looking primarily at Estonia Telecom are now likely to eye Estonian banking stocks, which are considered some of the cheapest in Europe.
Others sounded a more pessimistic note, saying many international investors will never consider such a small shares market worth their time and effort.
“Any fund manager that would spend a lot of time on this, is in a different business than we are,” fund manager Stefan Bottsher told the Wall Street Journal.
* Latvia’s Ventspils port, the busiest and most lucrative port around the Baltic Sea, could run into trouble as a result of increasing competition, The Financial Times reported on February 11.
Russia exports 13 percent of its total oil output through Ventspils, which has been helped increase the wealth not only to the coastal city of Ventspils, but of Latvia as a whole.
But Lithuania’s bid to establish itself as a transit route for Russian oil and Russia’s standing threat to construct new oil ports of its own is casting a shadow over Ventspils, the London-based newspaper reported.
Lithuania’s challenge comes in the form of an off-coast oil platform, which will allow Lithuania to receive and export crude oil. Lithuania says its main aim is to reduce its dependence on Russian crude, but Latvian suspicions are that Lithuania wants to become a major player in the oil transit business.
Russian plans to build multi-billion-dollar ports to replace Ventspils have been undermined for the time being by Russia’s economic crisis. But Moscow insists it will eventually get around to constructing them.
* A bomb explosion on February 12 damaged a plane parked at the Spilve military airport in Latvian capital. The early morning blast slightly damaged the AN-2 military training plane, which is used by Latvia’s civil defense forces.
No injuries were reported.
Police said the bomb had been placed near the plane’s engine, but refused to speculate about who might have planted the device.
* The Latvian jobless rate has climbed to a post-independence high of 9.4 percent as a result of the economic crisis in neighboring Russia, Latvian official reported this week.
Latvian producers once exported to Russia have seen their markets collapse, and have had to lay off workers. Some 25,000 people have lost their jobs since the Russian economy collapsed in the middle of last year.
News highlights from February 1—February 8, 1999
* Latvia’s foreign minister said on February 5 that his country wanted to fix its broken relations with neighboring Russia, but that a desire for better relations did not seem to be shared by Moscow.
Amid angry Kremlin accusations that Latvia was discriminating against its large Russian-speaking population, relations between the two nations went into a nosedive one year ago, and never recovered.
Under pressure from Russia and Western governments, Latvia in late 1998 softened controversial citizenship laws that Moscow said kept tens of thousands of Russian-speakers from acquiring Latvian citizenship.
But Latvian Foreign Minister Valdis Birkavs said the concession on citizenship failed to sway the Kremlin.
“Good relations depend on both sides, and we have done our job,” Birkavs said in an interview. “From the Russian side we have lots of words, but no deeds.”
In response to the Latvian citizenship changes, officials in Riga said Russia should have dropped trade sanctions that Moscow slapped on Latvia in the middle of last year.
Latvia also says a formal border agreement with Russia is important for Latvia’s integration into Western Europe, but that the Kremlin still refuses to sign a border treaty for political reasons.
Birkavs said the lack of a constructive response from Russia to the easing of Latvian citizenship rules had forced Latvians to focus their main diplomatic efforts elsewhere.
“If a neighbor refuses to take positive steps towards you, you can’t waste too much time on them,” he said. “We should then devote more time to other matters, like winning membership in the European Union.”
Despite the inability to move bilateral relations forward, Birkavs said improving relations with Moscow remained a high priority of the Latvian government.
But the foreign minister said that any Latvian effort to begin a dialogue with Russia was tempered by the understanding that relations could, without warning, again take a dramatic turn for the worst.
“Maybe Westerners don’t expect surprises from Russia,” he said. “We always do…Surprises from Russia are normal.”
* An organizer of the Miss Latvia beauty pageant and a top Latvian modeling agent has been arrested for trying to smuggle a record amount of cocaine into the country, Latvia’s media reported on February 1.
Daira Silava, head of the Latvian Model Association, was arrested at Riga’s main airport when customs officials found cocaine that had been wrapped in plastic bags and taped to her stomach.
A manager of the Riga-based model agency who was accompanying Silava was also found carrying cocaine and arrested.
The nearly two kilograms of cocaine seized from the two suspects was the largest single seizure of cocaine since Latvia regained independence in 1991.
Police estimated that the street value of the drugs was around 350,000 dollars, or more than a thousand times the average monthly salary in Latvia of around 300 dollars.
Silava, a well-known figure in Latvia who has been a key organizer of Latvia’s most popular beauty pageant, was returning from a trip to Caracas, Venezuela via New York City and Zurich.
During Soviet rule, illegal drug use was virtually unknown in Latvia. But more open borders and a demand for drugs like cocaine among new moneyed classes have prompted a growth in the narcotics trade.
* The Lithuanian government February 1 said it has asked Moscow to explain why shipments of Russian crude oil have been halted to Lithuania’s key oil refinery-forcing it to shut down.
Mazeikiai Oil refinery, Lithuania’s single largest company and the only oil refinery in the Baltic states, said it had to close because it had run out of crude and its Russian-based supplier refused to deliver more.
The supplier, Russia’s LUKoil, had been negotiating with Mazeikiai Oil about the delivery of badly needed crude. But the talks– for reasons that have not be made clear publicly–broke down over the weekend.
Lithuanian officials said they have delivered a diplomat note calling on Russia to clarify why the shipments of crude oil have been interrupted, hinting that the incident could lead to a deterioration of bilateral relations.
“If LUKoil and others have hindered the flow of crude, this unprecedented event in Lithuanian-Russian economic relations would lead to distrust in Russian policy and that inevitably would reflect on state relations,” a government statement said.
Lithuania said it hoped that the interruption of crude oil supplies did not signal a shift in the Russian government policy towards Lithuania.
The refinery in the city of Mazeikiai, located some 300 kilometers northwest of Vilnius, was losing some dlrs 250,000 a day because of the stoppage of crude oil supplies from Russia, officials said. Some 40 percent of refined oil distributed in Lithuania, including gas for cars and also heating oil, comes from the Mazeikiai refinery. If supplies of crude aren’t resumed, the affair could lead to a general economic crisis.
Lithuania wants to reduce its dependence on Russian crude oil and is building new port terminals to receive crude oil imports from the West. But for now the ex-Soviet republic remains heavily dependent on Russian crude.
While the origins of the current dispute are not clear, Lithuanian observers say it appears to be related to a recent Lithuanian government decision not to sell a stake of Mazeikiai Oil to LUKoil.
Lithuania recently said it was giving the U.S.-based Williams energy company a chance to buy 33 percent of the Mazeikiai Oil refinery, but turned down a request by LUKoil to purchase a similar number of shares.
Lithuanians say LUKoil may be interrupting crude supplies and threatening to raise prices of its crude in order to pressure Lithuania into reconsidering its request for shares in the refinery.
