State demands guarantees from indebted steelworks

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The Latvian state will agree to extend the deadline for a EUR 2.7 million payment that the KVV Liepajas metalurgs steelworks failed to make at the end of 2015 on certain conditions, which include a bank guarantee, Kaspars Abolins, the head of the State Treasury, said after the Cabinet meeting on Tuesday, reported LETA.

In order to extend its debt for two years, KVV Liepajas metalurgs has to submit to the government a covenant about its Ukrainian parent company making financial investments in the company and a bank guarantee for the overdue payment of EUR 2.7 million valid until January 31, 2017.

The government will be waiting for a reply from the company until next week.

Abolins would not specify the amount that the parent company was expected to invest in KVV Liepajas metalurgs. He said that if the company fulfilled the above conditions the government might agree to debt rescheduling, however further negotiations would have to be held.

The late payment interest on the EUR 2.7 million payment that was due on December 28, 2015, is 0.1 percent per day of delay.

Latvian Prime Minister Laimdota Straujuma said after the Cabinet meeting that it was important that production at KVV Liepajas metalurgs continued and the state did not lose the money already invested in the company.

Under the debt repayment agreement signed between KVV Liepajas metalurgs and the Finance Ministry in 2014, the steel plant was due to make a payment of 2.7 million euros to the Treasury on December 28, 2015, but has asked the government for a two-year extension of the payment deadline.

On November 12, 2013, the court declared Liepajas Metalurgs insolvent. The company ran into financial troubles and had to cease production in spring 2013 due to a shortage of working capital.

The company could not repay a state-guaranteed loan it had taken from an Italian bank, and the loan was repaid by the Latvian state. Liepajas Metalurgs was placed under legal protection but all negotiations about rescuing the company and bringing in a new investor failed and the company’s administrator filed for insolvency. 

On October 2, 2014 the steelworks were sold to Ukrainian KVV Group. At one point the company employed 960 people. The company cut down production on May, citing high cost of electricity, in particular the large amounts payable for the mandatory purchase component (MPC or a component of the electricity price supporting production of renewable energy). This left some 600 workers in the company, where only 400 work now. 

KVV Liepajas metalurgs closed 2015 with a turnover of EUR 73 million and losses of EUR 8 million.

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