Mill Protests Debt With Shutdown

The managing director of Europe's biggest paper sack manufacturer said Thursday that a production stoppage at the Russian factory would run into its second week, pending agreement on pension fund and tax arrears between Western investors and the Russian authorities.

Western managers stopped production at the plant March 6 to signal their discontentment that Russian government officials have not yet dealt with issues of outstanding debt owed by the company.

The Segezhabumprom pulp and paper mill, in Russia's Karelian republic, is awaiting modernization investments of up to $150 million from abroad. But AssiDoman, the Swedish paper company that has been running the plant since January, said investors will not pay up until the debt questions are clarified.

"We are seeking deferment of the mill's debts to the federal government and to the local authorities," said Soren Oberg, managing director of the mill.

According to the Russian daily newspaper Segodnya, the mill owes 80 billion rubles ($14 million) in back taxes and pension fund arrears to the federal budget. AssiDoman would not confirm the amount.

Oberg said that a lesser amount owed to administrators in Karelia was cancelled out by heating costs the company shouldered for the town of Segezha.

The exact amount of the mill's debts to Karelia will be settled at a local government meeting Friday, said Oleg Savchenko, industry consultant to the administration.

AssiDoman took control of the mill following a deal last summer with Stratton Paper, an offshore investment vehicle which bought 57 percent of Segezhabumprom in February 1996. The deal allowed AssiDoman to take a 50 percent stake in Stratton Paper, at the same time winning an indirect hold on big Czech paper producers previously bought by Stratton.

Despite this month's shutdown at Segezha, analysts say AssiDoman is not considering a pull-out from the mill.

"I think the shutdown at Segezha is just a maneuver by the managing director to get some movement on the debt issue," said Michael Sassarini, an analyst with United City Bank in Moscow. "AssiDoman has planned all along to turn this mill around and make it work."