Latvian government pledges support to Liepajas Metalurgs

20.02.2013, 15:09

Earlier in January, the Latvian steel mill Liepajas Metalurgs announced that it cannot afford paying the mandatory purchase component (MPC) for green electricity and could even face bankruptcy, writes news2biz LATVIA.

Now it looks that the company has deeper problems than just MPC: it is facing what it dubs "short-term solvency problems" with paying back its loans. The Latvian government has promised support – provided that the company has not been run in the ground on purpose.

Liepajas Metalurgs has not provided any detailed comments on the subject, explaining that, since the company is publicly traded on NASDAQ OMX Riga Stock Exchange, any sensitive information should be first published on the stock exchange website. In its statement on NASDAQ OMX, it says that the problems have been caused by its sizeable loan that it took for renovating the company.

"In addition to the LVL 60m loan issued by UniCredit S.p.a., the company also invested its own savings as well as its current assets to start the production update. In 2012, the company started paying back the loan and interest to UniCredit. The payments reached LVL 11m, while MPC stood at LVL 5.8m. In addition to that, the MPC payments from 2009 to 2012 reached LVL 10.6m," said the company in its official statement.

The company took the loan – guaranteed by the Latvian government – to undergo an EUR 85.6m upgrade on its production plant. Previously, the plant used extremely dated steel furnace technology, and the upgrade was a necessary – and long overdue – step (see no 315 page 2).

Even though Liepajas Metalurgs did encounter numerous glitches along the way, the company started using the new steel furnaces in late 2011.

The new furnaces promised higher capacity and better energy efficiency, but with one catch: the new process is very electricity-intensive, and this issue has now come back to haunt the company. Moreover, it is now also facing a falling demand for steel in its export markets.

To try solve the problem, Liepajas Metalurgs has again turned to the government. With its help, it has started working on restructuring its loans. The government agrees that, considering the size of the steel mill, its problems or even bankruptcy would have a huge impact on the Latvian economy, so it will provide help.

The company will now undergo an independent audit to find out the true state it is in. So far, the company's audits have been carried out by a company that is run by a member of Liepajas Metalurgs' own supervisory board. Even the government, its support notwithstanding, agrees that this is a somewhat strange practice.

Liepajas Metalurgs first complained about MPC soon after the Ministry of Economy pointed out several serious flaws in the MPC system. Among other things, MPC, which aims to promote green energy, actually mostly pays for the use of fossil fuels in co-generation stations.