AS “Latvijas valsts meži” supports the recommendations developed by the State Audit Office for the Ministry of Agriculture regarding the management of mineral resources and will actively participate in their implementation, including by cooperating with the responsible sectoral ministries in the development of a sustainable subsoil management plan. However, the company strongly rejects the criticisms contained in the State Audit Office's report.

Specifically, in the view of AS “Latvijas valsts meži”, the State Audit Office’s comparison of the total export volume of the peat industry with the company’s peatland lease income is incorrect and creates a false impression regarding the effective management of the sector.

“It must be taken into account that AS “Latvijas valsts meži” took over or, in effect, “inherited” the peat and other mineral extraction sector with pre-existing contractual obligations with specific companies. Upon taking over the transferred land lease agreements for mineral extraction in 2000, the task of AS “Latvijas valsts meži” has primarily been to ensure compliance with the lease agreements in accordance with their content and existing legislation.”

The difference between the export revenue of the entire sector and the lease fees for peatlands leased by LVM can be explained by the knowledge of peat processing companies and their ability to invest in production facilities, creating export-capable peat products – packaged, high-value substrates. Here, two completely different products are being compared, characterized by different consumers, incomparable capital investments for their production, and incomparable levels of value-added; therefore, such a comparison is not correct,” says Edvīns Zakovics, member of the Board of AS “Latvijas valsts meži”.

Furthermore, AS “Latvijas valsts meži” disagrees with the interpretation in the State Audit Office’s report regarding the indexation of peatland lease fees implemented by the company between 2015 and 2018, which the State Audit Office believes could potentially have been implemented sooner.

“It must be recalled that it was LVM and the Ministry of Agriculture that drew the government’s attention to the need to change the basic principles of lease fees and the legislation governing them,” emphasizes Edvīns Zakovics. AS “Latvijas valsts meži” implemented the peatland lease fee indexation provided for in the Cabinet of Ministers regulations adopted in 2014 as a diligent and prudent manager – by assessing the legal consequences that would have arisen had the company unilaterally amended or terminated contracts with several dozen commercial entities whose land lease agreements provided for the possibility of amendment only through mutual agreement. Moreover, the indexation of lease fees had to be carried out while being aware that AS “Latvijas valsts meži” holds a dominant position in the market and therefore must not apply different conditions to different commercial entities.

The actions of AS “Latvijas valsts meži” in implementing the indexation of peatland lease fees have been assessed by an independent legal audit, which found the company’s decisions and actions in this matter to be fully compliant with regulatory enactments.

In its report, the State Audit Office also draws attention to the existing methodology for calculating the profitability of AS “Latvijas valsts meži”, pointing out that it does not include the growing stock managed by the company. AS “Latvijas valsts meži” emphasizes that the company’s annual reports are prepared in accordance with international accounting practices and are accompanied by an opinion from international auditors; therefore, the company cannot agree with the State Audit Office’s claim that incorrect information is included in the company’s reports. “I cannot agree with the assertion that the return on LVM assets is below the industry average; on the contrary – an analysis of the company’s economic data clearly shows that LVM’s profitability is high not only at the Latvian level but also when compared to similar forest management companies in Europe – Austria, Germany, Finland, and Estonia,” says Edvīns Zakovics.

Likewise, AS “Latvijas valsts meži” points out that in many European countries, as in Latvia, decisions by local legislators mean that growing stock is not included in the balance sheets of forest management companies – this is the case, for example, in Poland, Finland, Austria, and certain regions of Germany, among others.