BALTIC BLOG: Shocking cartel penalised in Latvia

By bne IntelliNews July 3, 2013

Mike Collier in Riga -

Latvia's business watchdog announced on June 27 that it is imposing fines totalling more than LVL2m (€2.8m) on 26 companies carrying out energy infrastructure construction works. The companies are accused of operating a huge cartel with the implicit support of state-controlled utility Latvenergo.

The action - which includes some of the stiffest fines ever handed out by the Competition Council (KP) - provides a reminder of the huge influence wielded by Latvia's biggest construction firms. A select few seem to win every major contract, raising suspicion that they prefer a bit of back-scratching to genuine competition.

In its ruling, KP said more than 300 contracts, dating as far back as 2006, handed out by Latvenergo, distribution subsidiary Sadales Tikls, Latvian Railways, and oil-transit firm LatRosTrans (the largest Russian joint venture in the Baltic states) show evidence of being decidedly dodgy. Typically the works involved the installation or replacement of power lines, cable laying and similar tasks.

Contracts involved amounts "from a few thousand lats to around LVL150,000," KP said in its summary: "The offending electrical construction companies ... agreed to participate in a particular procurement [method], thereby eliminating competition and denying the customer the opportunity to receive a lower, normal market price."

The cartel appears to have operated in classic manner, with the pre-decided winner telling the other "bidders" exactly what was in its tender. The form of kickbacks handed out to those "losers" was not revealed.

Due to the depth and duration of the price-fixing racket, companies will be fined a percentage of their 2012 turnover, ranging from 7.5% to 1.5% depending on how involved in the scam they were. Coughing up the lion's share of the cash will be construction firms Vidzemes Energoceltnieks (LVL471,000), Latvijas Energoceltnieks (LVL309,000), the Latvian subsidiary of Finland's Empower (LVL303,000), Rio (LVL194,000) and Aiviekstes Energobuvnieks (LVL118,000).

KP also criticised Latvenergo for playing a "significant role" by turning a blind eye to "obviously illogical and mismatched tenders from bidders". In addition, Latvenergo representatives were "in close contact with individual bidders," it noted. Anti-corruption bureau KNAB is following up with its own investigation.

This is by no means the first time Latvenergo and its sub-contractors have been linked to corruption. In 2010, Chairman Karlis Mikelsons - one of the highest profile businessmen in the Baltics - was led away in handcuffs to be charged with similar offences involving bribery and rigged procurement contracts. His trial is ongoing, largely as a result of Latvia's inept court system, which virtually ensures any major case will drag on for years.

In May, investigative news show Nothing Personal had already blown the whistle on Latvijas Energoceltnieks in connection with allegedly rigged contracts in the central Gulbene region. Its owner is Guntis Ravis, one of the country's richest men, and owner of a portfolio of 40 construction companies that are involved in most of the country's highest-profile construction works. Many of those contracts end up costing a lot more than expected.

The most notorious example is a run of the mill road bridge across the River Daugava that cost significantly more per-metre than the spectacular Millau viaduct in France. The Latvian span now known locally as the "golden bridge"; not because of its colour but because it must presumably be built out of the yellow metal. Questions are also unanswered on the hulking new national library - which even the mayor of Riga has likened to a supermarket - and more modestly a row of flower stalls next to the cabinet office that cost a remarkable €1m.

The KP ruling completed a poor week for Ravis. On the night of June 20, Riga castle - the official seat of the president - spectacularly caught fire, and the historic building suffered severe damage. The construction magnate was swift to try to deflect criticism against his company Skonto Buve, which happened to be carrying out renovation works at the time.

The exact cause of the blaze is yet to be established, but on June 25 state TV channel LTV said cigarette butts and two empty fire extinguishers had been found in an area under renovation near where the fire is believed to have begun. If anyone is ultimately found guilty of negligence for burning down Latvia's number one landmark, the fines handed out by KP will look like pocket change.

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