They screwed royally: how Swedes brought a Latvian company to closure
Forbes
Baltic edition
Biofuel enterprises of Latvia are on the brink of survival due to crippling contracts with foreign exporters. In one company alone, more than 110 employees and their families have been left without income.
From the beginning of 2022 to the present day, the business activities of wood and biomass companies have undergone tectonic changes due to the Russian aggression in Ukraine and the subsequent consequences in the energy sector of the European economy.
Prices for purchase of raw materials for pellet production have skyrocketed, and the growth is dynamic and unpredictable. Tariffs for energy resources for pellet production have increased significantly, which makes it unprofitable to produce pellets if they are sold to contractors at low prices fixed in contracts.
As a result, many Latvian producers are forced to sell the finished product at a fixed price, which is below the cost of production. The buyers - are large companies, mostly foreign.
Why trade at a loss? There are reasons for this - the existing contracts were signed until 2022, in conditions of a stable market. Meanwhile, buyers are in no hurry to renegotiate the contracts. As a consequence, they receive excessive profits, while manufacturers have no funds to buy raw materials, pay salaries and are on the verge of a complete shutdown of production and imminent bankruptcy.
In the specific situation with Latvia's largest wood pellet producer NewFuels, the story of a bonded contract with the buyer company Vattenfall lasted until the Latvian producer was simply left without funds. Thus, in the period from March to June 2023, Vattenfall purchased a ton of pellets at the price of 160 euros, while the cost of production of a ton was 180 euros, which is absolutely unprofitable, the Latvian company told portal bb.lv.
After several months of such cooperation with Vattenfall, NewFuels ran out of working capital, and the Latvian company was forced to declare a legal defense procedure, claiming problems with its funds and its inability to service debts, credit obligations, and pay its counterparties. For two months the company had to submit to the court a plan-schedule of fulfillment of obligations to creditors (this is a mutually beneficial process, as the company gets a chance to continue its activities, and creditors - to recover their debts).
However, to the great surprise of the Latvian side, in June this year Vattenfall failed to pay for the already delivered pellets in the amount of more than 0,5 million euros, having missed all the fixed payment deadlines. NewFuels, for its part, sent repeated reminders/claims, but the funds were not received.
The manufacturing company, guided by certain clauses of the concluded contract, had to terminate the existing relations. The Latvian company exercised this right by notifying Vattenfall. NewFuels had no other way, as it was pointless to produce and supply products without receiving payment from the customer. Vattenfall, for its part, did not dispute the termination of the contract, but refused to return the debt.
Obviously, the dispute will be considered in court, but the situation is currently stalemate for the company. The funds that NewFuels was counting on to continue operations have not been received. Production has been stopped, more than 110 employees and their families have been left without income.
You must agree that it is quite an unpleasant signal for Latvian business, when a huge foreign corporation first abused the contract, unwilling to find a formula of mutually beneficial cooperation, and now by non-payment of debts for the supplied products actually puts the Latvian producer on the brink of existence. Having already robbed it to the ground, as NewFuels had been operating in the negative for four months until it ran out of money.
Ironically, Vattenfall's shareholder is the Kingdom of Sweden and the state Pension Fund. Do the wealthy Swedish pensioners guess what their energy company has done to hundreds of Latvian families left without means of subsistence is also a good question. In the meantime, the Latvian budget will be burdened with unnecessary social payments for unemployment and will receive less taxes due to the absence of the company's activities.
For record
- NewFuels RSEZ SIA is one of the largest wood pellet production companies in Europe, with an annual capacity of at least 250,000 tons per year, located in Rēzekne city.
- It has been operating since 2010, during which time more than 40 million euros have been invested in the company. This is one of the most notable contributions to the economy of Latgale region.
- Since 2017, on a long-term basis, all manufactured products have been exported to the company VATTENFALL.
- Number of employees: more than 100 persons.
- Every year the company is honored with awards from the state and local authorities, takes an active part in financial and other support of sports and social events in Rēzekne city and the Republic of Latvia. NewFuels awards include "The fastest growing company in Rēzekne" in 2011 and 2016, "The most successful Latvian exporter-2017", "Enterprise of the Year-2019" in RSEZ, "The largest taxpayer in the region" and others.