How the law “On the Privatization of State and Local Government Objects”, initialized one of the largest capital transfers in the last century.

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In early 1994, the Seimas adopted the law “On the Privatization of State and Local Government Objects”, thereby initiating one of the largest capital transfers in the last century. The bright moment in all this was the interests of various (according to direct witnesses of those times – at least six) economic groupings. Some fragments of an upcoming book by an economist and former politician Edmund Krastins “Latvian industry from the 19th to the 21st century”. ’

On February 17, 1994, the Saeima launched the above-mentioned law and determined the procedure for the subsequent privatization. The special commission chose Andris Škele as the head of the Privatization Agency, but the ruling party Latvijas cels, which wanted that position for their member Janis Naglis, opposed this. As a result, the government approved Naglis on April 12 at the position of Director General of the Privatization Agency. He held this post until 2001. The Agency dealt with the entire process of privatization of all transferred objects. The first state enterprise, the privatization of which was completed on November 28, 1994, was called Jugla. This company engaged in animal breeding and supply of fur worked until 2000.

Company for 1 Latvian lat
Krastins in his book writes that the search for a strategic investor, to which they sold a controlling stake, became the standard method of privatizing the largest industrial enterprises in Latvia and turning them into joint stock companies. A certain part of the shares for the certificates were sold to the employees of the company and the management, and still part of them were traded on the stock exchange. The Privatization Agency created a special council to oversee these processes – it included representatives from all the parties represented in the Saeima and the Cabinet of Ministers. The council itself did not have the right to decide on the privatization of specific enterprises, but served as a mechanism for preliminary discussion of those privatization issues that were “politically sensitive”.
In many cases, the selling price of the company was set at 1 LVL, since the liabilities of the company were higher than the value of its assets. In addition, the fact of absence of a buyer was a guarantee that the company would continue to exist. One of the major failures of privatization was the story of Dautex, a former chemical plant in Daugavpils, which became insolvent in 2000.

In 1994-1999, the Privatization Agency concluded 82 agreements on the sale of leased enterprises for a total amount of 22.3 million lats.

Economic groups

Krastins also admits in his book that in the conditions of transition to a market economy, various economic groupings appeared, and in most cases quickly disappeared; these were the economic groups “which, having earned money in trade or through financial activity, also invested it in industry.”

One of the first to show interest in the industry was the head of Bank Baltija, Alexander Lavent, who left the cooperative Pardaugava and gave large loans to state-owned enterprises at a high interest – perhaps with the expectation of organizing a future “property loan” in the future. Bank Baltia issued several million to Dautex, but the closure of the bank in 1995 put an end to this project.

The book notes that the group of enterprises headed by businessman Ainar Gulbis was more successful. In 1993, these companies succeeded in creating joint ventures on the basis of the Brocene cement plant and the plant “Komutators”. In turn, the Euroholding of Vasily Melnik and Erik Kaza gained control of the Riga Ship Repair Plant, the Tosmar Shipbuilding Plant, the Auto Electro Apparatus Plant and Ogre Knitwear Factory (after selling it to the Mono group). Then everything got by Euroholding was divided between the partners. For example, still working now “Riga shipbuilding” (now – Remar) got owned by Vasily Melnik.

The Mono group (Mikhail Ulman, Biomin Kaijem) either directly or indirectly gained control over Aurora, Ogre, Olaines kūdra. But the Ventspils group led by Aivars Lembergs and Oleg Stepanov, was not interested in industry. Their goal was to establish control over the territories of the port of Ventspils. At first, they used the tactics of creating joint ventures with real and offshore foreign investors (Kālija parks, Ventbunkers, Ventamonjaks) and attracting funds from state-owned enterprises, recalls Krastins in his book.

Until 1996, for example, Ventspils ostas rūpnīca invested almost 1.4 million lats in eight such joint projects (including Ventrans and Ventamonjaks). The plant itself already in 1994 almost ceased the production of mineral fertilizers, reducing the number of employees from 920 to 110, and was engaged only in cargo handling. The assets of the plant were taken by Ventamonjaks.

However, the main goal of Ventspils entrepreneurs was the Ventspils nafta oil products terminal, which was a real cash flow machine. As a result of political deals, control over it was established in 1999. Using the money of Ventspils nafta, the Press House was bought and an attempt was made to create a new printing house. True, this plan remained unfulfilled to the end.

Krastins recalls that in 2006 within the Ventspils group there were insurmountable differences that led to its disintegration and the criminal process against Aivars Lembergs, which continues to this day.

But in the food industry, many enterprises in the course of decentralized privatization were bought up by the Ave Lat group (Andris Škele, Eric Masteiko). In 1993-1995, this group gained control over Laima, Uzvara, Riga, Rīgas alus, the Riga Wine and Champagne Factory, and the Iecava poultry factory (later – Balticovo).

Using the rights of owners of denationalized land, a bakery in Riga was acquired, as well as Rēzeknes maiznieks and Rēzeknes dzirnavnieks. By combining these enterprises with another bakery and the former state-owned enterprise Abra, Hanzas maiznīca was created.

Already at the time of centralized privatization, control was also gained over Salacgrīvas ZKR and Kaija, and later on Rīgas piena kombināts. In 1998, when a public auction of a 25% stake in Latvijas balzams took place, Ave Lat and the Ventspils group clashed, causing the price of a stake to rise from the initial 2 million lats to 5.1 million lats. As a result, this share was acquired by Ave Lat.

Krastins, who in the following years became a close political ally of Škele, writes: “Given the small interest of the Ventspils group in industry, it is unlikely that they really wanted to buy Latvijas balzams. Rather, it was the intention to annoy the political rival Andris Škele. This conflict lasted for many years. However, after 1998, the routes of Skele and Erika Masteiko diverged, and by the year 2000, almost all enterprises controlled by Ave Lat were sold to other investors. ”
Assessing this from the current point of view, Krastins admits: “Unlike Lithuania, in Latvia in the course of privatization, long-standing industrial concerns were not created.”
Mathematician and economist Krastins in the early 90s of the last century had a position of Minister of State Property of Latvia, and in the 2000s he was Minister of Finance. The book, which is being prepared under the wing of the publishing house Jumava, is divided in chronological order into four parts, each describing one of the state systems through which Latvia passed from the 19th to the 21st century. It describes the characteristic of the economic system of that time and technology, and the place of industry in the economy, the main directions and obstacles, as well as major achievements. The biographical data of the most prominent figures of the industrial and economic sectors are also indicated.

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