The Estonian company Fibenol, which plans to build one of Europe’s most modern biorefinery plants in Valmiera, promising to invest up to 700 million euros in it, is trying to negotiate more favorable conditions for the purchase of pulpwood with the Latvian government. The company wants to buy 300 thousand cubic meters of birch pulpwood per year from “Latvijas Valsts meži” without an auction and at an agreed price. This fact was whispered about and caused indignation among Latvian wood processing companies this spring, drawing attention to the fact that this is not fair to the whole sector and to local manufacturers.
The Latvian Forest Industry Federation even wrote an open letter in the spring to Prime Minister Evika Siliņa, as well as to Minister of Agriculture Armands Krauze and Minister of Economics Viktors Valainis. In this letter, wood processors expressed concern that, in order to satisfy the needs of a potential investor without a tender and by an administrative decision, resources might be reallocated away from existing Latvian manufacturers.
“We fully support that a favorable investment environment must be created for manufacturers in Latvia and that new investments should promote the processing of those logs which until now we have exported unprocessed. At the same time, we cannot support the approach: ‘All Latvian manufacturers are equal, but some potential investors are more equal than others.’ Therefore, we were surprised by information which is very likely distorted and incorrect, that with government support a decision is being prepared which, in essence, would, through administrative methods, reallocate from existing manufacturers the roundwood supplies of JSC Latvijas valsts meži to a potential investor.
The letter stated that such a decision could lead to the risk that the same practice would be implemented in Latvia as the one criticized by the Estonian National Audit Office in its 2 July 2024 report to Estonia’s state forest manager: “By selling timber under long-term contracts, it has unjustifiably granted advantages to some contracting partners by setting them special conditions and selling timber to them at a more favorable price.”
While the sector was in turmoil, the decision on generous support to the potential investor had indeed been taken. For unknown reasons, the Cabinet of Ministers (CM) decided that the matter should be classified, and on 15 April the issue of long-term wood supply from a state-owned company and from the natural resources belonging to society as a whole was considered in the closed part of the CM meeting. This resulted in a new cooperation program for the support of investment projects of strategic importance to the Latvian state and new rules stipulating that investors who plan to invest at least 100 million euros in the processing of pulpwood-quality timber by 2030 will have access to raw materials, namely access to wood of up to 50% of the installed capacity in the company’s plant, but not more than 300 thousand cubic meters per year.
Although industry players are not ready to speak publicly, they nevertheless see that the rules have been adopted in the interests of one specific Estonian investor: the support becomes available exactly when a specific company needs it, and the available volume is exactly what this company requires. Formally, the support is available to anyone who wants to invest, but investments must be made by 2032, i.e. in practice, to be able to find and invest 100 million, the project has to be already prepared. The support itself will be available for a term of up to 10 years from the moment of the first delivery.
The issue of cooperation with Fibenol is regularly examined by the Coordination Council for Large and Strategically Important Investment Projects (LIP), but despite the fact that this council is chaired by Prime Minister Evika Siliņa, her office did not provide substantive answers to Inc.’s questions, adding that the matter is being driven by the Ministry of Agriculture, while the coordinating role lies with the Investment and Development Agency of Latvia (LIAA). The Ministry of Agriculture did not respond to the questions at all, while LIAA provided a general response that work on the implementation of the project continues and that LIAA is providing support for it, adding that they cannot say anything substantive because the matter is being considered in the closed parts of the meetings.
Fibenol itself responded diplomatically in the spring: the company has signed a letter of intent on the development of the project in Valmiera and a 70-year [land -ed.] lease agreement. “The Fibenol project is based on the use of low-quality wood and the company wants to secure raw materials for itself in the long term. We are not asking for subsidies, but we want fair and non-discriminatory access to public forest resources through transparent long-term cooperation models.”
“Local manufacturers are not worth less than potential foreign investors. Latvian forest industry companies have invested in development more than 1 billion euros in total over the past five years and continue to do so even now, providing stable and well-paid jobs in Latvia’s regions. We are also open to new investors who invest in high value-added production processes in Latvia. We would like to remind that high added value goes hand in hand with competitiveness, therefore it is not clear why exclusive exceptions should be created and why fair competition with other Latvian manufacturers in the purchase of roundwood from JSC Latvijas valsts meži should be avoided.” This is what the Latvian Forest Industry Federation pointed out in its spring letter, emphasizing that exclusive rights for investors at the expense of other manufacturers are not acceptable in Latvia.
At present, the price of pulpwood has fallen and it is almost “being thrown at you”, so the mood in the sector is calmer, but as is known, prices tend to fluctuate. This does not change the essence, however – the government has made a decision to guarantee raw materials for ten years to one Estonian company. How this could be consistent with the principles of fair competition, history is silent.
Originally published at https://inc-baltics.com/investiciju-cena-vienam-igaunim-garante-koksni-desmit-gadiem-bez-izsoles-par-vienosanas-cenu/
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