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Last Updated: Monday, 22 August 2005, 06:37 GMT 07:37 UK
Norwegian wood rocks election campaign
By Jorn Madslien
BBC News business reporter in Oslo, Norway

Logs at paper mill
Analysts predict more paper production will be moved abroad

A relatively minor industrial reshuffle, at least by international standards, has caused major political waves ahead of Norway's general election on 12 September.

A mighty row has broken out following a recent decision by one of the world's largest producer of fine quality paper, Norske Skog, to slash 380 jobs and close one of its four paper factories in Norway, even though the plant is profitable.

Each of the politicians appears desperate either to gain political currency from the affair, or at least to not come across as if they do not care about the loss of jobs.

But beyond a great deal of hand wringing, which has led some commentators to suggest they are deliberately failing to grasp the commercial arguments behind Norske Skog's decision in the run-up to the election, the affair has simply demonstrated the politicians' impotence in the face of Norske Skog's decision.

Norske Skog is sticking to its guns, insisting the factory must close due to overcapacity in the group's European operations.

Necessary step

Chief executive Jan Oksum has even rejected offers of fresh financial incentives to keep the factory in Skien alive, having dismissed them as pre-election promises.

Norske Skog has also dismissed assertions by politicians across the spectrum that previously received indirect state support, such as favourably priced electricity for its factories, means it is indebted to Norwegian society and thus has a duty to safeguard jobs.

What is important, insists Mr Oksum, is to make sure Norske Skog remains a profitable company.

"The imbalance between demand and capacity in the European market is lasting," Mr Oksum wrote in a letter published by the newspaper Aftenposten. "We must therefore find a permanent solution.

"I wouldn't have subjected our employees and the company to this unless I was convinced that a closure of the mill is needed to strengthen Norske Skog and safeguard more than 6,000 jobs worldwide," he insists.

Indeed, Norske Skog's finances have weakened dramatically in recent years: Last year's 210m Norwegian kroner earnings compared poorly with the near NKr4bn it made in 2001.

"We have a responsibility to reverse this trend, and must act before our results deteriorate further," explains Mr Oksum, insisting that the factory closure and plans to shift some of the production to its other factories should shave NKr200m off its costs.

Media backlash

But regardless of whether or not there is solid industrial logic behind Norske Skog's decision, its announcement seems particularly ill timed.

Jan Oksum, chief executive, Norske Skog
Mr Oksum is refusing to sell the paper factory

Although Norway's politicians lack formal powers to prevent the factory's closure, their ability to whip up bad publicity has proven to be great.

Little more than one in 10 newspaper articles that have been written about the affair put the company in a good light, and most of those were published by specialist financial media, according to a survey.

Norske Skog's insists this is because there are so many temporary workers in the newsrooms during summer, though there are clearly other reasons too.

One is the involvement of the flamboyant celebrity investors Petter Stordalen and Oystein Stray Spetalen who have thrown their hats into the ring with a NKr100m offer to acquire the doomed factory.

Their bid was immediately rejected, with Norske Skog insisting that the factory is not for sale since allowing new owners to take over would merely create a new competitor.

Critics pointed out that it was obvious that Norske Skog would reject Mr Stordalen and Mr Spetalen's bid and some cynics have dismissed the pair's efforts to safeguard the jobs at the factory as little more than a publicity stunt.

The investors have rejected such claims and say their plan to produce book paper rather than newsprint at the factory should ensure they would not compete with Norske Skog.

Regulatory scrutiny

Along with Mr Stordalen and Mr Spetalen, there are other, rather more discreet investors waiting in the wings.

Such investor interest has attracted the attention of Norway's competition commission, which has vowed to look into whether Norske Skog's refusal to sell the Skien-based factory as a going concern means it is abusing its market power.

This probe comes on top of an ongoing investigation by Brussels into allegations of price fixing. The investigation relates to Norske Skog and its competitors Stora Enso of Finland and Holmen of Sweden.

All the companies insist there is overcapacity in the European market and both financial analysts and investors agree.

Some analysts anticipate a shift of paper production both to Central Europe where factories can be placed closer to their customers and to South America where high quality trees can be grown very fast.

Indeed, US investment company Capital Group has raised its stake in Norske Skog to just over 10% since the row broke out in Norway, a move seen as an endorsement of the decision to shut the factory in Skien.

But in the paper industry there is more than one type of investor. About a fifth of Norske Skog's share holders are Norwegian forestry owners who depend on the company as a customer for their wares.

Many of them are clearly deeply opposed to any plans to shift production out of the country, though there are no guarantees that even their voices will be heard.




SEE ALSO:
Costly Finnish paper strike ends
01 Jul 05 |  Business


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