The Baltic States - baltic-course.com Baltic States Industry 8 Ironclad Arguments Transport 12...

The Baltic StatesIndustry

8 Iron�clad ArgumentsTransport

12 Maintaining Good Roads is Expensive 14 Challenges for Lithuanian Road Construction 15 EU Saves Estonian Roads16 Meeting of Transport Ministers in Kaliningrad

and LithuaniaLogistics

18 The Main Area of Research in Logistics. European ContextInnovations

20 From Incubator up to International EnterpriseFinances

22 Non�residents in Latvian Banks — Is it of Ill Omen?Real Estate

24 A Private House Near the Warm Sea27 It’s Too Expensive to Live on the Narrow Streets

in Riga’s DowntownCrime

28 Criminal Offence: a Prison to Stay for Some, Probation for Others

European UnionCo�operation

32 Switzerland and the Baltics: Businesslike Relationships European Commission

34 Service Directive Draft: Expected Effect for BusinessLegislation

35 Regulation and Law in the EU: the Way to Efficiency Report

36 Finnish Financial Market: Useful Examples for the BalticsMarket

38 EU Trade Mark: Made in the European Union Energy

40 Russia and the EU Need Each Other

CISTransport

42 Sea Freight Through Russian, Ukrainian and Baltic Ports Maecenas

44 Preserve Russian Cultural Heritage

Figures & Facts46 Statistics

Latvias GazeSeverstaltransHotel "Ainava"FixemerRankaX DREAMAVE TRANS GROUPNordic Industrial Park

CEE exhibitionsITE Central AsiaLatvian Business SchoolRiga Managers SchoolITE Group plcA.F.I.BNSLETA

1The Baltic Course — Spring 2005 Contentswww.baltkurs.com

CRIME: p. 28

ENERGY: p. 40

MAECENAS: p. 44TRANSPORT: p. 42

REPORT: p. 36

MARKET: p. 38

REAL ESTATE: p. 24TRANSPORT: p. 16

OUR PARTNERS

Present BC issue reflectsour permanently performedviews on urgent and complexBaltic States’ problems, along�side those connected to theEuropean Union and countriesoutside the Baltics.

The Baltic section dealsmostly, in several articles, withour magazine’s regular topic,i.e. Baltic transport sector’sdevelopment. The Baltic CEOsknow well that more than halfof these countries’ revenues stem from region’s “transit posi�tion” between European East and West. Business community inthe Baltics wants this positional advantage to continue. Weassist this intention by our analysis of urgent transportationproblems both in the Baltics and in neighboring states.

But transport is not the only way the Baltic States can uti�lize their intermediate position at the Union’s borders. There is agrowing fear in “old Europe” that the continent has lost its way interms of economic and political development, and the market maydecide that this is not an interesting place to invest. The “new EUmembers” still can provide a golden opportunity for the long�standing investments, much more attractive than anywhere elsein Europe, to say nothing about other regions in the world. Hence,BC includes articles on real estate situation in the Baltics andinnovations on industrial development, as well as statistics on theBaltic States’ economic development.

More than anything else, the Baltic CEOs need strong andan independent view on European economic development.Therefore, in our European Union section we publish a reportfrom Finland on the country’s financial market development.This theme was chosen because of the recent EU and the US“attention” to financial sector’s stability in Latvia and conse�quent non�residents’ accounts revision in the banks. Finnishfinancial market, in this regard, is a good example and experi�ence for the Baltic States’ businessmen to follow.

Another interesting aspect in the financial sphere isSwitzerland’s experience revealed to BC by recently appointed Swissambassador to Latvia and Lithuania. An important answer is providedas to how long one has to work in order to reach a level of a “globalfinancial center”, the dream many Baltic bankers still cherish.

Our third section — economic development in the Union’sEastern side — is aimed at reflecting the present state�of�the�art inports’ facilities and infrastructure evolution both in the Balticregion and Russian ports in the South and Far East. It is importantto note that while Russian ports are increasing turnover, in partic�ular, in the Baltic Sea, the Baltic ones are dragging behind. But wehope that things will change for the better soon.

Eugene Eteris, BC International Editor

3The Baltic Course — Spring 2005 Editor’s Note

www.baltkurs.comPublished quarterly since 1996

Spring 2005 (No.17)

Our readers are in Latvia, Lithuania, Estonia, the CIS

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executive, candidate of technical sciences, Belarus

Bronislavs Lubis – Lithuanian Industrialist Confederation,

president, Kazbalt association president, Lithuania

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and The Baltic Course, Dr. Oec., Latvia

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Eugene Eteris – BC international Editor, European Integration

Institute, Doctor of Law, Denmark

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RAIL BALTICA IN THE EU PRIORITY LIST

The EU and Baltic authorities areactively preparing for implementation of amajor project for construction of a new fasttrain line from Estonia to Poland throughLatvia and Lithuania. If this railway line isbuilt, a trip from Tallinn to Warsaw wouldtake just six hours. The Rail Baltica projecthas been included in the list of 30 mostimportant infrastructure developments inthe EU, with estimated costs of about 4.2billion euros. The EU is providing most ofthe funding required for the construction ofthe European-grade fast railway line.

The maximum train speed on the newrailway line is estimated at 300 km/h. Expertsthink that in the future the fast train linecould be extended to St.Petersburg in Russia.

BUSINESS PARK IN RIGA AIRPORTThe plans for Riga airport in Latvian

capital for the coming years include majorrenovation and expansion as well as devel-opment of a business park with hotelaccommodations and office blocks builtnext to the airport. According to prelimi-nary estimates, at least 70 million lats willbe invested in the development of the air-port over the next 10 years. Riga airportpresident Dzintars Pomers told the pressthat they planned to take Latvian loansand that of various European banks tofinance the project.

BALTIC STATES JOIN NIBLithuania, Latvia and Estonia joined

Nordic Investment Bank (NIB) early thisyear. The agreement about Baltic states’membership in the bank has to be ratifiedby parliaments of all NIB member states,i.e. Lithuania, Latvia, Estonia, Denmark,Finland, Iceland, Norway and Sweden.NIB’s membership offers various advan-tages, e.g. unlimited loans at low interestrates. The bank’s capital is 4 billion euros.

VILNIUS MEETS RUSSIA HALFWAY

The meeting between co-chair-men of the Russian-Lithuanian inter-governmental commission for coopera-tion which took place on February 20 inTrakai, Lithuania, was “useful,” said theRussian co-chairman of this commis-sion, Transport Minister Igor Levitin.“At the talks with Lithuanian ForeignMinister Antanas Valionis we suc-ceeded in agreeing on a compromiseconcerning very vital problems forRussia, in particular, Lithuania’s unilat-eral decision to increase railway freightrates for shipments to/from Kaliningradthrough its territory by 15% as ofMarch 15.”

Russia also came forth with the ini-tiative to launch a transit tourist trainBerlin-Warsaw-Kaliningrad-Vilnius-Riga-St.Petersburg, and Lithuania responded tothe idea with a great interest. This issue isincluded in the agenda for the forthcomingintergovernmental commission’s meeting,said Mr. Levitin. According to theLithuanian Foreign Ministry press service,the parties agreed to hold regular meetingof the full commission this fall in Lithuaniaand a forum of Russian and Lithuanianbusinessmen too. Mr. Levitin’s comments— on page 16.

POLAND BACKS POWER BRIDGE TO THE WEST

Advisory committee members toPolish President Aleksander Kwasniewskiat the meeting in Lithuanian EconomicsMinistry on February 25 confirmed thepresident’s positive attitude to the powerbridge construction. “We have to cooper-ate more actively in the fields of energy, oiland gas,” said Andzej Majkowski, PolishPresident’s Chancellery vice-state secre-tary. “Poland confirmed president’s will-ingness to make together with LithuanianPresident Valdas Adamkus a joint appealto the European Commission about possi-ble ways to implement this project,” saidLithuanian Deputy Economics MinisterNerijus Eidukevicius. He added that itwas planned to organize a meeting of rep-resentatives from the EuropeanCommission, the EBRD, Poland andLithuania to discuss implementationarrangements and sources of funding forthe power bridge that would cost about1.5 billion litas. The negotiations aboutcooperation with Poland in building thepower bridge to the West have beengoing on for nearly a decade. Untilrecently, the Polish side did not showmuch interest in the project which hasbeen included on the list of Trans-European-Network projects. Lithuaniawould like to have the power bridgewhich costs are estimated at 434 millioneuros completed by 2009 when IgnalinaNuclear Power Plant is to be shut down.

LATVIA WILL HELP TURKEY ENTER THE EU

At the end of April within the boundsof state visit to Turkey of Vaira Vike-Freiberga, the President of Latvia, there wasa business forum among Latvian andTurkish entrepreneurs. Addressing the par-ticipants of the forum, the president pointedout the strategic geographical location ofLatvia as a transit country between WesternEurope, Russia and the countries of UIS.

Ainars Slesers, the Minister ofCommunication of Latvia, emphasizedthat opening of direct air flights betweenRiga and Istanbul as well as activities ofLatvian embassy in Ankara will facilitatefurther economic cooperation betweenLatvia and Turkey. Slesers appealed toTurkish entrepreneurs to invest intotourism, building hotels in Latvia.

Andris Ozols, the Director of LatvianInvestment and Development Agency,informed the participants of the forum aboutthe entrepreneurial climate in Latvia notingthat there are a developed infrastructure anda favorable business atmosphere in Latvia, inparticular, low rate of enterprise income tax.

IGOR LEVITIN: We managed to agree on a compromise concerning very vital problemsfor Russia.

VAIRA VIKE�FREIBERGA: We are glad to seegrowing interest of Turkish entrepreneurstowards Latvia as an economic partner.

ANDZEJ MAJKOWSKI: We have to cooperatemore actively in the fields of energy, oil and gas.

The Baltic Course — Spring 20054 News & Views www.baltkurs.com

NEW INDUSTRIAL PARK IN RIGA

Nordic Partners will invest 500,000lats in development of a new industrialpark in Riga, said the company boardmember and marketing director ElitaMoiseja. This will be the third industrialpark created by Nordic Partners. Presently,Nordic Industrial Park and NordicTechnology Park are already operatingsuccessfully in Latvia. Nordic Partners hasbought 10 hectares of land for the newpark and is now working on the construc-tion design. It is planned to build industrialcomplex, warehouses and office facilities.Investments in the first stage of the projectare estimated at around half a million lats.The new industrial park will be strategi-cally located — near the main highwaysand not far from Riga airport.

Nordic Partners plans to developseveral more industrial parks in RigaCounty, as well as in Liepaja and Ventspilscities in the near future.

5The Baltic Course — Spring 2005 News & Viewswww.baltkurs.com

HALF OF UNIVERSITY GRADUATESCAN’T FIND WORK IN LATVIA

About half of university graduates inLatvia can’t find work after completion ofstudies.They have either to register with theNational Employment Agency or to returnto studies, this time in a field where they aremore likely to find a job. According to theagency statistics, as of October 1, 2004, ithad registered 1,127 unemployed universitygraduates, who acquired their degrees in theprevious academic year. The number ofjobless people with university diplomas isconstantly growing.

NEW PROJECT OF RZD�PARTNER — THE RZD�PARTNER INTERNATIONAL

On March 23 in the framework of theexhibition “Trans Russia-2005” which tookplaces in Moscow, the presentation of a newinternational project in English — the maga-zine The RZD-Partner International was held.Speaking of the international version’s con-cept, the chief editor’s first deputy, AleksandrRetunin, emphasized that the materials of thenew project are not an analogue of magazine’sRussian version and mainly are oriented on thedemands of the international companies — theparticipants of the transport market.A full pic-ture of transport system development tenden-cies in Russia and the CIS countries will be pre-sented to the foreign readers in The RZD-Partner International. The magazine ispublished quarterly.

GEONAFTA’S ASSETS ARRESTEDLithuanian Court of Appeals

adopted a decision that put an end to along-lasting dispute between Sweden’sSvenska Petroleum Exploration and oilextraction company Geonafta. The courtruled to arrest Geonafta’s movable andimmovable assets worth 20 million lats,including oil rigs. The Swedes demandedsuch sanction as a guarantee againstGeonafta selling off its assets in case ofpossible bankruptcy procedure.

This decision is a logical continua-tion of an earlier decision made by theInternational Court of Arbitration in late2003 which awarded the Swedish companycompensation in the amount of 12.5 mil-lion US dollars with a 6 percent annualinterest. Svenska Petroleum Explorationhas not received the compensation yet asthe ruling is to be approved by Lithuanianappellate court.

Four years ago Svenska PetroleumExploration initiated arbitration proceed-ings over the Lithuanian government’sdecision to hand over to Geonafta the oilfields in Kretinga and Nausodis in westernLithuania. The Swedish company claimedthat they have the right to joint operation ofthe oil fields together with Geonafta, andthe arbitration court upheld their rights.

ESTONIAN RAILWAY RUNS UNIMOGROAD�RAILER

Estonian railway company EestiRaudtee has acquired a Unimog(Universal Motor Gerat) road-railer, avehicle for transportation of rail carsand locomotives that can run on bothrailway tracks and roads. The road-railer,the only of its kind in the Baltic states,can transport cargo of up to 800 tons, i.e.12 rail cars or 4 locomotives. Its poweroutput is 130 kW. The vehicle can accel-erate to 50 km/h on the rail track and to85 km/h on the motorway.

It has a special power drive forrunning on rail tracks and reinforceddiscs as well as an air compressor forrail car brake system. Unimog advan-tages over other vehicles lie in itsagility and economic efficiency. Thetruck can run on rail tracks, roads andrough terrain, and, contrary to ordinarytrucks, the engine can be turned offbetween jobs and doesn’t need preheat-ing either.

ELITA MOISEJA: Nordic Industrial Park andNordic Technology Park successfully operatein Latvia.

KAUNAS FEZ BREAKS OUT OF STAGNATION

Kaunas County Governor Zig-mantas Kazakevicius, Kaunas DistrictMayor Leonardas Gineika and KaunasFree Economic Zone (FEZ) Mana-gement Company’s director VytautasPetruzis in February signed a trilateralagreement that will assist Kaunas FEZout of stagnation.

Under the agreement the FEZ les-see, the Belgian consortium AOI, willpay the 40-year rent for the land inadvance. The amount of about 1.072 mil-lion litas will be used to buy up privately-owned plots wedged between territoryalready owned by the Kaunas FEZ, cre-ating a whole plot of 80 hectares.

At present Kaunas FEZ owns57 hectares of land but the plots arescattered therefore only 23 hectares canbe offered to investors. The Lithuanianstate has promised to pay landownersfrom 65,000 to 98,000 litas per hectaredepending on the plot’s location.Previously the price of land in theKaunas FEZ territory costed around20,000 litas per hectare. Lithuanianparliament acknowledged that KaunasFEZ territory shall be leased only forthe period of 49 years while the leaseperiod for Klaipeda FEZ was set at 99years. Kaunas hopes that theParliament will amend its decision andextend the lease period for KaunasFEZ to 99 years as well.

INSTITUTE OF RUSSIA’S RESEARCH IN RIGA

The Institute of Russia’s Researchwas opened in Riga, Latvian capital. Theinstitute, created within Baltic RussianInstitute (BRI), is headed by a well-known Latvian political scientist KarlDauksts.

The new institute, he said, will studyRussian-Latvian relations in politics, eco-nomics, history and culture as well asRussian politics in respect to the BalticStates. One of the institute’s objectives isto gather materials that would initiate theEU interest towards Russia. “We use inour work scientific research potentials ofLatvian experts, who will participate invarious international forums and confer-ences,” said Mr. Dauksts.

Already in April the Institute ofRussia’s Research participated in setting upthe international conference with the title“The Agenda: Russian-Latvian Relations”held in Moscow with the following partici-pant organizations — Open InternationalForum, Russian forum “Expert”, KonradAdenauer Foundation and the LatvianTrans-Atlantic Organization (LATO).

MOST POPULAR BRANDS IN LATVIALatvia’s Laima chocolate is this

year’s most popular brand in Latvia,according to a survey conducted by DDBLatvija advertising agency. Nokia mobiletelephone was at the second place, fol-lowed by Latvian Lido network, famousfor its ethnographic-style restaurants com-bining food with various forms of enter-tainment. Other popular brands on the Top10 list include Colgate toothpaste, Latvian-made Cido soft drinks, Orbit chewing gum,Latvian mineral water Mangali, productsby Latvian fruit and vegetable processingcompany Spilva, Ariel detergent andLatvian private TV channel LNT.

The survey covered totally 262brands popular in Latvia, most of them oflocal origin.

KESKO ENTERS THE BALTIC MARKET

Kesko Food, a company of theFinnish concern Kesko, and Swedish ICA,the owner of Rimi retail chain, havelaunched joint Baltic market operations,hoping to take 25% of the market in threeyears and earn profit already in 2007.Kesko Food and ICA each own 50% inRimi Baltic company which was launchedin early January 2005. In 2004 total salesof both companies in the Baltic Statesmarket reached some 690 million euros(without VAT). Rimi Baltic, which oper-ates about 160 supermarkets acrossLatvia, Lithuania and Estonia, has thecapital of 140 million euros and employsaround 8,300 people.

KREENHOLM TEXTILE MOVES TO RUSSIA

The Finnish manager of Kreenholmtextile plant based in Narva, north-eastEstonia, Matti Haarajoki, has said that thecompany intended to move production toregions with cheaper labor costs. He didnot rule out the possibility of relocatingthe manufacture to Russia which wouldmean the demise of the textile industry inNarva and thousands of people losing jobs.

“Right now we are using Estoniansubcontractors of a small degree, but in thefuture we wish to use increasingly subcon-tracts from countries where labor costs arelower than in Estonia,” Mr. Haarajoki toldEstonian newspaper Eesti Paevaleht.

Early this year Finland’s dailyKauppalehti reported that Kreenholm wasplanning to open a sewing facility inIvangorod, the Russian city facing Narvaacross the border river.

Kjell Tornbring, the head ofKreenholm’s parent company BorasWafveri, said owners were trying at anycost to make Kreenholm profitable.

“We need to increase sales andreduce expenditures, that is why takingproduction to Russia is quite possible,”he said.

LITHUANIAN BANKS ASSOCIATION’SNEW PRESIDENT

The Association of LithuanianBanks has elected a new president,Rimantas Busila, 46. He will succeedEduardas Vilkelis, 50, who had headedthe association for the last 10 years. Theassociation’s president is elected for aterm of five years. Mr. Busila wasNational Stock Exchange’s president andits board chairman for many years. Atpresent he is a lecturer at VilniusUniversity International BusinessSchool. The Association of LithuanianBanks has as its members nine out of theten existing commercial banks inLithuania. The only non-member —Hansabankas — is Investment Forum’smember.

BALTIC SALMON BANNED IN LATVIAAt the beginning of February

Latvian chief food and veterinary inspec-tor Mr. Vinets Veldre issued an order ban-ning sale of salmon caught in the BalticSea and Gulf of Riga. The ban wasinstalled on the basis of tests obtained by aBritish laboratory showing that dioxinlevel in this fish species exceeds the maxi-mum permitted limit. Excessive dioxinlevel was found in five out of nine samplesof salmon tested at the laboratory. Latvian

fishermen catch about 40-50 tons ofsalmon a year in the Baltic Sea. LatvianFisheries Association’s president InarijsVoits told LETA news agency that in 2005salmon fishing licenses had been grantedto 35 vessels, down 40% from 2004 due torestrictions on use of drift nets introducedby the EU. The ban on salmon sale meansthat fishermen won’t be able to exercisetheir fishing rights until 2008 when the useof drift nets for catching salmon will bebanned altogether.

Denmark introduced a similar banon salmon sales in 2004 but it wasamended later, allowing sale of smallsalmon where dioxin concentration isnot so high.

KARL DAUKSTS: Our purpose is to initiate theEU interest towards Russia.

The Baltic Course — Spring 20056 News & Views www.baltkurs.com

Analysts have dubbed last year as theYear of Metal. The world metallurgy indus-try output in 2004 grew by 9.1%, increasingmore than two times as compared to overallglobal economic growth at 4.8%. To put itshort, the “Iron Age” continues and doesnot seem likely to end in any foreseeablefuture.

ALLOYS ARE OUR STRENGTHThe industry has already crossed the

one-billion mark - the world steel produc-tion reached 1.035 billion tons last year.Experts estimate further growth by 5% thisyear and another 3.5% next year.

Metal prices rise along production asmetallurgical companies have to compen-

sate for increasing the cost of metal scrap,iron ore and coke. In experts’ opinion, ironore market has always been a battlefield asprice competition in this sector oftenamounted to breaking rules. As if this wasnot enough, the market players (producersand consumers) also have to deal with tradequotas, tariffs and tough competition. Thus,the metals market depends on a number offactors from geological survey to consumerdemand for metal production.

Rapid economic growth in Chinawhere GDP grew by 9.5% in 2004 has beenaccompanied by even more rapid growth ofmetal consumption in that country whichtoday devours about one-third of the worldsteel output. The growing demand metalprices skyrocketing, and the world prices formany types of metal products increased 1.5times or more over history’s decade high.Atthe beginning of 2004 iron ore pellets werestill USD 40 per ton but in January of thisyear the price was already up to USD 90.

Due to the increased demand formetal, the world’s largest iron ore producers(accounting for 70% of the world trade) —Brasilian Companhia Vale do Rio Doce(CVRD) and British-Australian companiesRio Tinto and BHP Billiton - intend toinvest USD 5.3 billion over four years toexpand iron ore extraction by 1.5 times —from 390 million tons in 2004 to 600 milliontons in 2008.

CHAIN REACTIONThe world’s five largest steel produc-

ers by 2004 accounts were China(272.5 mln t), Japan (112.7 mln t), the US(98.5 mln t), Russia (64.3 mln t) and SouthKorea (47.5 mln t).

The Baltic Course — Spring 20058 Industry www.baltkurs.com

By Mikhail TuzhikovBaltic correspondent, newspaper Transport Rossii

Steel and steel alloys’ world consumption has increased rapidly during recentyears what has also been reflected on the Baltic metals market. Regardless of theoverall industrial activity’s decline, this market has been growing albeit slowly butsteadily.

IIrroonn��ccllaadd AArrgguummeennttss

Source: Severstallat. Source: Severstallat.

BALTIC METALWORK MARKET, THOU T DYNAMICS OF AVERAGE PRICES FOR ROLLED METAL IN THE BALTICS

USD

/T

Experts think that metal market isvery versatile and it is risky to make anylong-term forecasts for its development. Forexample, in 1998 Russia became the world’sleading metalwork exporter. At that time itwas Russia’s second most important sourceof foreign currency revenues preceded byexports of energy resources. In less than fiveyears, a new player — China — appearedon the stage. The world’s fear of cheapChinese metals is not at all irrational. Inrecent years the Chinese metallurgy indus-try has been growing at a faster rate thanthe country’s economy in general.

The metal boom in China caused achain reaction throughout the world. AsChinese make steel from Brazilian ore, thefleet responded immediately to theincreased demand. As a result, a shortage ofships occurred in other waters and freightrates of dry cargo vessels shot up.Reverberations reached Europe quicklyenough, i.e. construction of new ships atEuropean shipyards has already beenbooked for 1.5 years ahead.

BALTIC SITUATIONIn the Baltic States steel is being pro-

duced at open-hearth furnaces by the onlymetallurgy plant in the region, i.e. Liepajasmetalurgs based in south-western Latviancity of Liepaja. It provides the Baltic marketwith 20% of its output with the remaining80% being supplied to other world’sregions. Metal processing and foreign salesare mostly done by Estonian companiesElme, Levadia, Frelok, Galvex and Latvia’sSeverstallat. In Lithuania, the industry hasjust started developing therefore the metalbusiness there is done mostly by representa-tives of Estonian and Latvian holding com-panies. There also is a local company mak-ing hardware (nails, screws) but it belongsto a Russian company.

LATVIA: PRIORITIES AND HOBBIESLatvian metal’s market flagship, i.e.

Russian-Latvian joint venture Severstallat

was organized in December 1992 withequal participation of both founders —Russia’s Cherepovets Metallurgy Plant(now Severstal) which is the largest inEurope and Latvia’s Felix Holding Co. Thecompany was founded for the forwardingof Severstal metalwork exports by rail andthrough the Baltic ports in Tallinn, Riga,Ventspils and Klaipeda.

During its first years in businessSeverstallat grew from a small forwardingcompany into one of the largest forwardersin the Baltic region. Amount of metal ship-ments through three Latvian portsincreased from 197,000 tons of rolled metalin 1993 to three million tons in 1998. Butafter this achievement, the company’s for-warding business started to slow down.

As a result of changes in the tariffpolicy introduced by Russian TransportMinistry in 1999, it become clear that thiskind of forwarding operations have

exhausted their potential and turnedunprofitable. Severstallat managementfound an alternative development pathand in 2000 came up with a project for cre-ating a service center for metal sales in theBaltic States.

Severstallat general director andboard chairman Aleksei Gogunov told theBC: “After Russia had raised the railwayfreight rates, our priorities and orientationschanged, i.e. metal sales became our mainbusiness and metal transportation turnedinto a hobby.”

Severstallat general director said thecompany had three lines of business:

• Direct sales to major consumers:ship repair and ship building companies inEstonia, Lithuanian refrigerator producerSnaige and other European clients forwhom the minimum metal delivery equalsmonthly consumption;

• Warehouse sales, mostly in Latviaas well as in certain Lithuanian andEstonian regions. The warehouses in Rigaare the largest in the Baltic States as theycontain practically the whole range ofrequired metal products.

• Initial processing of productsaccording to client’s demand, i.e. shearing,making of various profiled products andpipes.

For normal operations in those threefields, good logistics both for incoming andoutgoing shipments is needed. “Geographyfactor helped as Cherepovets is on the RiverVolga, Mr. Gogunov said, smiling. All

9The Baltic Course — Spring 2005 Industrywww.baltkurs.com

WORLD STEEL PRODUCTION IN 2004, MLN TRegion/country 2004 2003 2004/2003, %EU�25 193.5 183.9 + 5.2Other European countries 28.2 25.4 + 10.6CIS 111.8 106.2 + 5.3North America 133.0 126.2 +5.4South America 46.0 43.0 + 6.9Africa 16.5 16.2 + 2.1Middle East 13.6 12.9 + 5.9Asia and Oceania (except China) 220.5 215.8 + 2.1China 272.5 221.1 + 23.2World total (62 countries) 1035.5 950.8 + 8.9Source: International Iron and Steel Institute (IISI).

through summer months we can send goodsby river transport, saving money that other-wise would have been spent on railwayfreight. River-marine vessels first traverse asystem of channels to St. Petersburg andfrom there they sail to Riga by the BalticSea. Transportation costs are lower and wecan make some profit. However, not manyRussian metallurgy plants are situated closeto water therefore it is rather complicatedand costly to transfer products from a plantlocated in the Urals, for example”.

Nevertheless, Severstallat sales haveincreased fourfold in three years: from107,000 tons in 2003 to 394,500 tons in 2004.The turnover in money terms grew six timesduring the same period: from 20.5 millionlats to 124.8 million lats.

ESTONIA: NEW TECHNOLOGIES The leading Estonian industrial com-

pany — BLRT Grupp holding company —is engaged in ship repairs and ship building,railway rolling stock repairs, port services,metalwork, production and sale of indus-trial gases and metal export.They cooperateactively with such large Russian companies

as LUKOIL, Severstal and based Yantarshipyard.

One of the largest Baltic metal dis-tributors, Estonia Elme Metall, is a part ofBLRT Grupp. Elme Metall is based inTallinn and has branches in Tartu, Parnu,Narva, Riga, Klaipeda, Vilnius, Siauliai andKaliningrad. The company buys metals inRussia, Ukraine, Belarus, Germany, Poland,Slovakia and the Czech Republic. Russia’sSeverstal has been country’s major supplierfor many years.

ELME company’s director IgorBerman said,“Today the production processwithin the holding company is supported byuse of the latest equipment and technolo-gies. In the last 5-6 years BLRT Grupp hasinvested in development of ELME infra-structure about 200 million kroons. ELME,which was registered in Estonia inDecember 1993, has evolved into a holdingcompany consisting of AS Elme MesserGaas, OU Elme Metall, OU Elmas, OUElme TKS, OU Elme Trans, togetheremploying about 650 people. ELME hasown representation offices and subsidiariesin Lithuania, Latvia and Kaliningrad.

In experts’ opinion Estonia hasanother perspective metal processing com-pany — the US-Estonian Galvex, whichmakes galvanized steel. The plant takes upan area that would accommodate severalfootball fields, and the galvanization linestretches for several hundred meters. Theentire production process is automatized.The american Daniel Bain, who headsGalvex, thinks about expanding the com-pany’s business in metal transit.“In additionto producing 500,000 tons of galvanizedsteel, we plan to ship 3 million tons of steel ayear. For this purpose, we will develop alogistics support system within our com-pany”, he said.

In general, Latvian and Estonian com-panies in metal business look in the futurewith optimism as metalwork consumption inthe Baltic region is growing faster than inEurope and metal prices there are higherthan in Russia.And, finally, experts think thatthe Baltic metals market is specific as beingrather transparent where market playersknow each other well and rivalry often turnsinto a partnership. Thus, the Baltic optimismis supported by iron-clad arguments. •

The Baltic Course — Spring 200510 Industry www.baltkurs.com

The Baltic Course — Spring 2005

Latvijas Valsts celi deputy boardchairman Olafs Kronlaks, former MotorRoad Directorate’s general director inLatvian Transport Ministry, told the BCabout transformations in the industry.

The purpose of reorganization wasto provide Latvian road builders withemployment. Previously tenders had tobe organized for highway engineeringworks and foreign specialists were invitedfor technical supervision in Europeanprojects even though Latvia had enoughits own professionals. “As a result, forexample, we had a Finn coming over,recruiting a team of Latvian experts andmaking money this way, said Mr.Kronlaks. Now Celu inzenieri makeshighway designs and technical supervi-sion itself and our people started receiv-ing money that previously were taken outof the country”, he concluded.

THREE FUNDAMENTALS FOR FINANCING

Annual road maintenance expensesper kilometer of Latvian roads equalsabout 4,5 thousand euros. Latvijas Valstsceli board chairman Talis Straume saidthat first of all Latvian highways need tobe brought up to the European standards.In 2004 only 244 kilometers of roads werebuilt or renovated in Latvia at the totalcost of 41 million lats. For comparison, in

2003 construction or upgrading of244 kilometers cost much less, i.e. about 25million lats. Mr. Straume finds these fig-ures totally unsatisfactory. It is obviousthat the state budget is not limitless there-fore additional sources of financing haveto be found. He sees three possibleoptions: to introduce in Latvia Euro-vignettes or additional duties levied onheavy trucks for roads usage; to have pri-vate companies operate certain roadsunder state concession; and to lease road-side areas to private sector for openingvarious service outlets.

HOPES REST UPON EUROVIGNETTES It should be mentioned that almost

all countries in “Old Europe” have intro-duced Eurovignettes. This year Lithuaniaalso adopted the law on introducing theadditional duties on heavy trucks on coun-try’s roads.

Mr. Straume noted that it was tooearly to apprehend whether and whenLatvia is going to introduce Eurovignettes.At first some estimates have to be made inorder to determine whether Latvian trans-port industry and economy in general isready for that sort of charges. As to revenueforecasts from the planed scheme introduc-tion, foreign trucks would make about 2 mlnlats a year and local trucks — not more than10 mln lats.

Valdis Trezins, Latvian associationof international road carriers, LatvijasAuto, president holds some reservationsabout Eurovignettes introduction: “Ofcourse, we strongly support any increasein financing sources for highways androads, since many of them require seriousupgrading. But one should do some seri-ous thinking before introducingEurovignettes in Latvia. Under the EUrules, we cannot levy duties only on for-eign carriers; ours will also have to pay. Insome countries like Germany or Poland,introduction of Eurovignettes is justifiedbecause of great flow of transit transport.The situation in Latvia is different asthere aren’t that many transit vehicles.Therefore the new practice may seriouslyharm local road carriers’ competitive-ness; they have already been hit hard bythe rising fuel prices. Moreover, I thinkthat even without Eurovignettes Latviancarriers contribute greatly to the statebudget, which among other things,finances also the roads.

On top of this, Latvian operators haveto pay excise tax (raised by 11% fromJanuary 1, 2005 and now accounts to 164 latsper ton of diesel fuel) and transport tax(minimum 250 lats per vehicle depending onthe transport-type weight). In addition tothose extra burdens for Latvian road carri-ers, introduction of Eurovignettes may also

12 Transport www.baltkurs.com

Maintaining Good Roads is Expensive By Mikhail Tuzhikov By Anzhela Rzhishcheva

Last year brought about changes in the road industry management structures in Latvia. On November 1, 2004 two newstate�owned companies, Latvijas Valsts celi (Latvian State Roads) and Celu inzenieri (Road Engineers) were created instead of liq�uidated Motor Road Directorate.

have negative consequence — less transit,first of all Russian cargos, through Latvia”.

ROAD CONCESSIONS AS THE WAY OUT Granting private companies conces-

sions to certain roads would be the secondadditional source of funding. Mr. Straumepointed out that this does not mean toll roadsintroduction in Latvia, but concessions arequite close to long-term loans. The conces-sionaire invests his own money in the road heoperates under concession agreement. Theamount of return payment to the investor bythe state is not proportional to investmentbut rather is calculated on the basis of trafficflow along given road. That means thatinvestor is highly motivated to make his sec-tion of the road more attractive for drivers.

According to market analysis done byLatvijas Valsts celi experts, Riga-Jelgavahighway is currently the most suitable roadfor concession purposes. It is planned thatin two years a tender will be announced toinvite first Latvian concessionaires. Mr.Trezins thinks that assignation of roads toprivate companies using concession systemcould be a positive option. But Riga-Jelgavaroad in central Latvia is not of currentimportance for international road carriers.From the perspective of international roadtransportation, modernization of roads inthe eastern direction, such as Rezekne-Ludza-Terehovo would be much moreinteresting.

Latvijas Valsts celi also plans tocharge companies for using roadsides inorder to develop various service outlets. ButMr. Straume regards this source of financingless perspective.

MONEY — ONLY FOR HIGHWAYS“The overall situation in the road

industry has changed for the better after

Latvia’s accession to the EU, said Mr.Kronlaks. But problems remain, as there isnot enough money for all road maintenanceneeds. For example, subsidies from the EUCohesion Fund are intended only for themain roads, and money from the EuropeanRegional Development Fund (ERDF) onlyfor Class I roads. That means that funds arebeing allocated only for major roads and nomoney is left for winter maintenance ofClass II roads.As a result, with the availableresources we can develop 300 kilometers ofpriority roads a year, while the remaining20,000 kilometers would get only small reg-ular repairs and daily maintenance.

According to our calculations, wewould need over 120 million lats annuallyjust for maintaining the roads in normalcondition, not taking into considiration theconstruction of new roads. Moreover, theamount of postponed road repairs hasalready reached 37 million lats in 2003 and isgrowing every year along with increasing ofcosts for road works and road maintenance.To date the road industry is short of 18 bil-lion lats of investment. And this is only forthe road maintenance, if we were to upgraderoads, much more money will be needed.Let me give you a simple example: it costs 20lats to replace one meter of the traffic bar-rier, and we have to replace dozens of kilo-meters. That means that hundreds of thou-sands lats will be required just for barriers’replacement. Repairs of a kilometer ofasphalted road will cost 46-60 thousand lats,and construction of a new road — ten timesmore,” Mr. Kronlaks concluded.

In 2005 it is planned to use 62.4 mil-lion lats from Cohesion for road develop-ment. The projects include renovation of127 kilometers of Latvian main motor roadsand major repairs of the following sectionsJekabpils, Bauska, Skulte, Adazi-Gauja and

Priedaine-Sloka. The ERDF has allocated29.1 million lats for implementation ofLatvian national program — repairs ofClass I motor roads.

Transport Minister Ainars Slesersthinks that restoration of the liquidatedNational Motor Road Fund could be a rem-edy for the current miserable state ofLatvian roads. Another way to solve theproblem is to increase subsidies to theNational Motor Road Fund program fromstate budget general revenues’ section up to60%, mainly from excise taxation on oilproducts.

RENOVATION PROGRAM NEEDED Due to recent years’ financial deficit,

road maintenance and renovation workswere partly postponed what resulted in crit-ical condition of Latvian roads. Expertsthink that the country needs a program forrenovation of motor roads which wouldprovide for development of the entire roadinfrastructure, i.e. road markings, road postsand signs, road-restraint barriers, parkingplaces, tank-fuel stations, cafes, etc. There isno such program in Latvia and no moneyfor it either.

“Road users have already paid 150million lats in taxes but we only got fewcrumbs from this amount. The entire trans-port tax should go to road builders, said Mr.Kronlaks. Good roads rest on road-users’money or else we won’t be able to developour road industry. See for yourselves, thereisn’t a single European-grade highway inLatvia. After all, highways are meant onlyfor vehicles — there should not be anypedestrians, skateboarders, tractors, bicycleriders, cattle or wild animals. A highwaymust be fenced and must have a developedinfrastructure. Presently we do not havemoney for that”, he concluded. •

13The Baltic Course — Spring 2005 Transportwww.baltkurs.com

OLAFS KRONLAKS: Latvian roads are in critical condition.

VALDIS TREZINS: Eurovignette’s introductionwill result in decrease of Russian transit cargoes.

TALIS STRAUME: Latvian highways are to bebrought up to the European standards.


According to road construction spe-cialists, Lithuania’s status as a transit coun-try has been recognized once again. Thus, atpresent about 2,000 trailer trucks rumblealong the Via Baltica highway sectorbetween Marijampole and Kaunas daily.The traffic intensity on this internationalmotorway has increased by 42% for vehi-cles coming from Poland, and the number oftrailer trucks crossing Lithuania has grownseveral times in past few years.

Traffic on Lithuanian roads growsconstantly, i.e. traffic intensity has increasedby 20% in general and by 27% on theWarsaw-Kaunas-Daugavpils road (appar-ently, drivers prefer going to Russia viaLatvia, passing Belarus). The extra load onthe road surfaces has become a challenge toLithuanian road builders.

“The situation is aggravated bythe problem we have encountered inrecent years. According to Europeanrules the permissible maximum axleload is 11.5 tons. Roads in Lithuaniawere built basing on the maximum loadof 10 tons per axle. As the number oftrailer trucks crossing Lithuaniaincreases our roads have to withstandever increasing excess load. As a result,asphalted surfaces develop indentationsand cracks, and the latter are quite dan-gerous both for vehicles and for roadsas this causes them to deterioratequickly”, said Mr. Puodziukas.

SCIENTIFIC APPROACH PLUS MONEY We are responsible for 1,733 kilome-

ters of trunk highways (coinciding withtrans-European corridors), 4,877 kilometersof national roads (linking various parts ofthe country and we keep them in satisfac-tory condition) and 14,725 kilometers ofcounty roads with national importance (ofwhich 8,800 kilometers are gravel roads).Optimal road conditions are damaged firstof all by traffic intensity.

Development of road facilities alsodepends on one of the most importantEuropean requirements concerning trafficsafety. Whenever a road surface needs to bereinforced, an individual decision is made,taking into account the number of lanes,their width, geometrical parameters, instal-lation of road barriers and overpasses.Other factors to be considered include visi-bility, road accident statistics, etc.

All this requires scientific approachand a lot of money. “Our task, says Mr.Puodziukas, is to determine the conditionof the roads, traffic intensity and type ofvehicles involved and to produce theoptimum solution after analysing of thosefactors. We don’t take any standard solu-tions as they are more costly, as a rule.Meanwhile new technologies make possi-ble at lower costs and short deadlines theuse of existing roads even at recentlyintroduced maximum permissible load of11.5 tons. The Road Administration has

prepared technical regulations but it is upto contractors to choose the method, andthe range of their choices is expanding”.

Lithuanian parliament has passednew amendments to the Law on theFinancing of Road Maintenance andDevelopment Program. Under this law theallocations for road maintenance and devel-opment are planned at 830 million litas in2004, 835 million litas in 2005 and 772 mil-lion litas in 2006 with some of the deficientfinancing to be compensated with assistancefrom the EU funds.

It is not planned to introduce roadtolls in Lithuania. The Road Administrationexperts came to this conclusion afteranalysing all options and possible use ofconcessions towards increased financing forroad construction.

THE GENERAL PICTURE“The condition of Lithuanian roads is

no different from the other Baltic states.Lithuania and Estonia got down to imple-mentation of the Via Baltica program first.But the plans of neighboring countries for2005-2006 have shown that the situation ischanging very quickly; thus Poland andLatvia are now investing large funds intothis international route. Lithuania will haveto work very hard to keep up with them. Iwould like to congratulate Latvian col-leagues on the sizable financing that theyreceived this year both from the nationalbudget and from the EU structural funds.They have more money than Lithuanianroad builders,” said Mr. Puodziukas.

In 2004 Lithuanian road buildersimplemented 133.9 million litas from theEU funds. The Lithuanian Road Admi-nistration first prepared five projects forassistance from the EU funds, and financialsupport was granted in the amount of 85percent of the cost of all five projects. Theseprojects deal with development of Vilnius-Prienai-Marijampole and Vilnius-Lidaroads included into trans-European net-work; transport corridor I (Via Baltica);transport corridor IXB; transport corridorIXD, etc. The money will be used for thereinforcement of roads and embankments,construction of safety and sound barriers,light installation. This year Lithuania plansto use 274 million litas from the EU fundsfor road repair and construction. •


By Tatyana KomorskayaVilnius, special report for BC

Before joining the government service, Lithuanian Road Administration gen�eral director Virgaudas Puodziukas used to be a scientist, Dr. Puodziukas was thehead of the Transport and Road Research Institute. In the interview to the BC, he saidthat his academic background had enabled him to come up with rather unusual solu�tions to current problems.

Challenges for Lithuanian Road Construction

Roads in Tallinn, Estonian capital, arein the worst condition. The current govern-ment ruling coalition, first of all, put blameon previous city council teem, which did notallocate money even on repairing existingroads, not to mention construction of newones. The funds earmarked for road repairshave been always spent on some otheremergency instances. It was only in 2005that the new Tallinn City authority decidedthat something indeed had to be doneurgently about the city’s roads as drivinghad become simply dangerous. Suffice tosay that several motorists have already filedclaims against Tallinn city council for dam-age of their cars caused by potholes inEstonian capital’s streets.

Tallinn residents, are the only peoplewho worry about the poor condition of thecity roads, as the state budget simply doesnot have money for road repairs in the capi-tal. The city authorities keep telling the cen-tral government that Tallinn roads are beingused by people from all over the countryand foreign visitors, and the rundown roadsare a disgrace, but in vain. The governmentstrongly believes that Tallinn roads are theresponsibility of the city authorities and thestate only has to take care of the roads out-side the capital city.

At one point some progressive politi-cians suggested introduction of tolls for usage ofcertain roads as a way to alleviate the dramatic

situation with Tallinn roads. However, the ideawas never put into practice either in Tallinn oranywhere else in Estonia, and still there is not asingle toll road in the country.

EU MONEY FOR REPAIRS?Extensive state road repairs began in

2004 with about 200 kilometers of roadsbeing repaired at the sum of more than 500million Estonian kroons. Naturally, Estoniadid not have such money, but the EU mem-bership aspirations helped. It was, in fact,the EU’s practice to help aspiring countriesto upgrade their roads. Thanks to ISPA pro-gram, Estonia was able to start majorrepairs of its roads. Under the EU-supportprogram requirements, the minimum cost ofa project for repair/renovation of highwayshas to be 10 million euros with at least a15% share of national co-financing.

After Estonia had submitted its proj-ects, the EU allocated 309 million euros forthe period 2004-2006.

Road Administration, which struc-turally is a part of Estonian Ministry ofEconomic Affairs and Communications, willcontinue repairs of the main roads in 2005.Administration’s general director RihoSormus said that one of the major projectsthis year will be the repairs of Tallinn-Narvahighway that will cost 22.2 million euros, aswell as repairs of the Johvi-Tartu-Valga roadat a cost of 35 million euros.

So far there are no plans concerningthe new roads’ construction in Estonia.Thatis the task for the future, but at the momentEstonian Road Administration is to focuson repairs of the existing roads.

LONG�DISTANCE TRUCKERS NOT FORGOTTEN

According to Mr.Sormus, there are leisureareas and special parking lots “right beside fuellingstations” along all main roads in Estonia oftenused by long-distance drivers. However, theseparking lots and areas are often criticized by driv-ers because of their quite inconvenient location.

One can not say, though, that long-dis-tance drivers are deemed to oblivion. EstonianAssociation of International Road Carriersintends to build for them new parking areas sim-ilar to those common in Western Europe.Thesewill be a sort of truckers’ centers where driverswill be able not only to rest, but also to fill uppetrol, have a good meal and do some repairs.

EU FUNDS FOR HELPIt should be noted that even in Soviet

times international highways in Estonia alwayswere in good conditions. After the collapse ofthe Soviet Union and restoration of Estonianindependence the country roads were neg-lected for several years. Only its accession tothe EU, so to say, saved Estonian roads fromtotal distraction. Today there are 973 kilome-ters of good roads in Estonia,of which 923 kilo-meters are state-owned. General opinion issuch that it is impossible to keep all those roadsin excellent condition on state’s account alone.

The EU membership enabled Esto-nia to seek support from the Europeanfunds, and the EU has promised to allocate30 million euros a year for maintenance ofcountry’s international roads. •

15The Baltic Course — Spring 2005 Transportwww.baltkurs.com

EU Saves Estonian RoadsBy Valentin Zvegintsev Tallinn, special report for BC

People used to praise Estonian roads. But these times are in the past. Graduallygood words were replaced by curses, and there was no money for keeping the coun�try’s roads in good condition. Strange enough, lately more positive references aboutEstonian roads could be heard. It’s true though that these words mainly refer tohighways.

How many roads a country needs?The question is far from being rhetoric: European

countries spend large amounts of money on road construc-tion and costs keep growing. Damages to environmentshould also be considered. In Denmark alone about 36.5sq.m (10 ha) of meadows and pastures are covered withasphalt every year. And Denmark is the third country inEurope by length of road surface after tiny Luxembourg andAustria (see the Table). The EU has planned to invest 20 bil-lion euros for financing 30 transport development projectsduring 2007-2013, and this involves only about one-tenth ofthe total costs . The rest, about 200 billion euros, involvesnational contributions as such projects are jointly financedby the EU and the member states.

LENGTH OF ROADS IN EUROPE*Country km per 1 mln

citizens Country km per 1 mlncitizens

Luxembourg 284 Netherlands 141Austria 205 Finland 114Denmark 188 Italy 112Spain 186 Portugal 85Switzerland 180 UK 58France 170 Greece 45Sweden 169 Norway 39Belgium 168 Ireland 32Germany 143* According to 2002 data.Source: OECD�International Road Traffic & Accident Database.


In Kaliningrad the ministersreached a number of agreements oninternational cooperation projects intransport industry, including issues con-cerning Kaliningrad. In Vilnius theintergovernmental commission co-chair-men, Russian Transport Minister IgorLevitin and Lithuanian Foreign MinisterAntanas Valenis discussed issues ofmutual interest to both countries,among them the problem of freight ratesfor transportation to/from Kaliningradthrough Lithuanian territory.

LITHUANIA MAKES CONCESSION TO RUSSIA

In early February Lithuanian rail-way company Lietuvos Gelezinkeliaiannounced its intention to increasetransit freight rates for main types ofcargo carried to/from Kaliningrad

through the territory of Lithuania start-ing from March 15, 2005. The freightrates for oil and oil products, ferrousmetals and perishable goods were to beraised by 15%. Russian transport minis-ter asked Lithuanian side to put offintroduction of the increased rates atthe border checkpoints. Having dis-cussed the request, Lithuania made aconcession to Russia and agreed not toput the new rates in effect on theplanned date.

Both meetings’ details are com-mented by Russian Minister, Igor Levitin.

TESTING GROUND FOR INTERNATIONAL PROJECTS

The summit was an important steptowards strengthening mutual trust anddevelopment of transport cooperation inthe Baltic Sea region. The choice of the

venue was not accidental as Kaliningradis a major transport hub that has becomethe connecting link between Russia andEuropean countries. In my opinion, it isvery important that during the recentyears Kaliningrad region has alreadybecome a testing ground for a set ofinternational transport projects and reg-ulations within transportation systems’interaction.

After May 1, 2004, Kaliningradregion became surrounded by the EUmember states the situation that requiredfrom us and our partners the develop-ment of new schemes for mutual rela-tions. It was Kaliningrad, which hasbecome the center of the field where“common denominators” betweenRussia and the EU” were tested out. Thisis why we agreed from the beginning thatthe meeting should be quadrilateral. And


Meeting of Transport Ministers in Kaliningrad and LithuaniaBy Natalya VostrukhovaRZD�Partner

On the initiative of Russian Transport Minister Igor Levitin, a summit with participation of German Minister of Transport,Construction and Housing Manfred Stolpe, Lithuanian Minister of Transport and Communications Zigmantas Balcytis and PolishInfrastructure Minister Krzysztof Opawski was organized in Kaliningrad at the end of this February. Afterwards, the meeting ofthe Russian�Lithuanian intergovernmental commission’s co�chairmen for trade, economic, scientific, technical, humanitarianand cultural co�operation took place in Vilnius, the capital of Lithuania.

TRAKAI (LITHUANIA), FEBRUARY 2005: Sitting from left to right: Krzysztof Opawski (Poland), Zigmantas Balcytis (Lithuania), Igor Levitin(Russia), Manfred Stolpe (Germany). Standing in the second row: Yury Sukhin (Russian international road carriers association — ASMAP).

I would like to underline that each of thefour ministers were in favour of suchdialogue. Colleagues-ministers haveupheld another my proposal connectedto the future development perspectivesin our relations. We agreed unanimouslythat our countries should hold transportministers’ summits annually.

SPECIFIC DOCUMENT SIGNEDAmong positive outcomes of the

meeting in Kaliningrad, besides success-ful discussion and elaboration of mainprinciples for cooperation in the newcircumstances, was also putting theseideas down and signing a specific docu-ment. This document has outlined fun-damentals of cooperation towards devel-oping railway connections betweenRussia and three other states, i.e.Germany, Lithuania and Poland.Development of railway infrastructurein the southern part of the Baltic Searegion, including international transportcorridors No. 1 and No. 2, and branch Bof the corridor No. 9, have been dis-cussed by the High-Level Group organ-ized on the initiative of the EuropeanCommission. The above mentionedsigned document reflected our coopera-tion efforts in order to develop maritimeshipping in south-east Baltics, includingferry traffic and creation of “sea motor-ways”. The document has also touchedupon strengthening of practical coopera-tion regarding safe navigation, organiza-tion of search-and-rescue efforts con-nected with aircraft and ship accidentsas well as measures for prevention andelimination Baltic Sea pollution. We con-sider it to be very important that duringour meeting several agreements havebeen reached concerning such issues assimplification and improved efficiencyat cross-border checkpoints and border-crossing procedures for railway andmotor transport as well as increasedtechnical and technological compatibil-ity of railway and road transportationsystems in the region.

WE MANAGED TO REACH THE LEVEL OF TRUSTFUL RELATIONSHIP

Kaliningrad four countries trans-port ministers’ summit laid down at thesame time foundations for mutualunderstanding at bilateral levels. Forexample, during Russian-Lithuanianand Russian-Polish dialogues we suc-ceeded in reaching the level of trustfulpartnership relations. We have under-stood each other better, and informal

meetings got under way too. I think thatthese bilateral talks started to show thefirst signs of trust which were veryimportant for us personally and, as aconsequence, for the adoption of impor-tant decisions.

In this respect I think it was verypositive that Germany joined out meet-ing because Germany also suffered fromthe uncertainties in Russian-EU rela-tions. The high-speed railway linebetween Berlin and St. Petersburg wasexpected to stretch through the BalticStates; but several still unsolved issuesprevented us from launching this fasttrain project according to the plannedschedule. Therefore we asked Polandand Lithuania to cooperate in Talgoproject implementation. Preliminaryresponse was positive and Lithuania, forexample, said it was willing to be moreclosely involved in the project.

I believe it was very important thatwe were building cooperation in trans-port industry with other EU memberstates too. The EU has created a High-Level Group for solving transportationissues, and Russia was admitted to thisinfluential European group. It means thatwe managed to convince the EuropeanCommission about the need to include inthis group Russian Federation whichacquires the biggest transport system inEurasia. This international cooperationhas already made possible to discuss cre-ation of the two above-mentioned railway“side-lines” stretching off alreadyadopted pan-European corridors. Theselines are directly linked with Kaliningradregion, Lithuania and Latvia.

TRANSPORT POLICY IS ALSOA TARIFF POLICY

Transport policy means first of alloptimal tariff policy which is based oneach country’s interests. If these interestslack logic success becomes quite prob-lematic. Regretfully, we have often seenthis happening in bilateral relations withthe Baltic States as we have been cooper-ating with them regarding tariff policies.

On the one hand, Russia is accusedof introducing high tariffs at bordercrossings. On the other hand, we alsoobject our partners in Lithuania, Latviaand Estonia concerning complicatedtransit procedures they introduced afteraccession to the EU, such as insurancearrangements for our cargos, deficienciesregarding phito-sanitary and veterinarycontrol. As a result, the Baltics loses tra-ditional cargos which are being diverted

to Ukraine, Hungary and other countries.Obviously, all countries make com-plaints to each other from time to time.Very often such complaints are not eveneconomically substantiated. Let us take,for example, Lithuania’s intention toincrease unilateral cargo transportationtariffs for goods to/from Kaliningrad.The decision was based on the politicalrather than the economic reasons, espe-cially considering that Russia did notraise the tariffs at the border crossingsstarting from January 1, but transferredthe entire cargo load to Russian ports.However, Kaliningrad summit helped toremove this unfair political decision. Theday after the meeting in Kaliningrad,Lithuanian party agreed to freezeincreased tariff for cargoes sent to/fromKaliningrad through Lithuanian terri-tory. We regard this as a mutual andhope-inspiring success.

Of course, every country is tryingto protect its market, and we are not anexception. But should any difficultiesarise, we have to sit down at the negoti-ating table and together discuss theproblems which hamper transportationprocess. It concerns more complicatedissues as well, such as taxation in eachcountry, forms of hidden state subsidiesand different investments’ levels. Forexample, what are loan interest rates for

investments in our ports and that of for-eign ports? In order to understand it,these things shall be transparent, e.g.who receives hidden subsidies andwhether the loans are issued on equalterms. Our companies still are not ableto receive loans at those favorable ratesthat exist in Europe. Therefore we can-not speak about any equality at present.Nevertheless, we count on mutual under-standing and trust. •

Based on interview materials pub-lished on the web-site www.rzd-partner.ru.

17The Baltic Course — Spring 2005 Transport www.baltkurs.com

IGOR LEVITIN: Kaliningrad summit of ministers from four countries has also laid foundation for mutual understanding on bilateral level.


The long-term view is implied by goodand stringent analyses of well-defined compe-tence areas, developing our knowledge andexplaining what’s behind trends and concepts,but also how industry can put our practice inits operative reality. In other words,we have toknow the logic of business so that we can esti-mate potential effects from changes in logis-tics via our research. Based on this dynamicbusiness environment, the following areas forfuture research may be defined.

THE INTERPLAY BETWEEN LOGISTICSAND MARKETING STRATEGIES

The more dynamic surroundings withrapid changes in demands and keen competi-tion, the more important is the interplay in thedevelopment of strategy and operative effi-ciency. In this context marketing and productdevelopment have the role of creating growth,while profitability is created in the operationalprocesses in the field of logistics. One commondenominator is that logistics not only shallmake a contribution to low costs and highservice level, but also by means of welldesigned logistics platforms supporting newmarket positions.

The main research in this area:1. Define best practice in terms of costs,delivery time and lead times, byindustry/branch, including key figures foroperational performance.2. Describe the marketing context and fromthat demands on operational and strategicflexibility in the logistics strategies, struc-tures and systems.3. From 1-2 above, predict future changes insupply chain design and design of logisticsplatforms by industry. (In this context, fur-ther research on the impact from E-com-merce and IT development on logisticsdevelopment is motivated.)4. How can operational efficiency and effective-ness as well as the response on market changesbe improved from further development of ITand the use of E-commerce in logistics? 5. What are the effects of different logistics’structures and strategies on environmentalissues and recycling logistics?

THIRD PARTY LOGISTICSFor the past ten years we have devel-

oped wide knowledge of third party logis-tics, concerning underlying driving forces,obstacles and how the service companiescan be conductive to different positiveeffects. Furthermore, research has beendone on the service companies’ strategicpositioning.

The definition from the EU-researchprogramme states that: “Third-party logistics(TPL) are activities carried out by an externalcompany on behalf of a shipper and consistingof at least the provision and management ofmultiple logistics services”. Today these activi-ties are offered in an integrated way, not onthe stand-alone basis. The term has becomesomewhat of a fashionable word and iswrongly used also for simple services. For thatreason, concepts like Integrated Third PartyLogistics, Fourth Party Logistics, are nowemerging. Even if these concepts imply thesame meaning as Third Party Logistics, theyindicate a development of higher value serv-ices, in order to increase the service-contentand from that increase the profit margins inthe business. The result is the new IT-basedmiddlemen, between the shipper, and the tra-ditional warehouse, and transport providers.

Based on this development in thefield of Third Party Logistics followingresearch areas may be suggested:1. Define opportunities of IT/e-commerceapplications for new intermediates to entera supply chain or to eliminate existing par-ties in a supply chain. Do new applicationsimprove the transparency and matching ofreal-time demand and supply of logisticsservices and transport?2. Explain and better understand the newforms of middlemen in the field of thirdparty logistics, based on concepts of 4PL,Control Towers.3. In theory SME’s with small volumesshould gain most from TPL, but most TPL-concepts are for large corporations, withlarge volumes. Therefore it is important todefine how TPL can be more acceptable forSME’s in the future.

INNOVATIONS IN TRANSPORTATIONAND FREIGHT INTEGRATORS

In logistics development it is impor-tant to have instruments that enable us toprioritise innovations in terms of their con-tributions to policy objectives such as sus-tainable transport, transport efficiency andthe reduction of road congestion and theenvironmental impact of transports etc.1. Innovations and diffusion of innovations:how to improve innovative behaviour ofcompanies related to sustainable transportand how to improve the diffusion of “pre-ferred” innovations.2. Bottlenecks and ingredients for successfor intermodal transports, as well as oppor-tunities for alternative intermodal transportconcepts and prevention of transport fromintegrated product design, innovations inpackaging etc.3. Opportunities from real-time trans-parency in the market matching supply anddemand of logistics and transport servicesacross all modes of transport, in order toidentify optimal logistics and transport solu-tions based on the (transparent) availabilityof all combinations of unimodal/multi-modal transport services and chains.4. Based on above, how IT/e-commercetools in this field can be available for smallplayers on the market to find niches on theEuropean logistics provider market.

White Paper on European transportpolicy for 2010, recognised that furtherintegration of transport and logistics isneeded to maintain the efficiency of thetransport system and that of one-stop-shop freight integration. In consequence,the freight integrators ideally need to bal-ance the relative strengths of each modeof transport. This gives the research ques-tion: which role will the freight integratorshave in the supply chain, and how couldthe process be efficiently and effectivelycarried out in terms of price and otherattributes that customers value (e.g. relia-bility, transit time, absence of lossesthrough damage or theft and added valuelogistics services)?

18 Logistics www.baltkurs.com

The Main Area of Research in Logistics. European ContextBy Igor KabashkinPresident, Professor of Transport and Telecommunication Institute, Riga

The basis for transport logistics research is analyses of the quick changes on the market and correspondingly within thelogistics field, where new applications and concepts for better logistics efficiency occur all the time. In such a dynamic sur�rounding there is a need for research that explains the factors behind and contributes to a long�term competence build�up inacademy and industry.

IMPLEMENTATION OF LOGISTICSCHANGES

Many companies need to developtheir organisational capacity for systemchanges, i.e. how to manage a dynamicworld around by high internal change capa-bility, which is not the same as affectivedriving of change processes (which is thedominating view among established changemanagement theories). The traditional lin-ear thinking built on decisions and direc-tives, for example implementation thinking,need to be supplemented by process andcircular change thinking with continuouschanges based on systemic learning.

To get the most out of logisticschanges requires organisational change andmethods for support or further develop-ment of change processes. The research infollowing areas is suggested:1. What does the implementation processlook like before during and after the imple-mentation?2. How could the implementation process inlogistics be improved, in terms of shorterand more accurate implementation times aswell as improved involvement from strate-gic and operational personnel?3. What is needed from measures andkey figures in logistics to provide forbetter support of fast and accurateimplementation of logistics changes?4. How can the implementation process forTPL be improved? 5. How can simulation and visualisationtools be used to speed up the implementa-tion processes?

Globalisation and other economicdynamics have put the logistics systemunder several recent structural changes.The main trends having place in the recenttimes have been the restructuring of logis-tics; the realignment of supply chains, therescheduling of product flows, and changesin transport management and productdesign. The restructuring of logistics is aconsequence of the spatial concentrationboth in production and inventory, while thesuppliers and consumers are widespread allover the world. At the same time, the trans-port sector has seen a move towards theconcentration of transport in distributionhubs and therefore the development of huband spoke systems, linked through tran-shipment, has been achieved. Regardingthe supply chain management, the most rel-evant changes are the increasing customisa-tion of the product closer to the end con-sumer (postponement) and the concentra-tion of international trade in major hubs,connected with other areas by spokes andtranshipment systems.

All these change processes have beenaccompanied of equivalent reformulationof the Supply Chain, leading thus to a newsystem configuration that requires in-depthanalysis of real world practice in order toanswer the following questions, which aredeterminant for any policy formulation:1. What is the current state of logisticsand supply chain management trendsacross the EU?2. How is it likely to evolve over the next 5-10 years on a ‘business-as-usual’ basis?3. To what extent might supply chain andtransport performance be improved overthis period given our knowledge of bestpractice and optimisation potential?4. What policy initiatives will be required toachieve this potential and foster the sounddevelopment of effective and efficient logis-tic chains?

Supply Chain Management requiresdifferent companies to take some form ofco-ordinated action in a consistent andcoherent manner. However, the practice ofeach individual company or unit from acompany in optimising its own logisticsdecisions does not provide the optimumsolution for the whole supply chain. To copewith this problem we need to improve theinformation flow through the whole deci-sion-chain. Optimal solution can only befound by having complete information onevery relevant aspect at each key node ofthe decision chain. This situation can onlybe reached when all the participants in thechain share information flows agree in jointdecision making.

Regarding supply chain configura-tion, it was found that the process of verticaldisintegration, which reverses the prevailingtrend during the 1960s and 1970s, is addingextra links to thesupply chain andmight be increas-ing the transportintensity of theproduction pro-cess. These trendscreate also a newenvironment infreight transporta-tion and distribu-tion systems inEurope, largelycharacterised by:• Deregulation ofthe freight trans-port servicesacross all modes.• A strong trendtowards privatisa-tion of transport

operations and public/private partnershipfor the financing of transport infrastructure.• Stricter environmental regulations.• Strong policy inclination towards the useof intermodal transport.• Increase of the transportation servicesmarket size in terms of geographical spread,goods transported and services provided.• Technological advancement and increasein the use of information systems andtelematics applications.Moreover, the analysis of the relationshipbetween SCM trends and freight transportsystem utilisation suggests that there is avisible trend towards:• More rational development of the fleets.• More efficient utilisation of the trans-portation resources.• More rational utilisation of the transportmodes.• This new environment characterised bythe interaction between Supply Chain.Management and freight transport systemsis favourable for:• Better and more efficient utilisation ofresources (vehicle and infrastructure).• Policy pushes for the use of environmentalfriendly modes and use of intermodal trans-port.• More intense competition for the provi-sion of freight transport services.To sum up, the configuration of the sup-ply/distribution networks will provideprivate sector decision makers with thenecessary input information for devel-oping suitable policy measures forsteering of the transportation andlogistics sector. Hence it is importantthat EU policies are underpinning theevolution of logistics and supply chainmanagement trends. •

19The Baltic Course — Spring 2005 Logistics www.baltkurs.com


“Genius and genetics”, was the title of the article publishedin BC’s No 25, 2003 about Latvian microbiologist VasilijBankovskij and BioSan, his enterprise. More than a year has passedsince, but he and other Latvian scientists have made outstandingefforts to implement their plans concerning creation of innovativeH-T enterprise.

SCIENCE AND LIFEBioSan company was founded by a group of scientists

from Microbiology Institute at then Latvian Academy ofScience in 1992 and it develops innovation products forresearchers in natural sciences. At present, the company offersmore than 50 innovative products for mixing and combininglaboratory ingredients in thermosetting patterns, as well as forcells’ cultivation and DNA — protection. The instrumentsdeveloped at BioSan help to solve some applied problems ofbiological safety, e.g. to annihilate different viruses andpathogens in the air, including these producing flu, tuberculosisand other dangerous diseases.

“My personal experience shows that about 90% of exper-imental works’ mistakes in microbiology, biochemistry, andgenetic engineering arise from underestimation of standardsexisting in preparation of bio-samples for subsequent analysis(especially at microgram-level) that can lead to failures inreproducing results already achieved”, noted Vasilij Bankovskij,BioSan Board of Directors’ Chairman. “Therefore, our effortsare concentrated on the projects that lead to creation of com-pact and multi-functional personal instruments for mixing andthermo-blending”.

Up to 10 new “instruments” are worked out in BioSaneach year. Its experimental and production department sellsmore than 30 serial instrument types and marketing depart-ment sells the products either directly or through constantdealers to more than 20 countries throughout the world.

Such internal company’s structure allows to arrangestraight and effective contacts between the market and produc-ers and to react promptly to the demands of the developingbiotechnology market. This is what exactly happened with otherunique BioSan products — a centrifuge-vortex (combispin) anda 3D-shaker. All other innovation designs follow e.g. new micro-processor shaker using cyclical principle combining variety ofcomplex movements organized in certain programmed repeatedcycles. This trend, called intelligent mixing for cells culture andorgans can have a revolutionary impact upon technology of cel-lular culture growing and 3D organs out of stem-cells.

ON THE WAY TO SUCCESSThe combination of creativity in new products and efficient

marketing has helped BioSan to be successful both in scientificdevelopment and in business. When it started its activity, the firmoccupied a small room in Latvian Technological Center. BioSanrented new rooms in 2002 in the Institute of Microbiology andVirusology in LU on long lease terms. Now the total area of theenterprise constitutes 1500 m2. The number of stuff has increasedfrom 12 to 50 people. BioSan is a profitable business. In 1993-2004company’s turnover has been growing constantly: from about 126thousand lats in 1999 to 890 thousand in 2004. More than 93% ofBioSan products are exported.

In 2004 BioSan quality management system has been certi-fied and now it is in full compliance with ISO 9001:2000 standard.Company’s system of ecological management has been certified tooand now has complied with ISO 14001:1996 standard.

GOOD CHANCES FOR A CREATIVE COMPANYAs Vasilij Bankovskij noted, BioSan has gone the whole way

from an incubator up to the international enterprise. In the very begin-ning the firm managed to get financial support from Latvian Ministryof Science and Education for its program “Market Oriented Research”and it provided good opportunities for the creative company to surviveas company’s scientists successfully used acquired resources in order tocreate production technology and to arrange selling of its products.Afterwards private investments have been involved.

At the same time BioSan took part in Latvian national exportstate program (LEMAP). Due to that support activity the firmcould get a chance to represent its products on international profes-sional exhibitions and increase its exports.

And at last a cooperation agreement has been concluded thisyear with Grant Instruments, leading producer of lab instruments inGreat Britain (firm’s annual turnover is 5 mln pounds).

20 Innovations www.baltkurs.com

From Incubator up to International EnterpriseBy Anzhela Rzhishcheva

British company Grant Instruments and Latvian firmBioSan signed the investment contract providing more thanone million lats capital for scientific research in microbiol�ogy, biochemistry, and genetic engineering. According tothe contract, Grant Instruments purchased 50% of BioSanshares with the aim of further investments. This co�opera�tion has become a “strong push” for works’ renewal on cre�ation of science and technology park in Latvian University(LU) in the region of Klejsty.

VASILIJ BANKOVSKIJ AND LUDO CHAPMAN: Co�operation agreementhas been concluded this year.

As Ludo Chapman, executive director of Grant Instrumentsnoted, they were attracted by sweeping development and BioSanperspectives; that is why they decided to buy 50% shares of thatLatvian company.

SCIENTIFIC AND TECHNOLOGICAL PARKLatvian University’s Institute of Microbiology exists since

mid 1930s; during this period vaccines against different infec-tions and highly effective biotechnologies have been createdthere. At present it houses both University’s Institute ofMicrobiology and Virusology — a platform for biomedical stud-ies and a scientific-research center, also and private companiesspecializing in genetic engineering and biotechnology research,e.g. BioSan, Asla, Genera and Larifans.

The idea to create a scientific and technological park inLatvian University appeared in 2002. By such a park leadingLatvian scientists decided to unite their research potentials. In2003 the project was supported by Latvian Agency ofInvestments and Development (LAID).

Creation of the present Latvian-British joint venture pro-vided a starting point for Research Park for Natural Sciences’development. As BioSan is enlarging its activities, the total areaof rented laboratories would increase to 2.000 m2. Not only sci-entists but also students of Latvian higher educational institu-tions could perform their research there.

“It is a first Ministry of Science and Education and theMinistry of Economics’ joint project. It is important not onlyfor further development of science, increase in exports andcompetitiveness of Latvian products on the EU market and

throughout the world.Personally, I am happyabout the fact that stu-dents of Latvian highereducational institutionscan make their first profes-sional steps in the scienceand technology park”, saidIna Druviete, Latvia’sMinister of Science andEducation. “Young and tal-ented students receive astimulus. Now they knowthey can have a hand inand bring their creativeideas to life. It means anew stage in developmentof Latvian science.”

“Latvian Investmentand Development Agencyhas supported many cre-ative ideas. We hope thatthe establishment of sci-ence and technology parkwill contribute to furtherdevelopment of innovationtechnologies in Latvia”,added Andris Ozols, LIDAdirector. •

21The Baltic Course — Spring 2005 Innovations www.baltkurs.com


For many years about half ofLatvian banks’ deposits belonged to non-residents mostly living to the East ofLatvia. Namely, this fact explains a rela-tively large number of commercial banks(23) for such a small country. Let us recallthat in the beginning of 1990s the numberof banks reached 65. Some years ago,Russian authorities even included Latviain the list of offshore zones (under No 46)among other taxes-haven’s territories inthe world. We have to say that it is all inthe past now.

Latvia joined the EU and Latvianbanking legislation is regarded as anexample for many countries. As for non-residents’ deposits, their share hasincreased further on in the deposit port-folio since May 1, 2004 and by January 1,2005, it reached 54%. Up to now, this factwas very much welcomed in Latvia.Everybody knows that banks supply“vital blood for economy” and Latvianfinancial sector has a strong influence oncountry’s economic growth.

THE US HAVE ALREADY WARNED Announcement at the beginning of

the year about closing American corre-spondent accounts in some of theLatvian banks (it is said not less than inseven banks) seemed to agitate businesscommunity and raised numerous discus-sions. At the end of January, a represen-tative of the US Financial Departmenthas confirmed an official US warningagainst Latvia with possible sanctions tofollow in connection with country’smoney laundering activity in the bank-ing sector. The point was, in fact, thatexactly from non-residents’ accounts inLatvian banks such suspicious transac-tions took place. It came out somehowthat the US efforts to combat moneylaundering and that of Russia, blamingtheir citizens for big capital outflow —these two things have, so to say, occa-sionally coincided.

MORTGAGE LOANS WARMED UP REAL ESTATE MARKET

A rapid growth of mortgage creditshas been already noted for the last two-three years in Latvia. According toLatvian Commercial Bank Association,mortgage credits issued by the bankstotaled by the end of 2004 in about 888mln. lats, which was by 82.5% more thanat the end of 2003. According to someforecasts, mortgage market will continueto grow, and an increase of 55-65% isexpected this year. The growth of popula-tion’s well-being coupled with open pri-vate profits’ accounts and, what is moreimportant, constant decrease of creditrates has facilitated the process. At thesame time, apartment and houses’ pricesare growing with each passing year.

Rumors that the realty market isbeing overheated were heard already lastyear. At that time these rumors were cutshort by arguments that Latvian peoplewere lagging behind average Europeanfigures in mortgage credits. Today thisquestion arose again. Robert Shkapars,the head of the Latvian NationalEconomy Institute has warned that ifmass outflow of non-residents’ depositsfrom Latvian banks takes peace, thebanks will be left short of money and theywould consequently rise credit rates. Intheir turn representatives of such banksas Hansabanka, Parex banka, andNORD/LB have assured that they did notsee any overheating of the realty marketand were not going to take any additionalprecautions in this connection.

OUR UNDERSTANDING OF THE PROBLEMIt’s true that presently banks issue

more and more credits, constantly sim-plifying obtaining procedures. However,sources of credit resources in variousbanks differ substantially. The bankswith western capital, and they are, infact, the main creditors, have acquiredoperational capital from their main

overseas financial structures. It is well-worth remembering, in regard to thisdramatic fall in credit rates almost in allLatvian banks after ScandinavianNordea Bank has appeared on the mar-ket with its attractive offers. Just afterthat NORD/LB (with German capital)offered even better rate terms in 2003.Some banks use syndicated credits fortheir customers. There is no point inworrying about these banks either.

However, some other credit estab-lishments have recently intensifiedmortgage activities. And as the mainsource of credits they use existingdeposits. Non-residents constitute mostof the customers in such kind of banks.Some successfully growing banks men-tioned in our magazine about five yearsago that the share of non-residents wasat the level of 90-95% of all their cus-tomers. There is good ground to believethat today the share of non-residents inthose banks is bigger than the averagelevel in the sector.

It is exactly the point where theproblems can arise. After all, deposits aregenerally issued for a rather short periodof time: 3, 6, 12 months, whereas mort-gage credits are issued for 10, 20 or even30 years.

BC’s experts warn that intensiveselling out of short-term resources andacquisition of the long-term ones isextremely dangerous, keeping in mind theconditions of mass untimely credits’repayment when both bank’s assets andliabilities are reduced simultaneously. Wewould suggest to pay attention to bank’sdeposit portfolio as most likely it is goingto shrink.

Under risky bank authority’sbehavior, bank’s assets and liabilitieswould reduce gradually, and the processcould lead either to closing of a bank, orto its acquisition by a more successfulfinancial credit institution.

There could be another scenario,i.e. some new foreign “players” can enterLatvian financial market. The option isquite real considering recent westernbanks’ increased activity in acquiringlocal banks. In this situation the goldenrule is “buy while it is cheap”. For somebanks, it may be the only opportunity toput a brave face on the matter. •

22 Finances www.baltkurs.com

Non�residents in Latvian Banks — Is it of Ill Omen?By Olga Pavuk

If foreigners take away their deposits from Latvian banks, it will be painful,first of all, for mortgage lending. Mass non�residents’ withdrawal from Latvian bankswill result in problems both for financial institutions and for real estate market.That is an expert opinion from real estate market. Bankers, on the contrary, stickunanimously to a view that there is no pessimism in realtors’ forecasts. The BC madeits own assessment of the intricate situation.

Contacts:3 Uriekstes str., Riga,LV-1005, LatviaPhone: +371 7097900 Fax: +371 7097970 E-mail: [email protected]

Our main aims are: • Creation and implementation for our clients most optimalgoods delivery chains regarding various taxation, customsand transport specifics, including subsequent service control; • All sorts of supplementing service provision, i.e. financial,legal, insurance, accountancy, repair etc.

Our policy and purpose: • Complex service is more efficient and less expensive

Our group structure: • Consulting companies — already 10 years in the market — providing: • Information and legal support; representation in Latvia,support and advice in finding business partners. • Legal, accountancy and financial services • Assistance in visa-support activity • Insurance broker: • All kind of insurance on the EU territory, compulsory insur-ance in RU, disputes resolution, independent expert assess-ment, technical expert reviews, etc. • Transport-logistics division: • International goods transport including all types sea andrailway goods delivery, as well as export-import logisticswithin the EU territory, as well as that of the Baltic States, CISand so on. • Customs terminal service: • Custom clearinghouses and custom brokers licensed toprocessing necessary documents and holding all kind ofgoods including food-stuff and excise goods; provision of allkind of brokers' services and guarantees • All sorts of custom documents for internal and transitgoods with respect to goods' "individual specifics" • Provision of all sorts and sizes of heated and non-heatedclearing-houses, as well as open parking lots • Provision of all kinds of loading and un-loading operations,including sorting-out performances • Containers' storage facilities • There is a division of national Latvian Custom Serviceon our custom terminal territory

Industrial ParkAVE TRANS GROUP has acquired an industrial park next

to Riga Commercial Port container terminal and ourclients can rent necessary facilities just 7 minutes from Riga down-town. The park can provide as well the followingservices: • General guarded parking spaces of up to 12 ha • Clearinghouse- and industrial facilities

of up to 18 thousand sq.m • Office apartments (class B & C) of 3 200 sq. m • Free parking lot for passengers' cars • Parking lot for trucks • A branch of a Bank

Transport Section: We have our own transportation companies including both international road transport firms in Latvia (Riga) and Russia (Moscow) • Our transport facilities fulfill all Euro-standards'requirements • We provide CMR-type insurance • We have due experience in different cargo-trade routs(since Sovtransauto-time) • We have qualified drivers' staff with adequate knowledgeand experience

Auto-repair works' Section: • We provide complex repair works for trucks, busses andother heavy vehicles, including oil and wheels' checks, mailing and etc. • We supply clients with auto spare parts • We have car-wash service

and disinfection unit for trucks • In our shop one can buy various spare-parts,

instruments and worker-dress • We can help in all sorts of goods' re-loading • We can assist in buying and selling used cars

Logistic operator rendering a unique complex of services

LATVIANS ARE TEMPTED BY HEALTH�RESORTS

There is no any open or even closedfor that matter data concerning whereexactly abroad Latvians prefer to buy realestate. Practically there are no companies inLatvia specializing in searching for suchproperties abroad.

“Our company’s experience showedthat Latvians are mostly interested in realestate in Switzerland, Spain, CzechRepublic and England”, says ElenaKoroljova, BaltHaus Company Director.

Warm Spain is considered to be themost popular region due to the followingreasons:

first, there are many good offers, sec-ond, the houses are relatively cheap, and atlast, favourable climate. “Our company hasstarted to co-operate with the Spanish firm,Iberville. Since Spain became the EU mem-ber, it became much easier to acquire prop-erty as well as to register officially a housingestate, confirmed E. Koroljova.

There are four kinds of offers inSpain: bungalows, apartments, studio apart-ments and cottages. It is rather difficult tosay to which of these Latvians give prefer-ence, as every thing depends on the purposeof acquiring property.

As to England, real estates there areconsidered to be one of the most expen-sive ones not only in Europe, but also inthe world. London is most expensive, e.g.if an average price in England comes to187 000 pounds, the one in London couldbe at 280 000 pounds. However, Englandis considered to be one of the main invest-ment direction for Latvians, E.Koroljovaexplains.

Some East European countries, inturn, are attractive by their real estate lowprices. For example, return on capitalinvestment in a year basis can come up to40%, i.e. quite good profit in comparisonto that of Western Europe. Proper adver-tising eradicate any problems with acquir-ing real estate property. If foreigners donot buy, the Czechs do due to availabilityof mortgages and lending. Bulgaria is alsoattractive in the sense of investment.Prices in Bulgaria have been also growingas it was in Latvia two years ago. Co-oper-ation in acquisition of housing estates inBulgaria is also established.

In E. Koroljova’s opinion, it is quiteeasy to comment, the main reasons for buy-ing property abroad by our citizens. “Idoubt whether their motives differ muchfrom that of, for example, people in Swedenor Czech Republic”, she said. First, it is thechange of the place of living due to changeof working or studying arrangements. Next,it is profitable and reliable long-termmoney investment (exclusive real estate formore than 500 000 pounds is usually boughtin the West part of London). And at last,investment into real estate abroad is justi-fied as an alternative source of income.Mainly, we talk about resorts in Spain or

expensive real estate in London. Ordinarypeople cannot afford buying an apartmentin London, so renting is well-developed.

“There are a lot of investmentoptions.The main thing is not to stick to anyfashion trend but to follow your own inten-tions and particular circumstances whenbuying a real estate abroad. Everythingdepends on what exactly you are planningto get and how much you are ready toinvest”, says E. Koroljova. “If you are think-ing of reliability of investment and are plan-ning to put up a pretty penny, choose stateswith stable economics, e.g. France, England,or Austria. Happy choice of investment ofcapital would be real estate in the centre ofthe US “golden” state California — SiliconeValley. It is one of the most expensiveregions in the USA and in the world, too.

The Baltic Course — Spring 200524 Real Estate www.baltkurs.com

By Tatjana Andrejeva, RigaBy Tatjana Komorskaja, VilniusBy Valentin Zvegintsev, Tallinn

To buy real estate abroad, when continuous growth of dwelling prices inJurmala, Palanga or Pjarnutakes place, that is something a well�off person can reallyafford. Warm Spain is considered to be the most popular region for that. Howeverthe market of foreign dwellings is poorly organized in the Baltics, so the Internet ishere to help ...

ELENA KOROLJOVA: The main thing is not tostick to any fashion trend but to follow yourown intentions and particular circumstanceswhen buying a real estate abroad.

A Private House Near

WWWWWW..RRAANNKKAA..LLVV —— PPRROOPPEERRTTYY DDEEVVEELLOOPPMMEENNTT

Real estate prices here are only comparablewith that of the Beverly Hills, Hollywood,Los Angeles, or Manhattan, the most fash-ionable region in New York. Silicone Valleyis the center of the biggest computer com-panies and research centers. As a result,there is a constant flow of highly paid spe-cialists and growing demand for apart-ments.

If you are interested in gettingincome, choose any resort region — Spain,Greece, Malta, Dominican Republic will do.If prices on real estate attract you and dealslook pretty good, you can think of suchregions as Croatia, Bulgaria and Slovakia”,she added.

In any case, one should be orientedtowards well-known companies that havegood showing on the market. Only realtor,

having many years of experience or the onewho has been working for a long time withpartners abroad, can make a good offer. Insome cases such foreign partners provide abusiness trip for finding future property andresidence for the period of choosing andregistering a bargain.

Another kind of help is a timely pres-entation of information to clients aboutcoming changes in the alien country’s legis-lation for non-residents, owning expensivereal estate there.

Oswald Shushkevich, Vinterscompany director considers that it is quitedifficult for an “average Latvian” to believein the possibility of buying real estateabroad.“Many think it is too expensive, oth-ers don’t know anything about such offers atall”, he says. “However, some have already

purchased cottages. Those people live therefor a few months a year and rent it out forthe rest of year. Moreover, it all goes ratherwell. For example, we are offering realestate in Spain, by the sea. The cottages sit-uated there are in high demand due to theirreasonable prices”.

Lilita Letlande, a representative ofLand Fond Company, notices Latvian peo-ple’s high interest in getting real estates inDubai. “The city is swiftly developing. Weoffer apartments in many-stored blocks offlats (50 and more) with the average price of2 000-2 500 $ per square meter”. It is note-worthy that the service in such projects ishigh and it is a very important point whenbuying real estates in the United ArabEmirates.

ESTONIANS ARE NOT READY FOR PURCHASING ABROAD

Estonian Department of Statisticsreported a constant growing average salaryat the beginning of the year. It comes outthat Estonians already get more than 7 000crowns a month on average.

Statistics is a good thing but, on theother hand, in practice, it is incorrect —there are few such salaries in Estonia. Infact, people get much less, however, if to sumup the officials’ and office cleaners’ salaries,the result would be smart — 7 000 crowns.Namely slow growth of salaries is the mainreason for the undeveloped real estate mar-ket abroad, Janus Laugus, the representativeof Estonian Brokers’ Union said.

There are usually many offers onRussian Internet to buy a house somewhereon the coast of Spain or in some other warmcountry. However, there are no such offersin the Estonian one. We decided to find outif an Estonian can buy real estate abroadand how many firms offer such service inEstonia.

The results were quite poor, i.e. onlyone or two firms are ready to offer a housein warm countries.“Up to now people havebeen thinking about other things, notabout houses abroad. Actually, it is a ratherexpensive venture for them,” says J.Laugus. However, there are people whocan afford it. “Mostly, well-off peoplewould like to buy real estate in CostaBlanca or in Spain,” says J. Laugus. It canbe explained by the facts that real estatethere is not the most expensive in Europe,next, there is rather good infrastructure,then there are many free houses and, atlast, it is very warm down there. An aver-age price of a moderate house (two bed-rooms and a pool) in Costa Blanca is about200 000 euro.

25The Baltic Course — Spring 2005 Real Estatewww.baltkurs.com

the Warm Sea


There is some demand for real estatein Latvia and Lithuania, however housesare most likely bought for business not forliving there,” says Laugus. Practically speak-ing, there is no demand for real estate inRussia, France, Italy, and the USA.“Speaking about Russia, most likely there isa reverse demand, i.e. the Russians areinterested in buying real estate in our coun-try,” claims Laugus.

According to experts’ opinion themarket of foreign realty in Estonia has notyet been formed. However, we think thatthe demand will grow gradually and in someyears’ time many citizens will apply for ahouse in a warm country to spend old agethere,” believes Laugus.

IT’S A LONG WAY FROM A LITHUANIAN COUNTRY HOUSETO A DWELLING IN SPAIN

Promissing supply of real estate inLithuania is supported by a number offactors. As foreign realty firms confirmthat the appartment market in Spain israpidly developing. However, the Englishand the Germans prevail among foreignpurchasers of the appartments. Everincreasing interest in property acquisitionin Spain is noted by the Norvegians andthe Swedes. Last year in Spain wasmarked by the increase in prices on realestate which exceeded any expectetions.Now the price of one square meter here isabout 2.000 euro and of an apartmentstarting from 150 000 euro. Local expertsbelieve that the demand for new appart-ments for vacation in Spain will exceed60 000 units this year.

And how quick are the citizens of theBaltic States in moving to Spain? It seemsthat the process has started. Just recently,Stasis Brunza, the former famousLithuanian road racer and now a car dealer,and his wife Audrone Brunzene spoke ontelevision about their own dwelling inSpain motivation: it is possible to secureholidays’ convenience without noise,crowds and foreign smells. Psychology hereis to run away from fuss to eternal, to thewashed coast, to the sounds of waves.Philosophy has the main impact here aswell. It is especially felt under influence ofthe local culture and the way of living beingfar from fuss, evils, and pricks of everydaylife. Even famous Trakai Castle, inLithuanins’ eyes, living in their own flats inSpain, does not seem so considerable, espe-cially if compared with centuries-oldSpanish culture objects. And a really greatlife-lesson one can learn even only tem-porarily to become a citizen in Spain — the

ability to rejoice at living with four genera-tions sitting at the dinner table.

However, those single cases ofLithuanians buying flats in Spain don’tmake a trend. But the realty companieswould like to provide the service and someof them are really ready to present cus-tomers with possible choices. The only thingneeded is a computer. Zigfrid Rachkovskis,an assistant director of a solid Centracubascompany, working on a real estate marketfor a long time, said: “Our company’s workis dramatically changing literally in front ofour eyes. Internet and computer allows any-one to choose everything he/she needs.Only distrustful people or those well-offones don’t want to deal with the problemthemselves and go to consultants. They turnto realty companies.

I got in touch with Aristo Developes,a representative of a Cyprus realty companyand a participant of “Litexpo Centrokubas”realty exhibition. As a result we signed acontract on information and accounting sys-tem. As to selection of available real estateobjects it is enough to enter each other’shome pages. Exchange of the data base isalso foreseen by the contract.Unfortunately, up to now we have not greatbargains yet there are inquiries and ques-tions about property in Cypres, Spain, andItaly by the phone.

We have started working withMoscow. There are 60 countries in the database of our Russian partner and if, for exam-ple, they have only one real estate object inMongolia, our clients can buy it. Computerand internet work has always been carriedout but recently it has become predominant.By the way, there are a lot of Russian com-panies’ home pages in the Internet”.

It could be said that virtual supply, atleast on realty market, exceeds demand. It isespecially true for Lithuania. Russiansheavily invest into realty abroad, this infor-mation is based on a number of realty com-panies and coverage of foreign markets.

There are scanty of web pages inLithuania offering realty abroad though.One of them is “Aruodas”. When simplypressing “Latvia” in the section “realty” andimmediately appears the home page“realty.lv”, if in Israel — “israelinfo.ru”. Andhere you are, Israeli market of realty in pic-tures, have a good time!

Saulus Vagonis, an expert on realtymarket in the OberHaus company, tells aboutsomewhat different methods used in theirfirm. The company works on the markets inLatvia, Lithuania, Poland, and Estonia.

Each of the subdivision works oninternal market of its own country. However

if, for example, a Lithuanian entrepreneurlooks for a place of 1-2 hundred squaremeters in Riga for a shop or an office, theclient is handed over to Latvian colleaguesthat are able to work with the client mosteffectively. All the Baltic OberHaus’s subdi-visions can use each other’s database deal-ing with purchasing real estate in these fourcountries.

I managed to meet DainjusRudzjavichus, who started on the marketa week ago. He is the follower of a moreactive approach in buying real estate, forexample, in Spain by Lithuanians. Hehas as rather big experience in working

with Spain and he is the representativeof many Spanish firms. An approach tothe affair is complex. If a businesspersonhas a serious intention to buy real estatein Spain, there is always a wide range ofoppotunities to offer for business or forpleasure.

In the nearest future D.Rudzjavichusis going to Spain with a group of business-men to do some business and to have a lookat recently built real estate for summer hol-lidays, so to say, to see it with his own eyes.

“There certainly is a market but it isdifficult for me to judge its real magnitude.There are offers for rent of used apartmentsbut not of something new. Will Lithuaniansbuy real estate there? The question is openbut, to my mind, they should,” saysD.Rudzjavichus.

It is true that the process needs timeto develop. Nobody knows how much timeit can take. It is a long way from a collectivegarden in a Lithuanian suburb till an apart-ment somewhere in Santa Cruz de Tenerifeor Murcia. •

26 Real Estate www.baltkurs.com

DAINJUS RUDZJAVICHUS: There is a certainreal estate market but it is difficult for me tojudge its real magnitude.

Prices, anyway, are extremely high inthe old historical centers in all the capitals.

In the last years’ third quarter theprices of repaired apartments “in the olddowntown streets” in Riga made up 1 800-3 000 euros/sq.m. The prices in Old Tallinnwere about 1 400-2 600 euros/sq.m. and inVilnius — 1 000-2 500 euros/sq.m. Theprice-growing tendency is quite clear: justcompare the prices in 2000. In Old Riga —700-1 400 euros/sq.m., in Old Tallinn — 770-1 300 euros/sq.m., in Vilnius — 450-800euros/sq.m.

Looking at the prices in the cities’ cen-ter districts, the most expensive dwelling’sprice was in Vilnius — 1 000-2 500euros/sq.m. Riga’s center is still the mostexpensive one among the Baltic capitals; it isgetting somehow cheaper, i.e. a repaired or anew apartment could be bought here at1 400-2 300 euros/sq.m. In Tallinn the price ismuch lower — 900-1 600 euros/sq.m.

The market of standard blocs’ flats inthe sleeping districts is less different: in thethird quarter of last year the price of a squaremeter in Riga was 500-800 euros whereas inTallinn — 550-700 euros, and in Vilnius — 330-600 euros. The market of newly-constructedbuildings was the most expensive in Riga (950-1 400 euros/sq.m.) and about 900-1 600euros/sq.m. in Tallinn. It was seemingly cheaperin Vilnius — 700-1 000 euros per sq.m.

Among resort towns in the Baltics thepalm of supremacy in expensive apartments

belongs to Latvian Jurmala. Arco RealEstate experts say that a two-room flat canbe bought here for 20 000-60 000 euro. Asimilar flat in Lithuanian Klaipeda costs25 000-50 000 euro, in Estonian Pjarnu —22 500-45 000 euro. However, prices on realestate in Latvian province are lower thanthat of its neighbors. A two-room flat in thecentre of Tartu can cost 22 500-40 000 euro,in Elgava — 15 000-25 000 euro and inKaunas — 25 000-33 000 euro.

That proves that provincial life in theneighboring countries is more active andreal estate is more expensive than in Latviawhere the rest of Latvian cities are, to say, inRiga’s shadow.

RIGA’S FORECASTSArco Real Estate experts forecast that

the price of apartments in Riga will rise upto 5-15%. Maris Lukkaleis, the representa-tive of the company, has said that in the year2005 10% of the total amount of flats in thecity would come from dwellings in newly-constructed buildings in the suburbs.Moreover, leveling in development of newprojects is expected; they will appear in theregions of Riga where construction was notvery active, e.g. in Vetzmilgravis, Bolderajaand Kengarags.

Last year the price of a serial flat inRiga increased by 25-50%. The level ofprices in different regions has evened out.However, the final sale price can decrease

dramatically in comparison with the initiallyclaimed one. It means that sellers oftenask an excessively high price hoping thatsomebody will buy the flat after all,Mr. Laukkaleis suggested.

Arco Real Estate forecasts that prob-lems can appear in standard serial flats withbad planning and poor environment, aswell as in flats with no interior trim. Thedemand for such flats might fall. Privatehouses will rise in price up by 10-15%. It ispossible that the demand for such apart-ments will diminish.

It’s quite real that prices for privatehouses will increase by 10-15% and expertspredict the start of some rather cheep coun-try houses’ construction.

REAL�ESTATE BOOM IN ESTONIA IS OVER

At the end of 2004 Estonian Bankmanagers declared the end of real-estateboom in Estonia. “We think that there is noboom at all”, commented Wahur Kraft, thePresident of Estonian Central Bank, onrecession trends in real estate market. TheCentral Bank of Estonia forecasts decline inprivate consumption and decrease in loangrowth rates in 2005-2006. Presently, 13% ofborrowers spend 30% of their net-incomeon loans’ repayment. “The balance of mosthousekeepers is in the red zone”, W. Kraftcommented on the ratio of property andprivate persons’ liabilities.

If unemployment increases, realestate prices will fall, but interest rates willrise and the situation will become problem-atic, Estonian Bank has envisaged. •

For more details on real estate prices,see p.47.

27The Baltic Course — Spring 2005 Real Estatewww.baltkurs.com

It’s Too Expensive to Live on the Narrow Streets in Riga’s DowntownAlla Petrova

According to 2004 Arco Real Estate Company data in a review on housing mar�ket, the highest price for a dwelling�space square meter among the Baltic States’ cap�itals was marked in Old Riga region. Its upper limit reached 3 000 euro which is twicethe price in the year 2000

COMPARISON OF REAL�ESTATE MARKET DEVELOPMENT IN THE BALTIC STATES, 2004Tallinn Riga Vilnius

Interior trim included in apartment priceMost of the new apartments sold withoutinterior trim as "white" and "black" box

Most of the new apartments are sold withoutthe full interior trim

Development activities moving to suburbsThe demand for new apartments is higher thanthe supply

The demand for new apartments is higher thanthe supply

Average price level as to demand 900�1200 EUR/sq.m.

The average price level of the demand 600�800 EUR/sq.m. (without interior trim)

The average price level of the demand is700�1000 EUR/sq.m. (without interior trim)

Most of the apartments sold on the early stageof construction

The price level is mainly based on theconstruction prices rather than on location

Most of the departments are sold in the earlystage of construction

The most demanded are 2�3 room apartments The most demanded are 1�2 room apartments The most demanded are 1�2 room apartments

Older and new apartment price level is almostequal

Some new apartments are built according toold projects

Older and new apartment prices are almost the same

LATVIA: SIX YEARS OF IMPRISONMENT FOR A CAN OF MILK

Just a few years ago several well-known businessmenserved imprisonment terms in Latvian prisons. There arequite a few of them, in fact, today. It does not mean that thereare less swindlers and less corruption in the country. But thematter of fact is that about 92% of civil servants arrested fortaking bribes can get away in court on probation. Such “con-ditional punishment” follows more than 53% of cases whereproperty and real estate gerrymandering is involved. It isclear that nobody wants to go to prison. What is more, thereare no specific places to detain the representatives of Latvianelite circles.

Dzintars Strautmanis, a former police controller at RigaAirport was sentenced to four years imprisonment when in2004 he intended to extort 200 lats for issuing a permit forDevy Jones’s juvenile son to leave Riga. If he had demanded

more, he would have got a probation term. That is the para-dox of Latvian judicial system. The same year Uldis Mugin, aformer State Revenue Department servant was sentenced tofive years in prison for 55 000 lats’ bribe... on probation.

Daugavpils Court of Justice issued a verdict to fourcustoms officers for criminal case concerning petroleumproducts smuggling, i.e. 102 rail oil-tanks had been removedthrough customs with pie’s total sum of 2 million lats. Publicprosecutor demanded from 3 to 4.5 years imprisonment but...some extenuating circumstances have been found. As aresult, one of the customs officers was sentenced to twoyears, the others got away with a fine of 25 minimum month-wages. Nadezhda Ercite, the director of Liepaja school, wassentenced to four probation years for repeated money mis-appropriation and accounts’ documents forgery.

At the beginning of this year, Riga District Court sen-tenced Imant Burvis, former MP to a fine of 2 800 lats and6 years of probation. While being an MP (Deputy in theSaema) Mr. Burvis received from a businessman 15 000 dol-lars for the “needs” of Latvian Social Democratic Party, amember of which he had been at that time. As the publicprosecution established, Burvis and his two colleagues —Aigars Parms and Maris Dinduns — spent the money ontheir personal needs. All defendants denied any wrongdo-ings. Burvis appealed to the Supreme Court.

Ventspils Court’ verdict seems to be completely unrea-sonable in comparison to such serious level of corruption,

The Baltic Course — Spring 200528 Crime www.baltkurs.com

By Anzhela Rzhishcheva, RigaBy Tatjana Komorskaja, VilniusBy Valentin Zvegintsev, Tallinn

CCrriimmiinnaall OOffffeennccee:: a Prison to Stay for

IMANT BURVIS: Riga District Court sentenced the former Latvian MP(Saema ex�deputy) to a fine of 2 800 lats and to six years’imprisonment... on probation.

when in winter this year it sentenced two men to six andeight years of imprisonment for... three stolen aluminumcans, one of which was with milk.

Nevertheless, not all representatives of Latvian eliteare able to escape penalty. It is almost 10 years since thebeginning of a criminal lawsuit against Banka Baltija (BB).Alexander Lavent, a former Chairman of the BB’Supervision Council, Talis Freimanis, BB’s ex-President andAlvis Lidums, their colleague-financier, have already servedtheir sentences in prison, however, they consider themselvesto be not guilty in recurring legal proceeding. New court ses-sions are planned to begin this year unless new evidences canappear.

According to Karlis Serzhants, press secretary of StatePrison Department, civil servants (“white collars”) servetheir sentences under the same condition as average crimi-nals. Dainis Zhagars, ex-Director of Department of Realtyand Municipal Economy of Vidzemes district, will face thesame fate: a court of justice sentenced him to four yearsimprisonment for the repeated bribe extortion of 3 000 lats.Lauris Shteinbergs, an accountant, got a five year sentencefor an attempt to wring VAT from a fake bargain in forestexploitation and for document forgery. By the way, most oftoday’s prisoners in Latvian prisons accused of illegal finan-cial deals are businessmen and second-rate state officials.

Totally there are 15 prisons in Latvia, one of them inIlguciems is for female criminals. All prisons are over-crowded; there is 2.5 square meters per one convict insteadof 4 minimal ones in European prisons. Nourishment of aconvict accounts to 4.5-5 lats a day: porridge, bread and teafor breakfast; for lunch they can get a soup for the firstcourse, garnish and a small piece of fish or meat for themain course, stewed fruit for desert; porridge, bread and teafor the evening meal. One can also buy something in aprison shop for a sum of 50 lats a month. However, theassortment here is scanty. The only thing to do is to come to“an agreement” with the guard and, they say, it is not at alla difficult thing to do.

At present convicted ex-officials of law-enforcementbodies are an exception from rules, i.e. they serve theirimprisonment terms in Matiss Prison where infamous AlfredRubiks was detained. Aivars Avgustinovich, Assistant Chiefof Latgal regional customs Department who was detained by

the police for a bribe of 3 000 lats is going to serve his termsthere. The investigation is being carried out presently. DianaVan Deilem, an officer of the court, was guilty for unlawfulproperty auction sale; she is going to serve in prison two anda half years.

LITHUANIA: REFORMATORY NO. 1 There are about 8 000 prisoners in various Lithuanian

prisons, correctional colonies, and detention houses.Although the number of convicts has reduced during lastyears by two thousands, imprisonment places in Vilnius,Kaunas, Pravenishkes, Alitus, Marijampol, Panevezhis areovercrowded, according to European standards. Only a smallnumber of convicts can get a job, most don’t do anything atall for years.

Vilnius No 1 reformatory is a somewhat special institu-tion. It is designed for 120 prisoners, while only 80 places areoccupied and there is no tendency for numbers to increase.The former famous politicians, state civil servants and law-enforcement officials, and sometimes crony businessmen

29The Baltic Course — Spring 2005 Crime www.baltkurs.com

Some, Probation for Others

NUMBER OF RECORDED CRIMES, THOULatvia Lithuania Estonia

Total, January 2005 4.1 8.2 4.4serious crimes 1.6 n.a. 4.1

very serious crimes 0.3 n.a. 0.3

Total, % of January2004 122.2 n.a. 103.2

serious crimes 121.7 n.a. 103.5

very serious crimes 113.7 n.a. 98.4

Source: The Latvian Central Statistics Office.


serve sentences here. There is not a special prison for con-victed businessmen, they serve their sentences in any prison;besides, as the rumors go, “serious” businessmen can neverbe found there.

Among present Reformatory No. 1 prisoners thehottest social response in press was caused by AntanasBartusjavichus’ case, lawyer himself, was detained for takingbribe (or, as it is said, he took a bribe without doing anythingin return). Another “famous” former prison’s convict — Mr.

Audrus Butkjavichus, former Environment ProtectionMinister, served his sentence for taking money from a busi-nessman. Mr. Butkjavichus was seen among businessmen inPresident of Georgia’s circles lately.

A well-known prisoner of the current decade is ArvidasStashaitis, a businessman, who was detained for 5 years dur-ing his case investigation, although in other prison. However,“ideological ground” in the case was somewhat adventur-ously-idealistic, i.e. refusal to pay illegally high to his opiniontaxes.

Mr. Gennady Konopljov was another “idealist” indi-rectly connected to Vilnius reformatory, situated on SnegoStreet. Being a bank officer, a financie, he was a former headof Tauro Bankas. He did not serve his sentence in a prison,because he had committed suicide before a verdict appearedand the bank started facing huge problems. However, DarjusKonoplevas, his son is presently serving his sentence (forabout half a year already) connected to the same bank case,

together with another “connection”, Mr. Gintaras Terljackis.Both cases are still under investigation and are not com-pleted, although court proceedings started in 1997. Presently,for about half a year already, Tauro Bankas is under liquida-tion and Konopljovs’ property has been used to pay the dam-ages.

According to Mr. Zdislovas Subachus, the reformatoryNo. 1 director, while the case of Konoplevas and Terljackis isstill under investigation, they are being summoned to thecourt almost every day. However, it does not prevent themfrom attending a prison library and reading plenty of booksbrought from homes. There are no separate cells for them,nor has anybody else there. They live like in a hostel, direc-tor said. There are about 6 to 20 convicts living in a prisonroom (“cell”). However, beds are single-decked now.

Everybody has to work. The two bankers, who are notyet so to say “permanent-residents”, peel potatoes in the can-teen and do other jobs. Other convicts involved in producingfurniture. Z.Subachjus asserts that the inhabitants of thecolony are “emphatically offered” to take a work. At first,they work as apprentices and in a week’s time begin workingon their own. At the same time everyone is allowed to get aTV from home; some get computers from home which is notforbidden, either. Director is proud to note that his institu-tion won a tender program and as a result they had received8 computers.

As to prison’s separate sells, they can only be found inLukiskes, famous Vilnius prison and they are for criminals,who committed serious crimes. Books are not in large demandthere. However, the prison is famous for running differentexperiments. One of them, for example, is three convicts weregranted permission for distance studies at Vilnius PedagogicalInstitute; so they the teachers, social work specialists, and lec-turers visit them several times a week. Gintautas Stalnenis,State Prison Department press-secretary, told BC reportersthat three more convicts will start studying social worker’sprofession. General public, however, is not very satisfied withsuch humanism and objections are often heard in pressagainst wasting money on those who hardly have the right fora free study. However, the Ministry of Education believes thatthere should be more programs and projects in the universi-ties, conviction rehabilitation included.

ESTONIA: A CRIMINAL BELONGS IN PRISON!Exactly these words were pronounced by the late actor

Vladimir Visotskiy in a famous movie known from Soviettimes “The meeting place can’t be changed”. However,Estonian legal system does not agree with it and is trying toact in its own way.

For example, in one of the latest cases concerningEstonian national fund, Eesti Kultuurkapital where Avo Vijolworked as an executive director, managing fund’s assets ashis own. During the two years he spent on his own personalneeds and on casino gambling more than 5 million crowns(more than 335 000 euros). In order to hide embezzlementshe often forged financial documents. The documents weredetected by chance, when Mr. Vijol fell ill. He was arrested, aterrible scandal occurred and resulted in Minister ofCulture’s dismissal. According to the law he could face up toeight years of imprisonment, however, got only three. Theembezzler was quite busy in prison; he started delivering lec-tures on entrepreneurship to his cellmates. According to

30 Crime www.baltkurs.com

ARVIDAS STASHAITIS: Well�known prisoner of the current decade.

Andrus Khire, Tartu Prison’s director, Vijol delivered lecturesfully in line with the adults’ professional education program,receiving at the same time salary for that from Tartu Centerof Professional Education. Needless to say that these lec-tures were very popular among convicts. Interesting enoughthat in one and a half years in prison, Mr. Avo Vijol wasreleased because of his good behavior.

As a matter of fact, officials and businessmen, whoseactivity is connected with money, are tempted occasionallyby to “borrow” others’ assets. “Officials are generally caughtin such kind of crimes”, said Christi Kjunnapas, press-secre-tary in Estonian Ministry of Justice to the BC reporters.Statistics proves these facts. For example, in the year 2002proceedings were instigated in 49 criminal cases connectedwith financial embezzlement. Economic police investigatorsnote that often embezzlement takes place when there is acombination of two positions a cashier and an accountant in“one face”. However, Estonian officials not only embezzle,but are involved in smuggling goods too. At the end of lastyear, for example, Tallin City Court issued a guilty verdict toKaale Kuuzik, the head of administrative department inEstonian Foreign Office, for smuggling and documentary for-gery. According to indictment, Mr. Kuuzik helped to deliverthree cars to Estonia presenting faulty documents for cus-toms’ declarations with the aim of escaping excise-duty pay-ment and turnover tax. Besides, when declairing and regis-tering the cars, Kuuzik used false documents.

In general, Estonian Foreign Office has no luck sincelately. Quite recently terrible nuisance happened to ChristineOjuland, Foreign Affairs Minister; she was accused of disap-pearance of documents containing State secrets. However, asthe Minister herself was not guilty (the documents disap-peared long before she took an office), no criminal proceed-ings were brought against her but she was forced to resign.One can say she got away easy; but the country’s Minister ofDefense was not so lucky.

If state civil servants are mostly involved in embezzle-ment, country’s ministers are involved in “losing papers” ofState importance. Thus, on the way home Mr. Margus

Hanson, Minister of Defense, took with him some strategi-cally important documents. According to the law, he couldnot take them away from the ministry. Everything wouldhave been all right, unless the documents had been stolenthat night. He was trying to persuade the court that his apart-ment was robbed; however, some strongly believed that helost his briefcase in an “entertainment institution”.

The Minister was dismissed, of course, and Estoniansecurity police instituted criminal proceedings against him.Nobody knows what was the end of the case, however mostEstonians believe that the ex-Minister would not be heavilypenalized for violation of the law concerning stolen statesecrets. In administration of justice in Estonia it is not anaccepted practice to punish its own people too severely. •

31The Baltic Course — Spring 2005 Crime www.baltkurs.com

AVO VIJOL: In prison a squander lectured business management to his cellmates.


In various respects, e.g. in general well-being, as one of the richest countries in theworld, in highly respected and reliable finan-cial services, in delicious foodstuff (famousSwiss chocolate), beautiful resorts and inpharmaceuticals, Swiss dream has come true.It’s not only that Swiss’ Davos is a recognizedworld center for strategic economic decisions,the country itself has shown a proven recordof a micro-economic “success story”. BC askedAnne Bauty, recently appointed SwissAmbassador to Latvia and Lithuania, to shareher view on Swiss-Baltic business relations.

THE KEY TO SUCCESSIn Switzerland pronounced differ-

ences in nature and landscape harbor with asmall country’s area (See: Country’s pro-file). The Alps occupy about 60 % of thecountry’s territory; and there are scares nat-ural resources except water, hence abun-dance of electricity, and granite. As in theBaltic States, these countries are deemed toregional cooperation and production basedon added value and export. Switzerland’skey to success is based on a long-standingpriority to rely upon “service sectors” devel-opment, i.e. banking, tourism, research,engineering and processing. In Swiss andBaltics alike, home market is limited, so inmost national sectors of economy almost allmanufactured goods and products have tobe sold abroad.

SWISS BUSINESS IN THE BALTICSPresently, there are in total about a

100 Swiss firms in the Eastern Baltics, andabout 2/3 of them are in Latvia andLithuania. Import and export facilities arearranged in the following way:• Switzerland’s exports to Latvia in 2004 (inmln CHF) include such items as pharma-ceuticals — 66; machinery — 11,5; chemi-cals — 5,9; vehicles and air planes — 4,4;watches — 4,1; agricultural products — 3,9;textiles, clothing and plastics — 3,5 instru-ments — 3,2; metal goods — 2,1.• Latvian import to Switzerland in 2004 israther modest (in mln CHF):wood products —1,9; chemicals — 1,4; textiles — 1,35; furniture— 1,0; metal goods — 0,92; energy sources —0,8; and goods of stone, ceramic and glass —0,5.As it’s seen in the table (See:Table “Trade sta-tistics”), Latvian trade balance withSwitzerland has remained negative during thelast five years and more than doubled duringthat time.• Switzerland’s export to Lithuania in 2004(in mln CHF) includes vehicles/airplanes —21,1; chemicals — 15,8; machinery — 16,6;pharmaceuticals — 8,3; goods from stones,ceramics and glass — 5,1; plastics — 3,9;instruments — 2,1.• Switzerland’s import to Lithuania in 2004(in mln CHF) includes furniture — 19,8;textiles and clothing — 5,4; agroproducts —

3,6; metals/metal goods — 3,1; machinery —2,6; wood/cork — 1,7; energy sources — 0,7.

COUNTRY’S SERVICEMENSwitzerland has a unique financial serv-

ice network within nation’s service industry,which contributes 13% to GDP. Presently,there are about 3 thousand bank branches (!)in the country with over 120 thousandemployees. Swiss banks operate worldwide:there are 106 foreign branches. CumulativeSwiss banks’ balance sheet total CHF 2,2 tril-lion, including CHF 940 billion in savings andinvestments 40% of which originated abroad.About CHF 3,4 trillion of assets is held insecurities deposits. Switzerland is tighteningup its provisions against money launderingrecently: there are two key points in this direc-tion — identifying the origin of the funds andthe identity of the persons behind them. ButSwiss banking secrecy and customers’ protec-tion has never been challenged. See: SwissBanking Association: www.swissbanking.org/en.“Baltic financial center is a reality andcan surely be developed further, reflects Swissambassador. Compared to Latvian financialcenter, the Swiss one is in the lucky position to

32

EU Co�operation www.baltkurs.com

Switzerland and the Baltics: Businesslike Relationships By Eugene Eteris

For common Baltic directions in economic strategies positive examples fromother European states are of decisive importance. Switzerland is one of the countriesthe Baltics can emulate good experience. Both sides have certain common denomi�nators: small population, territories and resources, the countries are multinationalwith export�oriented economies. Businessmen and politicians in the Baltic Stateshave always regarded Switzerland — Confederation Suisse — as a “dream country”.

AMBASSADOR’S CV: • University degree in Political Science(Geneva University, 1971) • Entered Swiss Diplomatic Service in 1978 • Swiss Mission to InternationalOrganizations in Geneva (from 1988) and Paris (UNESCO) — 1984 • Embassies in Ukraine (1992) andMoscow (2001) • Switzerland’s Ambassador in Latvia andLithuania since Summer 2004 • Languages: French, German, Italian,English and Russian.

COUNTRY’S PROFILE: • Territory — 41,3 thou sq. km (borders with 5 countries, i.e. France, Germany, Austria,Liechtenstein and Italy). • Population — 7,2 mln. It’s one of the most densely populated countries in Europe— 176 inhabitants per sq. km. About 600,000 Swiss permanently live abroad, e.g.about 359 thou in Europe, 155 thou in America. More than 1,5 mln foreigners live inSwitzerland (20%). • Three official languages: German, French and Italian (plus Rhaeto�Romanic language). • Switzerland federation consists of 26 autonomous cantons, which enjoy a high degreeof political and administrative autonomy. • Since September 2002 — the UN member; • Close and trustful relationships with the EU, e.g. free access to internal market, freemovement of persons, cooperation in all sorts of matters, like environment, education,science, statistics, transport, etc. based on bilateral agreements, starting from 1999.

be able to look back on a century long prac-tice and good reputation, factors whichenhance confidence in customers. In the longrun Latvian economy could also benefit fromdevelopment of a solid, trustworthy and com-petitive international banking activity; 100years’ experience helps to build a globalfinancial center”.

Insurance is another elaborate serv-ice sector in Switzerland, which consists ofabout 200 insurance companies: 30 providelife insurance and 44 are re-insurers. Thesecompanies foreign activity contribute CHF2,3 billion yearly to national GDP andemploy about 50 thou people.

Tourism contributes to about 6% ofSwiss GDP and is the 3rd largest export sector,after metal processing, engineering and phar-maceuticals.Tourism employs about 250 thoupeople; foreign visitors spent yearly aboutCHF 12,7 billion. There are about 35 millionovernight stays in Swiss yearly with about19 mln foreign guests.About 700 thou peoplecross Switzerland borders daily. Latviantourism to Swiss grows at 10% yearly.

BACKBONE OF SWISS ECONOMY Swiss economy is based primarily on

small and very small companies; the numberof small firms with less than 10 employees isgrowing. About 98% of all Swiss companieshave fewer than 50 employees;and only about765 companies employ more than 250 people.

Industry & trade. Engineering, elec-trical and metal industries, which employabout 333 thou people, are major contribu-tors to Swiss economy and account forabout 45% of its total export. Swiss textilemachinery manufacturers, with subsidiariesabroad, dominate the market. Among otherimportant manufacturing sectors aremachinery production for paper industry(second largest in the world), and textileand packaging machinery (fourth largest).Machine tools manufacturing and that ofelectrical equipment occupy fifth placeamong world’s exporters.

ENERGY: SELF�SUFFICIENCY Swiss energy policy is aimed at further

reduction of country’s dependence on oiland energy sources’ diversification withincreased use of renewable sources. About22% of energy consumed in business and pri-vately is electric. 60% of domestic electricityis produced at about 1,300 hydroelectricpower stations; 500 largest can produce max.12 mln kWh. In 1969 the first nuclear powerstation (NPS) was built in the country —Beznau-I. Presently 5 NPS produce about 1/3of Swiss electricity. Nine natural gas transitpipelines, including one from Netherlands toItaly, ensure growing country’s gas consump-tion. Gas presently accounts to about 10% intotal energy consumption and is the thirdlargest source of energy.

EU AND SWITZERLAND: BILATERAL APPROACH

The EU is Switzerland’s most impor-tant trade partner: about 60% of Swissexports go to the EU and 80% of Swissimport origins in the EU member states.The two sides’ relationships are based onbilateral agreements in seven major fields:research, public procurement, technical bar-riers to trade, agriculture, air and road trans-port, and free movement of persons. Theseagreements entered into force in June 2002.We have to add nine new bilateral agree-ments concluded in 2004 in such importantspheres as taxation on savings, fraud com-bat and Swiss participation inSchengen/Dublin agreement. They arepresently within Swiss ratification proce-dures. •

USEFUL SWISS WEB SITES FOR BUSINESSMEN: • General information about business withSwitzerland:www.ocs.ch; www.swissworld.org.• Swiss Chambers of Commerce:www.cci.ch.• Swiss Investments support: www.sofi.ch.• Swiss Customs: www.zoll.admin.ch.• Swiss Tourism:www.switzerlandtourism.ch.• Swiss Embassy in Riga:www.eda.admin.ch/riga_emb.

TRADE STATISTICS: SWITZERLAND — LITHUANIA, IN MLN. CHFYear Import from

LithuaniaExport toLithuania Trade Balance

1999 12.6 66.4 53.82000 17.2 63.4 46.22001 20.7 75.6 54.92002 24.9 75.2 50.32003 27.9 93.8 65.92004 45.9 94.9 49.0Source: Swiss Embassy in Lithuania.

TRADE STATISTICS: SWITZERLAND — LATVIA, IN MLN. CHFYear Import from

LatviaExport to

Latvia Trade Balance

1999 7.4 62.8 55.42000 11.6 65.9 54.32001 13.2 83.4 70.22002 10.9 101.2 90.32003 7.8 103.6 95.82004 11.6 123.1 111.5Source: Swiss Embassy in Latvia.

33The Baltic Course — Spring 2005 Co�operationwww.baltkurs.com

SWISS�BALTIC CHAMBER OF COMMERCE SBCC PROVIDED:• The SBCC facilitates the transfer of Know-How, acquirescurrent economic data and fosters informal connections witheconomic leaders. It produces, arranges and accepts mandatesand commissions. It organizes and provides translations of col-laborating activities between Switzerland and the Baltic States.• It encourages and promotes relations between the Baltic Statesof Estonia, Latvia and Lithuania and Switzerland in the areas ofTrade, Industry and Finance.• The SBCC informs clients of recent developments and repre-sents them to firms and organizations.• It facilitates official documents, addresses and contacts.• It fosters relations to political, scientific and cultural institutions.• It promotes tourism between Switzerland and the Baltic States.

SEVERAL EXAMPLES OF PAST ACTIVITIES OF THE SBCC IN TALLINN INCLUDE:• Representative of the Swiss import promotion programme(SIPPO) during till the Baltic states would be member of the EU.

• Organizing participance of scores of exhibitions in Riga, Vilniusand Tallinn.• Organizing the Prime Minister’s and Defense Minister’s trip toSwitzerland and their meetings with industrial leaders.• Organizing President Meri’s trip to Switzerland and his agendawith the Swiss Congress and economic leaders.• Direct participation in numerous exhibitions throughout theBaltic States.• Promotion of humanitarian projects focussing on street-childrenand children’s hospitals.• And a multitude of cultural projects keeping us at the SBCC inTalinn busy since its inception.

Swiss-Baltic Chamber of Commerce SBCCKiriku 2 EST-10130 Tallinn EstoniaTel.: +372 6 450 916Fax: +372 6 311 577E-mail: [email protected]

BRUSSELS’ RETREATIn March 2005 European Com-

mission watered down almost all propos-als to open up the EU market in servicesas the issue has become both too politicaland economically controversial. As J. M.Barroso, Commission’s President put it,the directive was “politically and techni-cally unworkable” with too many oppos-ing views from France, Germany and theEuropean Parliament. Main idea behindservice directive was to increase growthand the number of jobs in the Union.

Service directive’s redraftingwould include the “country of origin”principle allowing company offeringservice to operate under its own legisla-tion. Most of the “old EU members”were afraid that service directive wouldpromote Eastern European companieswith cheap labour-force work every-where in the EU and endanger alreadyworse employment situation there.Some countries, France in particular,would guard most sensitive spheres, itwants in particular to support and pro-tect national public services. The EUenterprise commissioner GunterVerheugen at the meeting of the leadersof Europe’s Social Democratic parties inStockholm at the end of February triedto tackle concerns about services direc-tive, stressing that the EU Commissionwas prepared to discuss how wage andsocial dumping can be avoided. “Thedirective will not be adopted as it is now,there will be very far-reaching changes”,he added.

MAJOR PROBLEMS Liberal EU commissioner for inter-

nal market Charlie McCreevy stressedpotential benefits of free cross-borderservice provision in the Union: services

account for 70% of wealth and jobs.Major area with the most acute problemis the directive’s principle of “country oforigin control”.

This would allow services such asarchitects, business consultants or ITspecialists to do business in any EUstate, where they had no permanentoffice, purely on the basis of their owncountry’s control. And if such kinds ofservices are provided through internet,providers would avoid completely suchrequirements as extra deposits or guar-antees imposed by national rules. Nodoubt “home country” can control andstimulate competition, and it couldfreeze it as well, as it happened with theservice directive draft.

Liberalizing services was always aharder task to achieve than free move-ment of goods. But real the EU internalmarket cannot be optimal without ade-quate free movement of services andtheir providers. A final word in the direc-tive’s destiny will be put by the EUParliament and the 25 member states bymajority vote in June this year. Liberalapproach to services directive can createabout 600 thousand new jobs in theUnion, and about 4-6 thousand in suchsmall states as Denmark.

WHAT’S TO BE DONE?Although there is no doubt that

such directive is needed, the countrieswant to make the one that suits all. Theonly way to do so is through presently

increased EP’s functions, that is throughreport of the EP’s internal market com-mittee, chaired by he British socialistPhillip Whitehead, and expected in June2005. The EP’s opinion is that country oforigin principle would survive with manyreservations, e.g. healthcare and medi-cine, utilities, lawyers, auditing and sev-eral other spheres of profession would bealmost fully exempted.

Some contradictions already existin two main approaches to “freedoms” toprovide services.

ANTIDOTE TO DECLINE Close attention to a year-old pre-

ceding Prodi Commission directive’sdraft has revealed protests from themember states, major trade unions andsome EU institutions, i.e. Parliament. Thegeneral opinion is such that the draft washastily drawn up by the former internalmarket commissioner Frits Bolkestein.The original idea behind the draft wasgood enough — to stimulate the EUservice market by allowing companiesand individuals to offer services on thewhole 25 Union states’ market, providedthat they comply with the rules of theirhome state.

Perspectives for growth in theUnion have roots both in the EU andmember states’ efforts. The only thingthe EU can do is to drive reforms byfreeing up service sector, the memberstates’ efforts are both complicated andnumerous. It makes sense for Europeangovernments to improve competitivenessnot by fighting trade unions and theirinterest groups but by changing the con-ditions in which they operate. Thatmeans more trade liberalization, biggerefforts at deregulation markets for goodsand services. For old EU members thenew ones offer opportunities to cut costs,reach fast-growing new markets andimprove global competitiveness. Theservice directive can provide its impetusin the right direction. •

Pros and cons in “freedoms” of services: • Service directive: country�of�origin rule, i.e. a company in the host country operatesaccording to its national rules; • Freedom of movement: posted workers directive, i.e. companies posting workers toother EU states have to apply in their contracts the receiving country’s rules on mini�mum wages, holidays and rest periods, health and safety at work regulations.

The Baltic Course — Spring 200534 European Commission www.baltkurs.com

Service Directive Draft: Expected Effect for BusinessBy Eugene Eteris

The issue how freely services can move around the member states has becomea hot potato. At the end of the last Commission term in office (1999�2005) the gen�eral idea was to prepare a Union directive imposing on member states certain dutiesin the way services could be rendered in the EU. The final draft under presentlyaroused discussion was prepared and published in January 2004; major figurebehind the directive draft was a former liberal EU internal market commissionerFrits Bolkestein. But the task appeared to be more complicated then it seemed ear�lier. The fact that member states, according to the new draft constitution, would havepossibilities to reshape labour markets sphere, where they can act alone, does nothelp in making such market “real European”.

WHAT MIGHT SEEM WRONG? Two trends are in collision in the EU,

one in favour of cutting bureaucratic red tapeand regulatory burden for business, the otherone is almost completely opposite as the trendfor accelerated and more complicated regula-tory backlog for all EU activities, both sharedand exclusive. Present EU “legislative file”encompass presently about 16 thousand pagesof directives and regulations, so called acquiscommunautaire.

Presently, in each of the EU memberstates there are three main sources of regula-tions that impinge business and citizens: theEU institutions, national parliaments andnational regulatory agencies, for exampletrade and financial authorities. In order toreduce regulatory burden, efforts shall beimposed that fewer new regulations areadopted; the existing ones (and their enforce-ment) are made simple.

In most “old EU members” over half ofall new legislation in, for example financialfield, is derived from the EU headquarters.Asit concerns regulatory simplification, someserious and radical steps are required.

THE WAY TO EFFICIENCY First, the EU legislation shall be applied

without further interpretation by the memberstates.The transposition of these laws into nationlegislation has become both difficult and mostlydifferent, according to specifics in nationalapproaches.Present internal market state-of-the-art suggests clear and unanimous application ofits rules. In all otherwise circumstances regula-tory effects would be minimal if not adverse.

Second, it’s important to introduce reg-ulatory impact assessments for all EU-effec-tive business laws. Such procedure, accordingto British researches (T. Amber and K.Boyfield) is aimed at establishing reasonable

balance between the benefits from a new reg-ulation and the costs of compliance. The EUtrade commissioner Peter Mandelson oncesaid that the cost of the EU-generated redtape was roughly double the economic bene-fits generated by the internal market.

Third,the deadline shall be installed in theEU laws’ implementation procedures that wouldspecify whether the goals have been achievedafter three years of laws implementation.

Fourth, the Commission must beobliged to report annually to the EuropeanParliament on the total EU legislation’s costsand benefits.

Fifth, evaluation procedure for all signif-icant legislative proposals shall be establishedin the EU Commission in order to assess thetotal costs and benefits of the EU legislation.

Sixth, most of the EU laws, in particularin financial sphere shall be simplified and re-drafted, such as first investment directive, thecapital adequacy directive, the money launder-ing directive, to name a few.

Among the EU Presidential Initiativesfor 2005-2007 the priority is aimed to singleout non-effective Union laws and abolishdamaging business regulations. •

35

By Eugene Eteris Both regulatory authorities and business community in the Baltic States are

worried about growing pace of Union legislation which very often remindes them ofthe old Soviet�type central planning though presently initiated and imposed fromBrussels.

The Baltic Course — Spring 2005 Legislationwww.baltkurs.com

Regulation and Law in the EU: the Way to Efficiency


On invitation from Finnfacts, aFinnish PR company, we exploredanother important feature of the coun-try’s “success story”, — its financialmarket, banking and insurance sectors.Finnish experience in this field is ofdecisive importance, as we think that itcan be channeled into a certain com-mon Baltic course development.

FINANCIAL MARKET: A STABLE BASIS FOR INVESTMENTS

The structure of the Finnishfinancial sector has changed substan-tially in the last 15 years. Partly as aconsequence of the banking crisis inearly 1990s, subsequent integration and

technological advancement occurred.Partly, due to specific Finnish innova-tion, “financial conglomerates” or

“banking groups”; these bank groupsemployed about 26,8 thousand people.

One of the major Finnish financialsystem functions, according to country’sexperts, is to channel savings of finan-cially stable economic units into thosewith deficit but quite perspective indeveloping progress. A large part of thisfinancial flow in the country comes viathe banks. Finnish specifics is such thatdevelopmental credits are granted bothby deposit banks (and other credit insti-tutions) and by insurance companies.Ever closer integration of Finnish bank-ing and insurance sectors is seen inrecent years. And all that is closely con-nected to the investment climate in thecountry.

MAIN PLAYERS ON THE FINANCIAL MARKET

Finnish Bankers’ Associationmanaging director Markus Fogelholmconfirmed that in the country’s bankingsector there were 343 banks, 1564branch offices, 163 service points andabout 2 thousand cash dispensingATMs. Deposit banks employed 23,4thousand people.

Finland is the only country inNorthern Europe that joined the eurozone (Sweden and Denmark preferredto opt out) which enabled manifold liq-uidity of the market when compared tonations with a single-currency market.

OP Bank Group is the recognizedleader in Finnish financial market as afinancial conglomerate with 242 banksand 677branches. Then, there areNordea Bank Finland, the group of sav-ing banks and the system of local coop-erative banks. Main driving force

36 Report www.baltkurs.com

Finnish Financial Market: Useful ExamplesBy Eugene Eteris Special report from Helsinki

Finland is a spectacular country; it has bravely entered the European and mod�ern world from a below�the�average level economic performance into the mostadvantageous and successful. Finland has become a recognized global leader, forexample, in such spheres as children’s’ education, mobile technology, level of com�petitiveness, to name just a few. And GDP’s growth rate is much higher here — about3.7% in comparison to the old EU members with modest growth rate of about 1%.

MARKUS FOGELHOLM: Deposit banks employed 23,4 thousand people.

OUR NEIGHBOR FINLAND — SUOMI COUNTRY • Population — 5,2 mln with 17 persons per sq. km. density. About 67% of Finns live inurban areas, the rest — in rural areas. Helsinki, the capital and the neighbouring townshipsEspoo and Vantaa, form a fast growing metropolitan region with about a million citizens. • Territory — 338 thou sq. km. (7th largest country in Europe); a quarter of its area liesnorth of the Arctic Circle. Forests cover about 75% of the country, rivers and lakes — 10%. • GDP per capita — about 27 thou euro. About 79% of women are employed outside theirhomes.• Life expectancy: men 75,1 and women 81,8 years. • 65% of Finnish households own a personal computer, 52% have Internet connection.More than 95% of households have cell phones. • VAT �22%, corporate taxation — 27%; average level of taxation — about 44%. Source: Statistics Finland; Finland Focus on Economy & Technology, 2004.

behind OP Bank Group with about3 mln customers is OKO Bank. Its firstExecutive vice-president Timo Rita-kallio said that OKO Bank wasfounded in 1902 as a Finnish commer-cial bank. The bank has 4 divisions: cor-porate banking, investment and retailgroups and treasury division.

INSURANCE — A LIFE STYLE! Insurance has become an impor-

tant part of Finnish financial life onlyduring the last 10-15 years, confirmedEsko Kivisaari, the managing directorof the Federation of Finnish InsuranceCompanies. The sector’s turnover ispresently about 13 bln. EUR and 10 blnof written premiums; about half of themarket — employment insurance andpension funds.

Major player on the market —Pohjola insurance group with 1,6 mlncustomers and 1,2 bln EUR turnover.The group paved the way to mutualfunds’ activity in the country, the fieldwhich is going to be popular soon in theBaltics.

SUPERVISION AND CONTROLSupervision “pressure” is per-

formed, alongside national efforts,from two main sources, i.e. from the EUregulations (Lamfalussy Process andAccounting standards reform in theEU, effective from 2005) and interna-tionally. As for the latter, Basel I and IIframework Regulations will help ingradual implementation of new rulesfor calculating capital adequacy in2006-2007.

National Financial SupervisionAuthority (FSA) was created in 1993and it functions in close connection withthe Bank of Finland. It exercises super-vision over 500 entities in 2 sectors, i.e.in financial market and securities.“Quite often supervision authorities inFinland wanted to unite the first twotogether, so sooner or later they will beunited”, was Ms. Kaija Kilappa’s opin-ion, head of Institutional Supervision atFSA. Probably, there are good groundsfor that and the Baltic States shouldtake that into consideration.

Insurance sector is supervisedindependently by and authority in the

Ministry of Social Affairs and Health.The latter also controls various pen-sion funds.

FSA relies upon financial institu-tions’ “reporting activity” which meansthat all banks report their suspicions tocentral authority. Several hundred“cases” are reported yearly althoughonly 10-15 end up in the court, addedK. Kilappa.

TRANSITION TO EURO The country has got through the

euro-transitional turbulence quite

smoothly due to distinctly planned stepsand various “transitional” actions initi-ated by government and taken both bybanks and companies. Three popularbrochures were published explainingmajor aspects of euro introduction.Almost all dispenser machines withinfour days were transferred to euro-pay-ments. So, the whole “operation” wasaccomplished within two weeks. But mostimportant prerequisite was that Finlandhas fulfilled all the obligations for a coun-try to join the euro zone, the task that allBaltic States are still to face. •

37The Baltic Course — Spring 2005 Report www.baltkurs.com

for the Baltics

HELSINKI: Finland’s Central Bank’s Building.

Company Pohjola was established in 1891 and already in 1912 its shares were quoted onHelsinki Stock Exchange. Presently the company has about 19 thousand shareholdersand 2,6 thousand employees in Finland. The Pohjola group includes non�life insuranceSeesam companies in the Baltic States with 100 employees. The head of the Baltic divi�sion Toomas Abner was invited to join the group from Estonia.

THE NUMBER OF BANKS’ BRANCH OFFICES IN THE EU PER MLN INHABITANTS, 2003About 200 — the UK, Sweden, Ireland, the Netherlands. About 300 — Greece, Finland, Norway. About 400 — Denmark, France, Germany, Luxembourg. About 500 — Belgium, Portugal, Italy, Austria. About 420 — average in the EU.More than 600 — in Iceland and about 1 000 in Spain. Source: European Banking Federation.

FINANCIAL INSTRUMENTS ISSUES IN FINLAND, IN %Year Bank deposits Shares Bonds Money market instruments

1990 50 15 20 152001 10 70 15 5Source: Statistics Finland & State Treasury.


Common or internal market, accord-ing to the EU Treaties (art.14) and a newconstitutional draft (art.III-14), is “an areawithout internal frontiers in which the freemovement of goods, persons, services andcapital is ensured”. That goal set in 1985 wasadditionally stressed and took final effect inthe beginning of 1993. But the task ofremoving various technical barriers to tradeis still extremely urgent. Such technical bar-riers can occur because of different nationalregulations for industrial products and foodstuffs and quite often could be used to pro-tect the national markets from other EUmember states’ products. The EU trademark system (TM) design registration since2003 provides an ideal instrument to guar-antee quality and protection.

TM ADVANTAGES The main idea behind the EU trade

mark -TM (often called CTM -CommunityTrade Mark), is to provide its invariableprotection among the EU member statesaccording to a single registration procedurewith the EU Office for Harmonization inthe Internal Market.

All national producers have to beaware of the EU requirements on trademarks. There are two ways presently of howcompanies can protect their trade marksfrom use through the EU: nationally and onthe Union scale. As for the first, nationalregistration is compulsory; the latter, if the

country is a party to the Madrid Agreement(or Madrid Protocol), is almost identical tonational registration. The difference is suchthat the national trade mark offers protec-tion limited to the frames of national terri-tory, while the EU trade mark makes it forthe entire Union; international registrationprovides protection outside the EU. SinceEU accession to the Madrid Protocol at theend of 2004, the Union’s trade mark is inter-nationally recognized and protected.

The main trade mark advantages arethe following:• To identify the origin of goods and services;• To guarantee consistent goods/services’quality at the EU level and consumers’ trust;• To provide communication means foradvertising and publicity.

TRADE MARK’ PURPOSE The EU trade mark can be used for

three different purposes, such as a) manu-facturer’s mark; b) a mark for trading com-pany’s goods; c) as a service mark. There is,on top of this a so-called collective trademark which can guarantee for an association(and its members) the origin, the nature andthe quality of its goods and services.

A newly-created sign in various EUmember states’ languages may be protectedby applying for the first registration as aCommunity TM (CTM) either at nationalor the EU level, or both what just makessuch protection more effective and manage-

able. Opting for the EU TM does not implythe abandonment of a national TM. In casethe national TM is cancelled or surren-dered, valid EU TM registration still allowsthe company to enjoy adequate protection.

The EU TM must meet two condi-tions: first, a TM is a sign which can be rep-resented in graphic form; second, it mustmake it possible to distinguish goods/serv-ices from those of another firm or company.The TM signs may include all possible let-ters and words, names and acronyms,designs, portraits of people, graphic ele-ments, colours and sound marks, etc.

The EU trade mark (TM) is obtainedby registration in OHIM’s Register; it isvalid for 10 years and may be renewedindefinitely.

All natural or legal persons who aredomiciled or have their seat within the EUmember state may register an EU TM. Theyare entitled to deal directly with the OHIM.

From January 2003 the OHIM startedregistering Community designs; by the endof that year about 37 thousand applicationswere filed and around 24 thousand designswere registered. In 2004 about 40 thousandapplications were filed.

Each year about 45-50 thousand TMapplications are filed at OHIM, in 2003 —57,6 thousand, a record since the EU TMsystem was launched; about 35-38 thousandTM are registered each year.

OHIM The Office for Harmonization in the

Internal Market — OHIM - is situated inSpanish town of Alicante in Valenciaprovince. OHIM President — Mr. Wubbode Boer. The Office annual report can beobtained in Internet.

The Offices’ languages are Spanish,German, English, French and Italian. It hasbeen done deliberately by the EU law inorder to ease operational burdens.Although, an application for the EU TMmay be filed in any of the EU official lan-guages, any post-registration proceedingsmust be in one of the 5 Offices’ languages.All necessary translations are done by theEU Translation Center in Luxembourg. TheEU TM is filed either directly at OHIM orat a national industrial property office inthe EU member state. In case of direct fill-ing at OHIM, the dossier may be sent bypost, fax or e-filling (on-line application).

38 Market www.baltkurs.com

EU Trade Mark: Made in the European Union By Eugene EterisEuropean Integration Institute, Denmark

The EU trade marks and designs provide an equal goods/services protection onthe market with more than 450 million consumers and is an ideal instrument toguarantee the highest quality.

http://oami.eu.int/en/mark/mar-que/efentry.htm. Each application is subjectto basic fee payment and class fee where theclass of goods/services exceeds three. In caseof collective marks the fees are doubled.

Jurisdiction of EU TM rights’infringement lies with the EU trade markcourts and not with the OHIM. The plaintiffmay choose between two courts: the courtof the member state in which infringementwas committed or the court of the memberstate in which the defendant is domiciled.The latter has the advantage of combiningall the disputes in a single proceeding.

EU TM LEGISLATIVE ACTS Unification and standardization in

the EU started at the end of 1993 with theadoption of first Council Regulation (No40/94 0f 20.12.1993) usually referred to as“the basic Regulation” or the CTMR. Dueto complexity issues in TM registration,there was a special Commission RegulationNo 2868/95 of 13.12.1995 for CTMR imple-mentation, and Commission Regulation No2869 of the same date on TM registrationfees. Another important CommissionRegulation No 216/96 laid down proceduralrules for the Board of Appeal. These andother documents may be found in OHIMOfficial Journal.

Among legal norms there are as wellregulations issued by various Europeanstandardization organizations that workout common, harmonized regional stan-dards concerning electricity, technology,construction, children’s toys, medicalequipment, etc. There are more than 25“sectoral” EU directives providing stan-dards to different industry and manufac-turing products obliged to hold a CE-mark. At the same time transparency ontechnical regulations and standards isensured in the EU. Special rules implied inprinting such marks, not to be confusedwith others, e.g. China Export, etc.

ECO�LABEL AS AN EXAMPLESome sectors of industry and econ-

omy develop their own marks and labels.Thus in such a sensitive sphere as ecol-ogy there are more that 15 different eco-labels among the EU member states;although its developmental history is notlonger then 10 years. The EU wants torespect diverse cultural approaches inconsumers’ quality and has developedfour so-called quality logos:• The logo for protected designations of ori-gin (PDO); a product with PGI logo has aspecific characteristic or reputation associ-ated only with a given area or region • Logo for protected geographical indica-tions (PGI); a product with this logo hasproven records that are a result only of thenatural environment and producers’ abili-ties in that region• Traditional specialty guaranteed (TSG);such logo means that the foodstuff is pro-duced using approved organic methods thatrespect environment and animal husbandrystandards.

The EU takes very seriously the issueof managing and controlling risk in chang-ing food market. For example, enlarged to25 members the Union means greater diver-sity in foodstuffs but the quality standardsmust be high at the same time. •

39The Baltic Course — Spring 2005 Market www.baltkurs.com

ECONOMIC BACKGROUND The first “cooperation and partner-

ship” agreement between Russia and theEuropean Union entered into force inDecember 1997; the EU financial assis-tance program for Russia covers 2000-2006 period. For the last 12 years the EUrendered about 3 billion euros to Russiathrough various spheres of technical andeconomic assistance.

The 25 member states Union with445 million citizens and 10 trillion EurosGDP is a solid economic partner forRussia. Already about 40% of Russianforeign trade is connected with theUnion’s member states. As for energysources, Russia is the largest energy sup-plier to the EU territory. On the otherhand, the EU member states are the mostimportant source of foreign direct invest-ments in Russia. The EU has offeredRussia the status of “most favorednation”, which ensures that export ofRussian goods can benefit from the low-est Union tariffs. This reduction can pro-vide Russian trade partners with directbenefits in about 300 million euros yearly.

The EU has developed a closeenergy dialogue with Russia — a major

source of fossil fuel supply presently (andelectricity, in perspective). Such coopera-tion in energy trading includes bothdirect investments and transfer of know-how in energy production and transporta-tion. Russia tries to conclude particularagreements with the EU institutions andbodies; the last EU-Russia summit tookplace at the end of November 2004 withthe new Commission’s staff. Each timeKremlin pushes for special relationshipswith the Union. For Example, PresidentPutin’s representative for relations withthe EU said that Russia was too impor-tant for the EU and deserved special atti-tude. In fact, no other EU neighbor hadrelations as intense with the EU asRussia, with summits twice a year andbroad-based economic agreements.

ENERGY IS A TOP PRIORITY The European Union heavily de-

pends on imported energy resources,mostly crude oil, coal and gas, which arein abundance in Russia, e.g. about 80%of energy the EU consumes is from fos-sil fuels. A significant and increasingproportion of this comes outside the EU.The European Commission estimated in

its reports in September 2004 that by2020 about 70% of the EU primaryenergy needs, including 90% of its oilrequirements, will be satisfied byimports. No doubt that political andsecurity components of such supply arevery sensitive issues.

GERMAN GAS INITIATIVE European energy issues are, accord-

ing to the new Draft Constitution, of sharedcompetence. That means that energy prob-lems are decided on a certain common basisby the EU decision-making bodies togetherwith all 25-member states. The EU memberstates also heavily depend on gas fromRussia, first of all, Germany. In July 2004German chancellor Gerhard Schroder andRussian President Vladimir Putin reachedan agreement to increase gas supply forWestern European countries. Major part-ners behind the agreement are Germanenergy development body E.on AG andRussian Gazprom, which formed a jointventure to make a pipeline from Russia toNorth Europe. Total project costs are about6 billion euros and its first stage would costabout 2,5 billion euros; the pipeline will befully operational in 2007. The pipeline’s

The Baltic Course — Spring 200540 Energy www.baltkurs.com

RRuussssiiaa aanndd tthhee EEUU NNeeeedd EEaacchh OOtthheerr By Eugene Eteris

Russia and the European Union already for several decades are trying to build lasting and productive relationship based onthe long�term European perspective. The EU is constantly improving cooperation with Russia, as both sides need each other: theyare bound geographically, and have common cultural heritage. Russia and the EU are already good partners in various economicfields, and the representatives meet at summits twice a year. Among the latter energy issues are of utmost importance.

length is 3 thou km up German border withsidelines to Finland and Sweden. Gazpromdelivers 1/4 of all gas consumption inEurope. Several European companies par-ticipate in construction of future gas infra-structure. Russia promised to double gasexport to Europe in the next 10 years.

LATVIA: ENERGY TRANSIT FROMRUSSIA TO EUROPE

Since regaining its independence,Latvian government established a national pri-ority, i.e. Russian goods’ transit to Europeanstates, mostly through Latvian ports (mainlythrough Ventspils port and its Ventspils Nafta-VN facilities) and existing pipelines. For morethan a decade, VN was the largest on WesternBaltic transit oil terminal. Besides, it processed2,5 times more cargoes than St-Petersburg’sport in Russia and 1,5 times more than Tallinnport. At the same time, it was the most expen-sive port in the Baltics, its tariffs were about 2times higher than in other ports in the region.Russian side decided to build its own new oilterminals in Primorsk and Ust-Luga. As aresult Latvia’s neighbor states increased theirports’ turnover: Lithuania by 8 mln t, Estonia -by 18 and Finland -by 23 mln t.That has led tooil transit reduction in Latvian budget from10,2 to 6,4%, or 240-mln lats reduction. Andturnover of Latvian ports presently hasreduced also: St.Petersburg’s port processestwo times more cargoes than Ventspils.

Following transit oil reduction,Latvian consumers can feel strong Russiancompetition in car petrol supply. Thus,Latvian petrol consumption for cars is esti-mated at 600 thousand tons a year. Up toJanuary 2005 the demand was covered bysupplies from Lithuanian Mozeikaj refinery.And since a new supplier appeared onLatvian market, i.e. Russian company fromJaroslavl city with its Premium Euro-95petrol corresponding to Euro-4 qualitystandard. Experts say that such car petrol isgoing to be cheaper than the one fromLithuanian refinery.

WHAT’S AHEAD? It’s true that the Union works on both

sides, i.e. it works with the United States in cre-ating effective multilateral system against ter-rorism, and is building a partnership relationswith Russia in securing European stability, inresources, in particular.Prosperous and reliableRussia is good for the European Union, as itmeans continuous trade, growing investmentsand lasting security. The EU-Russia relation-ships are mutually beneficial: Russia gets goodtrade facilities on the EU market, the EU, inreturn, supports Russia’s efforts to join theWorld Trade Organization. The EU wantsRussia to improve its investment climate, pro-tect property rights and prevent further capitalflow-out from the country. Besides, foreigncompanies in Russia are still often subject tohigher taxes and fees than national companies.

Newly elected for the post of EuropeanCommissioner for energy, Latvian representa-tive Andris Piebalgs is facing a lot of problemstackling the European Union energy issues asthey are closely connected both to Latvianeconomy and that of its big Russian neighbor.The EU is vulnerable to supply cuts or higherenergy prices resulting from regional andinternational instability.On the other hand, theEU needs to use less fossil fuels, save energy,and to use renewable and alternative energysources more actively. The EU has an ambi-tious plan to generate about 20% of electricityfrom renewable sources by 2010 and saving atleast 1% more energy each year than it wasover the last five years. The ultimate goal forthe EU is twofold: on the one side it is vital tocut fossil fuel consumption by using energymore efficiently (e.g. buildings’ energy certifi-cates), on the another — to base the EU econ-omy on alternative sources. At the same time,a single energy market in the EU is being cre-ated contributing to the efficient use of energyin Europe, the aim to be met by mid-2007.Important for the Union, is that it is not over-dependent on a few countries for energy sup-plies and that political instability does notendanger imports in foreseeable future. •

41The Baltic Course — Spring 2005 Energywww.baltkurs.com

RUSSIAN OIL AND GAS EXPORT• Oil: Russian oil export to Europe is expected to increase from present 128�mln t to 160�mln t in 2020. Oil export to CIS states will increase during the same period from present17�mln t to 50�mln t.• Gas: Presently, about 20% of natural gas consumed in Western Europe (out of total 415mln. m3) comes from Russia. Out of 75% sources of imported gas consumed in Germanyabout 32% are imported from Russia, 26% — from Norway and 17% — from theNetherlands (the last two sources are from Northern Sea deposits). Russian gas export toEurope is expected to increase from presently 134�mln t to about 165� mln t in 2020.• Transneft: the biggest Russian company transporting oil; it pumps along its 48,2 thou�sand�km pipelines about 94% of Russian oil. The company wants to build a new pipelineto avoid any troubles connected with Ventspils port facilities. • Russian companies Gazprom and Itera have started working in the Baltics a while agoand they have 50% shares in Latvijas Gaze assets.

According to Sea Trade Ports’Association annual report, more than 420mln tons of Russian foreign trade cargoswere processed in Russian ports and theneighboring states in 2004. It was an 18%increase in turnover compared to 356.6 mlntons in 2003. The transportation of drycargo increased by 20%, oil products by15% and reached, correspondingly, 191.9 mlntons and 228.5 mln tons.

THE BACKBONE OF RUSSIAN EXPORTAs well as in the previous year, the

main bulk of Russian exports includedcrude oil and oil products, coal, mineral fer-tilizers, wood and metals. A trend from theprevious year has remained, substantial for-eign trade growth through Russian freightports with a corresponding decrease inturnover of Russian goods processed inneighboring states’ ports. The share ofexport-import cargoes processed in Russianports has grown by 66.8 mln tons; whereas

freight turnover in Ukrainian and Balticports decreased by 3 mln tons.

The share of national foreign tradecargoes processed in Russian ports hasreached in 2004 aproximately 80%, com-pared to 75% in 2003. “General” foreigntrade goods’ turnover in Russia increasedby 25% and amounted to 336 mln tons.

Foreign ports processed 84.4 mln tonsof Russian cargoes, which was by 3.4% lessthan in the previous year. The decrease wasdue to the drop in the volume of tankers’shipmentsby by 23.6%, at the same time,freight volume of coal increased by 48%.

Cargo turnover through Baltic portsreached 57.3 mln tons (+3.4%). The rise wasdue to the increase in coal shipment, but oilcargoes processing fell by 12%. TheUkrainian ports processed 27.1 mln tons(-15.3%) with the growth of dry cargoesagainst drastic reduction in oil and petro-leum goods’ shipment. The increase by 13%in coal, metals and fertilizers shipment

could not compensate for decrease by 57%in tankers’ cargoes processing .

TOTAL TURNOVER IS GROWING The total Russian ports cargo

turnover, including internal transportation,has grown by 23.4% up to 355.9 mln tons(+67.6 mln tons). Dry cargoes reached 157.3mln tons (+17.6%) and bulked cargos —198.6 mln tons (+28.5%).

In particular, bulk-oil volume ship-ment has grown by 28.5%, coal — by 33%,and timber cargos — by 10%. Russian sea-ports transported in 2004 about 17 mln tonscontainer cargoes that made up to 1.4 mlnTEU. The increase in container shipmentreached 60% due to the growth of containertransport through ports in St. Petersburg(+34%), Novorossiysk (+23%), andVostochnij (+ 30%).

According to data of Sea Trade Ports’Association (STPA), export share in totalcargo turnover of Russian ports reached85%, that of import — 6%, of transit goods— 3%, and coastal shipments’ trade — 6%.Railway transportation share of goods des-tined for seaports reached 46.9%, that ofpipelines — 43.7%, road transportation —4.4%, and river transportation — 5%.About 83% of dry cargoes were transportedto seaports by railway, 73% of liquid cargoes— by pipelines.

One fifth of Russian cargo turnoverfalls on Russian ports in the Far East. In2004, more than 70 mln tons of cargo wereprocessed there, 12% increase compared to2003. The growth was attributed to theincrease in coal export by more than 20%,as well as metals, and timber cargoes.

The share of dry cargoes in the portsfright turnover reached 80%. The majorport of the region is Vostochnij; its steve-dore companies processed about 45% ofexported Russian coal.

Fright turnover of Russian ports inthe South grew by 14.6% and exceededthe amount of 142 mln tons. At present,the share of the region constitutes 56% ofthe total national ports’ oil and oil prod-uct export. In total, more than 106 mlntons of tanker cargo (+14.7%) and morethan 36 mln tons of dry cargoes (+14.2%)were processed in Southern ports in 2004;about 70 mln tons were processed bystevedore companies in the port of No-vorossiysk.

Sea Freight Through Russian, Ukrainian and Baltic Ports Sea Freight Through Russian, Ukrainian and Baltic Ports


CISTransport www.baltkurs.com

Russian Federation Seaport Trade Association was established in 1987 and unites morethan 70 Russian sea transport organizations and enterprises. It includes trade seaports,shipping and agents companies, scientific�research institutes, sea transport education,and training institutions. Association’s main task is co�ordination sector’s professionalsto create conditions for effective sea transport development and realization of Russiantransportation potentials.

Alla PetrovaTurnover of goods in Russian ports has increased in 2004 by aproximately 67 mln

tons. It was for the first time ever that the turnover of goods in Russia’s Northwesternports surpassed by two and a half times the cargo turnover in the Baltic ports.

RUSSIA’S NORTH�WEST PORTS BREAK ALL RECORDS

Cargo turnover in Russia’s North-West ports increased presently by morethan 42 mln tons (+41.5%). In 2004, theseports’ share in the total Russian ports’turnover was 40% and reached 143.2 mlntons. Such considerable growth wasachieved due to rise in tankers’ process-ing by 64%, or 30 mln tons, mainly due tocargo shipments share increase in theport of Primorsk. By the end of 2004,Spetsmornefteport Ltd had increasedcargo turnover by 2.5 times and hadprocessed more than 44.5 mln tons. Forthe first time Russia’s North-West ports’cargo turnover exceeded by more than2.5 times that of the Baltic States’ ports.More than 77 mln tons of tanker cargoesand 65.6 mln tons of dry cargoes wereprocessed here.

GOOD INVESTMENT ACTIVITY During 2000-2004 Russian ports’

system increased its production potentialsby 170 mln tons having allocated morethan 23 billion rubles of investments. Mr.Vitalij Yuzhilin, STPA Board ofDirectors’ Chairman, acknowledged thatports’ business dynamics average grouth20% a year outpaced other industrial sec-tors. Investment activity in the parts’industry is high enough, i.e. according topreliminary data, investment in port infra-structure exceeded 10 billion rubles in2004. At the initial stage of ports’ tariffsunification, favorable conditions were cre-ated primarily for Russian exporters thatenabled them to take an active part intransport infrastructure development,said STPA’a Chairman. Thus, in 2000 outof 238 mln tons of foreign trade cargo170 mln tons were transported andprocessed through Russian ports, whereas,in 2004 — 336 mln tons out of 420 mln. •Tables and charts submitted by RussianFederation Seaport Trade Association.

43The Baltic Course — Spring 2005 Transport www.baltkurs.com

FRIGHT TURNOVER OF RUSSIA’S NORTH�WEST SEA PORTS IN 2004, THOU TPorts 2003 2004 2004/2003, % (+/�) to 2003

in thou tTotal 101216.0 143268.7 141.5 42052.7IncludingTanker cargo 47418.2 77650.8 163.7 30232.6Dry cargo 53797.8 65617.9 121.9 11820.1Including:Archangelsk 994.1 1137.1 114.4 143.0Murmansk 9007.2 12782.4 141.9 3775.2Vyborg 1052.2 1331.4 126.5 279.2Vysotsk 2404.6 3644.5 151.6 1239.9St. Petersburg 20436.8 26035.5 127.4 5598.7Kaliningrad 4045.0 4811.4 118.9 766.4Kandalaksha 1020.0 279.5 27.4 �740.5

RUSSIAN CARGO SHIPMENT THROUGH SEAPORTS IN 2004, COMPARED TO 2003, IN MLN TONS

2003 2004 2004/2003, %Total 375.7 440.3 117.2Including:Dry cargo 170.8 203.2 119.0Tanker cargo 204.9 237.1 115.7

INCOMING CARGO DISTRIBUTION AT RUSSIAN SEAPORTS FOR FURTHER TRANSPORTATION BY SEA, IN 2004 (ACCORDING TO TYPES OF TRANSPORTATION)

RUSSIAN FOREIGN TRADE CARGOSHIPMENT THROUGH SEAPORTS IN 2004, IN MLN TONS

TOTAL DRY CARGOES' TRANSPORTATION(BY TRANSPORT TYPE)

TANKER CARGO INCLUDING

CARGOES SHIPMENT IN LARGE�CAPACITY CONTAINERS THROUGH RUSSIAN SEAPORTS, THOU TPorts Total Including

Export Import Cabotage2003 2004 % 2003 2004 % 2003 2004 % 2003 2004 %

Total 10552.7 17001.2 161.1 3055.2 5689.7 186.2 5339.8 8871.2 166.1 2157.7 2440.3 113.1Arkhangelsk 129.3 214.5 165.9 47.5 63.0 132.6 49.7 78.2 157.3 32.1 73.3 228.3Murmansk 250.3 268.7 107.4 4.5 2.0 44.4 1.4 0.5 35.7 244.4 266.2 108.9Kaliningrad 278.8 442.9 158.9 55.7 122.9 220.6 223.1 320.0 143.4 n.a. n.a. n.a.St.Petersburg 5125.4 6876.1 134.2 1949.3 2992.9 153.5 3176.1 3883.2 122.3 n.a. n.a. n.a.Novorossijsk 616.2 759.0 123.2 295.6 356.1 120.5 320.6 402.9 125.7 n.a. n.a. n.a.Nahodka 152.5 145.5 95.4 64.5 35.9 55.7 88.0 107.8 122.5 n.a. 1.8 n.a.Vladivostok 740.5 747.7 101.0 40.6 44.0 108.4 173.6 160.4 92.4 526.3 543.3 103.2Vostochnyj 1924.5 2527.6 131.3 543.0 682.0 125.6 1208.9 1676.2 138.7 172.6 169.4 98.1Vanino 181.0 319.0 176.2 0.2 6.8 3400.0 5.0 12.8 256.0 175.8 299.4 170.3Petropavlovsk Kamchatskij 181.0 454.9 251.3 0.2 3.0 1500.0 5.0 4.2 84.0 175.8 447.7 254.7


Throughout the last year, the atten-tion of public authorities and citizens hasbeen drawn to the museum-reserve. Itbecame evident that if not to startrestoration works immediately, ourdescendants will not be able to see thisensemble, the only one of its kind in itshistorical originality.

In April 2004, Valentina Matvienko,governor of Saint-Petersburg, declared thatthe museum-reserve must be restored. Asearly as in May the work of OranienbaumPalace-park Ensemble Restoration andDevelopment Support Foundation began.The founders of the Foundation were PublicJoint-Stock Company Uralkalii and LimitedLiability Company National ContainerCompany.

The Trustee Board of theFoundation was headed by ValentinaMatvienko, with Co-chairmen GermanGref, Minister of EconomicalDevelopment and Trade of RussianFederation, and Sergey Frank, GeneralDirector of Public Joint-Stock CompanySovkomflot (at the time — AssistantChairman of the Government of RussianFederation). The Trustee Board alsoincluded: Vera Dementyeva, Chairman ofthe State Inspection of MonumentProtection; Vadim Znamenov, Director of“Petergof” State Museum-Reserve;Mikhail Piotrovskiy, Director of the StateHermitage; Dmitry Rybolovlev, Presidentof Public Joint-Stock Company Uralkalii,Sergey Tarasov, Vice-Governor of Saint-Petersburg; Valenting Shevchenko, Headof Administration of Petrodvortsovyi dis-trict, Vitaliy Yuzhilin; Chairman of theBoard of Directors of RussianCommercial Ports Association, Deputy ofState Duma of Russian Federation.

The primary objective of theFoundation — to render assistance inrestoration of Russian cultural heritageusing the mechanisms of public-privatepartnership.

“It is impossible to restoreOranienbaum only be means of statebudget. In this case, such works mighttake as long as half a century. In thistime nothing would be left ofOranienbaum. We appeal to privateinvestors with a request to help theFoundation. It is a personal decision ofeach of them, whether they will agree orrefuse to render such assistance. Butpatronage in Russia has always beenconsidered to be a good action”, saidGerman Gref.

Over one hundred and fifty letterswith cooperation proposals were addressedto various companies. Members of theTrustee Board of the Foundation appealedto industrial enterprises, banks and otherorganizations with a request to help inrestoration of the unique cultural and his-torical monument.

“The most effective way to achievethe determined goals, as the practiceshows, is the unification of privateinvestors’ stock and budget means, withinthe bounds of one project. I am sure thatbeing aware of social liability of businessto the public, the entrepreneurs will sup-port the state in restoration of Russiancultural heritage”, mentioned ValentinaMatvienko in her speech.

As a result, more than 60 millionrubles came to the Foundation’saccount. Moreover, the money came not

44 Maecenas www.baltkurs.com

By Alla PetrovaAlready for several decades, the fate of the palace�park ensemble Oranienbaum

has worried representatives of the cultural elite, federal and regional authorities andordinary citizens of Saint�Petersburg. It is no wonder, because Oranienbaum is theonly landscape�architectural complex, which wasn’t destroyed during the GreatPatriotic War.

• In the territory of State Museum�Reserve there are 19 monuments, whichrequire restoration, and another 40 canbe recreated. • Income increase from visits of museum�reserve (in 2004 the income amounted to6 million rubles only), with competentmanagement can additionally contributeto restoration of objects, enlargement ofmuseum funds.

GERMAN GREF: Patronage in Russia hasalways been considered to be a good action.

Preserve Russian Cultural

only from major companies, but alsofrom private persons.

RESTORE BY THE ANNIVERSARYBy preliminary estimation, the cost of

restoration of the whole palace-parkensemble will amount to 7-8 billion rubles.

In 2005, 170 million rubles will beassigned from federal budget forrestoration works on OranienbaumState Museum-Reserve. About 80 mil-lion rubles will be received through thePalace-Park Ensemble Restoration andDevelopment Support Foundation. Thetotal cost of project work will amountto approximately 290 million rubles.

“Without the precise financing organ-ization of the Foundation, we wouldn’t beable to start the works and to prepare arather large stock of project documentation,— notes Vladimir Fomin, Director of StateEnterprise Research Institute “Spets-proektrestavratsia”. — And the money,which was assigned by the Ministry ofCulture, reached us only at the end ofDecember”.

The funds, obtained by theFoundation, have already allowed tofinance the working out of project docu-mentation, performance of topographic-geodesic works and composition of cadas-tral plan; to pay for services connection withthe withdrawal of explosive objects, etc.from the territory.

It is planned that “Toboggan slide”pavilion shall be restored by the end of2005. In 2006 the restoration of theChinese Palace, where original parquet ofXVIII century was spared in 16 halls out oftotal 17, will be started.

Another important object is theGreat Menshikov Palace. Here it is plannedto perform the works on underpinning,waterproofing and water-draining.Research Institute “Morteprotekhnika”,located in the building, has by now vacatedonly one third of the area. The internalfunds are not sufficient for removal. TheGreat Palace can only be vacated by May2006 at the earliest, provided that the

Research Institute receives about 90 millionrubles for removal.

Generally, on conditions of stable andsufficient financing, it is planned to com-plete all works by 2011, that is by the cele-bration of 300th anniversary ofOranienbaum.

STATE AND BUSINESS PARTNERSHIPThe most important role in restoration

of “Oranienbaum” State Museum-Reservewill be played by obtaining of private funds.The Foundation has prepared a program ofpriorities and benefits for its partners.

For example, in advertising materialsof the Foundation it is provided that itspartners, which make major contributions,will receive “priorities in investment proj-ects on territories, adjacent to “Oranien-baum State Museum-Reserve.”

According to Sergey Korneev,Director of North-West branch of theRussian Tourism Industry Association, infuture Oranienbaum might become a part ofthe popular tour route Strelna — Petergof.With the launch of encircling highway, therewill be a connection between Kurortny dis-trict and Oranienbaum. The Oranienbaum-Petergof area will be most attractive as aplace for business events, for development ofcultural-cognitive and ecological tourism.

In the context of the aforesaid, it isimportant that restoration of Oranienbaumtakes place in the bounds of general con-cept of development of Gulf of Finlandsouthern coast, which includes Strelna,Petergof, area of famous Lower (Tsar’s)Road and Oranienbaum. •

45The Baltic Course — Spring 2005 Maecenas www.baltkurs.com

SERGEY FRANK: Oranienbaum is our culturaland spiritual heritage, which we are obligedto save for our children and grandchildren.

VALENTINA MATVIENKO: I am sure that theentrepreneurs shall support the state inrestoration of Russian cultural heritage.

Heritage

The Baltic Course — Spring 200546 Statistics www.baltkurs.com

Source: LETA.

Source: The Latvian Central Statistics Office.

CARGO TURNOVER IN THE BALTIC PORTS, MLN Т

GROSS DOMESTIC PRODUCTLatvia Lithuania Estonia

GDP at current prices, mln EURQ1 2004 2382 3812 2029Q2 2004 2681 4470 2327Q3 2004 2858 4758 2250GDP at constant prices, % over Q1 2004 108.8 107.1 106.8over Q2 2004 107.7 107.3 105.9over Q3 2004 109.1 105.8 106.1GDP per capita, EUR2002 4174 4302 50822003 4216 4711 5942Source: The Latvian Central Statistics Office.

WAGES, EURLatvia Lithuania Estonia

Monthly average, Q4 2004Gross wage 336.0 380.0 492.0% to Q4 2003 111.9 108.5 108.1Min. wage, January 2005 114.0 145.0 172.0% to January 2004 114.3 111.1 108.5

Old�age pension, Q4 2004 113.0 114.0 147.0

% to Q4 2003 115.0 113.7 111.0Source: The Latvian Central Statistics Office.

FOREIGN TRADE, 2004, MLN EURLatvia Lithuania Estonia

Export (FOB):total 3151 7451 4698to EU�25 2422 4951 3758% of total 77 66 80Import (CIF):total 5579 9875 6737from EU�25 4188 6222 5237% of total 75 63 78Balance of foreign trade �2428 �2424 �2038Source: The Latvian Central Statistics Office.

FOREIGN DIRECT INVESTMENTSAt the end of quarter Latvia Lithuania Estonia FDI, stock, total, mln EURQ3 2004 3262 4337 6068Q3 2003 2685 3841 5077Per capita EURQ3 2004 1411 1264 4491Q3 2003 1155 1113 3744FDI, flows, mln EURQ3 2004 118 122 143Q3 2003 25 �211 229% of GDPQ3 2004 4.1 2.6 6.4Q3 2003 1.0 �4.9 11.1Source: The Latvian Central Statistics Office.

RAILWAY FREIGHT TURNOVER IN THE BALTIC STATES, MLN T

Source: Railway data.

CARGO TURNOVER IN THE BALTIC PORTS, MLN Т

AVIATRANSPORTATIONS IN THE BALTICSVolume of pass. traffic, pers. Cargo turnover, t

Jan 2005 Jan 2004/2005 Jan 2005 Jan 2004/2005Riga 99 967 + 50.0% 774 n.a.Vilnius 76 297 + 56.4% 389 �1.8%Tallinn 85 314 + 41.1% 360 �21.1%Source: LETA.

47The Baltic Course — Spring 2005 Statisticswww.baltkurs.com

MORTGAGE INTEREST, % Estonia Latvia Lithuania

Average mortgage interest, 1998 13.8�14.3 11.1�13.9 n.a.Average mortgage interest, 2004 3.8�4.3 4.9�5.3 5.0

APARTMENTS’ COSTS IN THE CAPITALS, EUR/М2

Estonia Latvia Lithuania Q3 2004 2000 Q3 2004 2000 Q3 2004 2000

Old town (reconstructed) 1400�2600 770�1300 1800�3000 700�1400 1000�2500 450�800Central city (new and reconstructed) 900�1600 580�870 1400�2300 600�950 1000�2500 до 900Suburban area (typical apartments) 550�700 260�390 540�800 310�430 330�600 200�340New apartments 900�1600 950�1400 700�1000

COSTS OF A TWO�ROOM APARTMENTS IN THE LARGESTCITIES, Q3 2004, EUR

Tartu Jelgava KaunasCity centre 22500�40000 15000�25000 25000�33000Suburban areas 19000�32000 12000�16000 20800�24000

Parnu Jurmala Klaipeda22500�45000 20000�60000 25000�50000

TOTAL AREA OF THE MODERN OFFICE PREMISES, ~М2

Tallinn Riga Vilnius2004 170000 57000 140000Planned in 2005 25000 38000 60000

AVERAGE RENTAL PRICES, EUR/M2/MONTH, Q3 2004

Tallinn Riga Vilnius

Repaired (new) high classoffice premises in downtown

12�16 15�25 15�18

Repaired (new) high classoffice premises

10�11 8�15 9�13

Average vacancy 8�15 5�30 5�25Average yield, % 9�12 12 10�12

THE BIGGEST PROJECTS, М2

Tallinn Riga Vilnius Ulemiste — 50000 Domina — 50000 Akropolis — 55000Kristiine — 32000 Alfa — 39000 Hyper Rimi — 22000Viru KK — 28000 Olympia — 23000 Europa — 22000

AVERAGE RENTAL PRICES ON RETAIL PREMISES,EUR/М2/MONTH, 2004

Tallinn Riga Vilnius Trade centre 8�40 15�60 10�45Old city 20�35 10�35 16�46City centre 30�40 8�50 22�50Average yield, % 9�11 12 9�11

TOTAL AREA OF RETAIL PREMISES, М2

Tallinn Riga Vilnius 2004, ca 515000 446110 420000Additionally planned (the biggest projects)

0 192000 81000

Capacity per capita, 2004 1.25 0.60 0.75

AVERAGE RENTAL PRICES ON WAREHOUSES AND PRODUCTION PREMISES, EUR/М2/MONTH, 2004

Tallinn Riga Vilnius Oldest buildings / storage spaces 1.0�3.0 0.5�4.0 1.5�3.0New buildings 3.0�4.5 3.5�5. 4.0�5.0

HOTEL SECTOR, 2003Estonia Latvia Lithuania

Number of beds 6952 14983 n.a.Number of rooms 3705 n.a. 7057Average occupancy rate, % 57.4 33.0 28.5

Tallinn Riga VilniusNumber of beds 4931 6101 n.a.Number of rooms 2618 3230 3016Average occupancy rate, % 64.7 42.5 32.9

PRICES OF VACANT COMMERCIAL, RESIDENTIAL LAND INCENTER OF CAPITAL CITIES, EUR/М2

Tallinn Riga Vilnius up to 700 up to 1800 up to 500

Source: Arсo Real Estate.

Source: Eurobarometr.

USE OF COMPUTERS IN 2003,% TO THE POPULATION

TAXES IN 2003, %/GDPAverage in the EU 41.5ЕU�10 41.8Sweden 51.4Denmark 49.8Belgium 48.1France 45.7Finland 45.1Lithuania 28.7Latvia 29.1Slovakia 30.9Ireland 31.2Estonia 33.4Source: Eurostat.

EXPENDITURES ON SCIENTIFIC RESEARCH2002 %/GDPUSA 2.76*Japan 3.12ЕU�10 1.93Sweden 4.27Germany 2.5France 2.19Estonia 0.77Lithuania 0.68Poland 0.59Latvia 0.39Cyprus 0.33* in 2003.Source: Eurostat.

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