Wednesday, December 12, 2007

Expect Trouble

Something big is going down in Narva.

For some time now, the city council has been fighting the Kreenholm factory over some disputed utility bills. The Kreenholm textile factory is one of Estonia's biggest manufacturing enterprises, contributing a serious chunk to the country's exports. It is also an extremely important employer in the troubled Ida-Virumaa region.

Tomorrow Kreenholm will lay off 900 employees.

From what I gather, Narva's municipal water company has raised prices sharply. According to Kreenholm management, the amount that the factory is being charged is 14 times above cost; as Narva Vesi is the monopoly, this does appear extremely fishy. Kreenholm, which consumes some two hundred million kroons' worth of power and water annually, challenged the price hike and took it all the way to the Law Chancellor (a high-ranking civil servant, used as a nonpartisan arbiter), who demanded an explanation from the city. The arbitration court has not yet ruled on the lawsuit of Narva Vesi against Kreenholm, claiming 20 million kroons in unpaid fees.

The Narva city council, which has been backing the water company aggressively, has arrested Kreenholm's bank accounts on December 4th. With no way to pay suppliers, or its employees, Kreenholm has cut its losses. The factory employs some 2400 people total, after an earlier layoff of 500. Another nine hundred jobs lost will in itself be devastating for Narva's economy; more could follow. The factory's Swedish owners say they will not close it down completely, but by next Christmas it will hardly employ more than a thousand people.

It's been a bad day for Estonian business. Skype, the darling of the Estonian IT sector, has been in trouble. Its owner, eBay, which paid $2.6 bln for the company and then announced it had overvalued the business massively, has not been able to develop the service in any significant way. The former owners, Niklas Zennström and Janus Friis, have quit to pursue other projects. And today, around 30 Skype employees suddenly found themselves out of a job.

10 comments:

Andres Sehr said...

Didn't you just say a couple of weeks back that the economy is fine? :P

Seriously, I wouldn't be surprised to see more factories start closing their doors (Elcoteq, etc). Eesti is no longer cheap, either in terms of labor or resources. Producers see inflation pushing up their costs each year while they can't jack the prices up as fast and will decide to move elsewhere where it's cheaper, this is simply a product of moving into the "top 5" richest countries as Ansip promised.

And I wouldn't cry for Skype. eBay may have overpaid for them but a bit of that money made it's way into the country and the company itself is profitable and is currently advertising for 27 positions in Tallinn.

Flasher T said...

I also said that Estonia needs to be a knowledge economy. Industry isn't a viable option here. :P

And I work in IT. Skype Schadenfreude is all part of the game. They boast about their fancy offices, we boast about our realistic business model. :P

Andres Sehr said...

Skype Schadenfreude is all part of the game.

Indeed, any company that gets bought for 2.6bln usually needs to be brought down a notch or two.

Their offices are pretty nice though.

Trek said...

The Narva city council, which has been backing the water company aggressively...

Wouldn't have anything to do with the fact that 3 members of the Narva Vesi Supervisory Board are also Narva City Council members, would it?

Flasher T said...

I'd bloody well expect them to be, as Narva Vesi is owned by the city.

Giustino said...

Are all the Narva city council members in Keskerakond?

Could this be another "Keskerakond drives foreign investor out of Estonia" show down?

Flasher T said...

Well yes, Narva is definitely under KERA control.

In this case my first instinct is, as usual, to presume idiocy (or rather stubbornness and an unhealthy megalomania) over malice.

Giustino said...

Here are the results from the 2005 municipal elections in Narva. I am surprised by the strong Res Publica showing:

http://www.vvk.ee/k05/tulemus/tulbad_315000000.html

Flasher T said...

Halo effect from the then-PM, I guess?

You have to wonder about the fate of the 312 poor buggers living in Narva and voting Isamaa...

Giustino said...

You have to wonder about the fate of the 312 poor buggers living in Narva and voting Isamaa...

Well, now they are the same party as Res Publica. I can't believe the Sotsid poll so poorly. Do they just not have good candidates, are they lazy? I'd figure that some left leaning voters would vote for them.

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