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Recommending a restructuring of operations

"If the difference is 90 to 100 million, I'm not sure that the solution is what has been suggested up to now", Terje Aunevik said. FOTO: Eirik Palm

Recommending a restructuring of operations

The government needs to consider societal benefits when it takes a position on Store Norske's plan to halt most of its operations, according to the leader of Svalbard's business association. Experts support his opinion.

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A theoretical calculation by Svalbardposten underlies the initiative. Store Norske needs 95 million kroner a year to maintain the Lunckefjell mine in the hope work can resume there. At the same time, the difference between future coal prices and what the coal company needs to get break even is about 190 million a year after the cost-cutting measures are implemented. Basically, the calculation is based on a production of 1.8 million tons and an exchange rate of 8.17 kroner to the dollar.

Solid contributor

Terje Aunevik, head of Svalbard's business association (SNF), said the government, as the owner of Store Norske, must therefore consider the social-economic aspects of a shutdown carefully.

"If the difference is 90 to 100 million, I'm not sure that the solution is what has been suggested up to now," he said.

After cuts already implemented during the past six months, the coal company needs a price of $65 a ton to break even. Experts are predicting future coal prices will be $51-$52 a ton. The difference of $13-$14 a ton would result in an annual shortfall of 110 million kroner.

The repercussions are significant, Aunevik said. Each man-year of work at Store Norske generates 0.56 full-time-equivalent in related employment. In addition, there are indirect effects such as kindergartens, schools and other public services, as well as sales at stores. The decision by Store Norske's board of directors means 250 jobs at Store Norske will be lost with a period of 18 months.

"In reality, this means that 190 million into the pot helps to employ 400 people. In a social perspective it is not certain that is useless," said the SNF leader, adding he believes such a package would also be a significant contribution to maintaining a critical mass in Longyearbyen.

Support

The company's owner – a.k.a. the government through the Ministry of Trade, Industry and Fisheries – is responsible for the final decision about the vote by Store Norske's board. The ministry has reiterated it is considering the proposal carefully.

Aunevik's analysis is receiving support from Norway's Institute for Research in Economics and Business Administration.

"In the short term, they're going over NAV's (Norwegian Labor and Welfare Administration) agreed budget on the mainland," said Kåre Petter Hagen, a senior researcher at the institute. "Now the prognosis is not looking promising on the mainland either, so that cost savings in the longer term must be borne by Norwegian taxpayers."

Hagen is a foremost expert regarding questions about social economic at the center, which is affiliated with the Norwegian School of Economics in Bergen. He said he is not familiar with the details of Store Norske's dilemma, but is clear about what should be the government's job.

"One has to look at the overall impact of this and that is a government responsibility," he said.

Restructuring

Store Norske is operating at a tremendous deficit, recording a record loss of 940 million kroner in 2014, including the write-down of assets. The company's before-tax deficit was 902 million kroner. The deficit during the first half of this year was 234.4 million kroner, leaving the board of directors little choice but to vote for the halt of most of the company's mining activities.

Aunevik said he agrees the board has only done its job as required by the Companies Act, but believes this should be a high-priority case for the trade ministry. He said the goal must be ensuring a transition that extends over five years.

"I think the owners of Store Norske should get a grasp on the societal perspective imposed on them," he said. "You might call it the big restructuring project."

Extraordinary

The Longyearbyen Community Council met Tuesday to discuss the cuts at Store Norske. All businesses in Longyearbyen were invited, and the goal was identifying opportunities and challenges for the future. Store Norske Administrative Director Wenche Ravlo provided an overview of the situation at the company. Mayor Christin Kristoffersen, a Labor Party member who is stepping down after next month's municipal election, said it is unclear how many residents would eventually disappear.

"What we know is that 20 to 30 percent of the children in kindergartens and schools – around a hundred children – have parents who work at Store Norske," she said.

Suffering

Svalbardposten listed last week the possible consequences of the cuts at the coal company. Fred Skancke Hansen, chief safety officer at The University Centre in Svalbard, said his workplace will notice if it loses an important safety partner. He referred to operations at Svea, workshop services and how planned development may be affected because UNIS is required to use redundant buildings in Longyearbyen. In addition, he referred to weaker schools and kindergartens

Another company that will be affected by the cuts is Lufttransport, since its flights to Svea would be eliminated.

"That can lead to a marked reduction in our workload in Svalbard. It will be so big that it would not be justifiable. Operating flights to Ny-Ålesund is too costly," said Hans Arne Jensen, the company's district director, adding the company is now looking at new possibilities, including flights to Greenland.

Commuters

The local Conservative Party this month demanded an end to "commuters" who work two weeks in Svalbard and then spend two weeks off on the mainland. Figures obtained by Svalbardposten suggest Store Norske has about 70 regular commuters at Svea. In addition, employees at subcontractor AF Arctic employees commute to the mainland during their free weeks. The commuters alone probably are enough to fill 14 737-800 planes, possibly more.
Visit Svalbard expressed concern that fewer flights may hurt year-round tourism
"The challenge for the tourism industry is the period from October to February," said Ronny Brunvoll, director of the tourism agency. "If we lose departures it means going back to the start."

Spitsbergen Travel representatives said the company will continue its commitment and efforts to increase the number of visitors in Svalbard.

Reluctant to paint a black picture

"It is good that there is optimism around the room," said City Manager Lars Ole Saugnes. "What I am concerned with is the task of preserving a robust family community. We may well operate a high school with two students, but those are very expensive pupils for the state."

"We do not know yet whether the new Svalbard message will include the concept of robust family community," said Kristoffersen, referring to the "white paper" outlining policy goals now being revised by the government. "What we do know is that Norway is the only country that can boast of having an adequate community on Svalbard and it would be very foolish to give up,"

At the same time, Aunevik is reluctant to paint a black scenario and said plenty of positive energy is being projected.

"But when you begin to see the dimensions, I must say that I am deeply troubled," he said. "I am afraid that we are going to lose mass restructuring power if we do not get started quickly."

Translated by Mark Sabbatini

Se bildet større

Wenche Ravlo told about the situation and the next steps in Store Norske during the extraordinary meeting on Thuesday. FOTO: Christopher Engås

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