A change of political power at Riga City Council has resulted in the dismissal of Aivars Tauriņš, the long-standing Chairman of the Board of SIA “Rīgas Meži”, with accusations of mismanagement: high-quality logs sold as low-grade, more than €110,000 invested in the "Green Classroom" without the approval of the holder of the capital shares, and suspicions of fictitious employment. The municipal leadership vows to recover the damages caused from the company's former managers.
How do you assess this impressive "bouquet" of identified violations?
If the Riga city leadership files a claim in court, then court is where we shall meet. However, it seems that the audit carried out by the Riga City Council's Audit and Revision Department will be insufficient to prove any criminal nature of the violations with any real certainty or conviction. As far as I am aware, the municipal internal auditors did not establish any criminal acts or negligence on the part of the former board of "Rīgas Meži". Perhaps another commission or a special investigative unit will be formed, with the specific task of "finding" violations that could land the former managers in the dock.
Why such loud announcements from the new bosses in Riga?
That is not a question for me, but for the current city leaders!
Perhaps you should have had the decency to hand in your resignation yourself?
Anyone working as a board member or chairman of a capital company knows that the holder of the capital shares can dismiss them from their position at any moment. Since I "arrived" at "Rīgas Meži" during the reign of different political forces, I was prepared for the fact that a new city leadership with a different political direction would simply remove me from my post. There was no doubt that dismissal from the position of Chairman of the Board would happen sooner or later. The first sign of this was the appointment of a person unconnected to the forestry sector to the board of "Rīgas Meži". Essentially, the new power appointed their own trusted person to the board of the municipal capital company. This is nothing unusual. I had imagined that I would have a conversation with the new city leaders, during which everything would be "sorted out": I would train their trusted person, hand over duties, and leave the position within a few months, but in reality, I was "thrown out" and accused of mismanagement.
What condition did you leave "Rīgas Meži" in?
On 18 March, when I left the position of Chairman of the Board of SIA “Rīgas Meži”, there was approximately 9 million euros in the company's account, which is almost 50% of the company's net turnover in 2020. Undeniably, there were many who were keen on this money! It will be interesting to see where it ends up – whether it will be transferred to the capital share holder as dividends, allocated to Riga's city parks, gardens and forests, Mežaparks, or something else. The mentioned sum is very significant, as between 2009 and 2019, "Rīgas Meži" invested a total of about 30 million euros into the city's forests, parks, gardens, and Mežaparks in the form of cross-subsidies, which would otherwise have had to be sought from the municipal treasury. The money needed for the maintenance of the gardens, parks and Mežaparks will remain on the "agenda" regardless of the leaders of the Riga City Council or the members of the board and council of "Rīgas Meži".
In 2020, "Rīgas Meži" finished with a net turnover of €18.21 million (compared to €16.82 million in 2019) and a profit of 0.726 million euros. These financial performance indicators were achieved during the Covid-19 pandemic. Initially – in the spring of last year – the question of whether the year could be finished with a profit was very relevant, which is why both the company's net turnover and potential profit amounts were changed several times depending on the market situation. In 2020, the company's gross profit was €2.34 million, which is 22.5% higher than planned (€1.92 million). The capital company's profit would have been even higher if money had been credited to the company's account in 2020 for the land expropriated by the state for road construction. "Latvijas Valsts ceļi" will pay (or have already paid) this money to "Rīgas Meži" in 2021. The company's new management will be able to boast of good profit figures.
SIA Ernst&Young Baltic, when auditing the 2019 report for "Rīgas Meži", pointed out a risk associated with the company's implemented cross-subsidies, namely that revenues from the sale of roundwood and lumber were being used to fund the care and maintenance of forests, gardens, parks and Mežaparks in the city of Riga. A situation was brewing where corporate income tax in the amount of several hundred thousand euros would have to be paid into the state treasury for the scale of these cross-subsidies. Applying this situation to the last three years, the sum would amount to more than a million euros. The owner's initial solution intended to create provisions within the company to be able to pay this amount. With the help of auditors, a great deal of work was done to prepare documents that the State Revenue Service deemed compliant, and "Rīgas Meži" received an opinion from the tax administration: corporate income tax does not need to be paid for these expenditures that are important to the city of Riga. As a result, "Rīgas Meži" avoided costs of one million euros.
It should be noted that a business plan has been developed for "Rīgas Meži" and submitted to the Riga City Council. It provides for the replacement of the existing sawmill line with one that is significantly more efficient and productive. If it were not for Covid-19 in 2020 and the dismissal of the board, we might have chosen a machine supplier: the procurement tender had already been announced, and the equipment could have been replaced at the sawmill within approximately 9 months.
Why is the sawmill operating at a loss, and why were high-quality timber products sold as low-grade?
The audit report from the Riga City Council's Audit and Revision Department states that the "Norupe" sawmill operated with a profit of more than one million euros in 2020. From 1 m3 of sawlogs (small-diameter logs), the yield of lumber was 46.4-47.8%. All sawlogs with a diameter of 12-26 cm and a 30 cm limit at the butt end, obtained in the commercial forests of "Rīgas Meži", went for processing at the sawmill. Unfortunately, 3.6% (in the industry, this is 4% and more) of these small logs had knots, bullets, barbed wire, rot, or other defects, making their processing at the company's sawmill impossible. Although several potential sales routes were evaluated, sale by auction was chosen as the best, after having them sorted again by experts from the company "VMF Latvia". A sorting report was drawn up for the sorted loads, showing how many usable sawlogs there are, for which the market price is paid, and what the volume of culled wood is, for which the price for low-grade wood is paid accordingly. All commercial activities take place through auctions – selling at the highest price offered, with hidden prices existing for control purposes. This is a price below which the assortment is not sold. There are accusations that there is no fixed hidden selling price for such products, nor any criteria for setting one, but... there is no information on whether any timber industry player has such things at all, because the most realistic use for the mentioned assortment is processing into fuel wood.
Will the sawmill continue to operate if both the State Audit Office and the Competition Council have opposed it?
That is a question for the city's leaders. I know that for many, the sawmill is a thorn in the eye. We once created it with a far-reaching goal – to compensate for the expected decline in logging volumes. Specifically, until now, about 180,000 m3 of timber could be extracted each year from the forests owned by the city of Riga, but in the future, this volume will decrease by 30-40%. This forecast is based on a significant aspect: the increase in the proportion of protected nature areas in Riga's forests – it is estimated at about 30%. The second aspect: during the Soviet era, adequate commercial activity did not take place in these forests due to military considerations. As a result, a large volume of over-mature forest was accumulated, which, within a limited period of time that has now ended, forced an increase in logging volumes. Smaller harvesting volumes will mean lower revenues, but financing will be needed for the maintenance of Mežaparks and the city's gardens and parks. This is precisely why there is a sawmill, where the added value included in its processed products will compensate for the lack of roundwood income. Last year, the sale of roundwood brought €9.5 million into the "Rīgas Meži" treasury, and the sale of sawn products brought €4.4 million, or about 25% of the company's total net turnover; in the long term, this proportion should reach 33-35%. The current city leadership will have to evaluate the perspective management plan for "Rīgas Meži" together with the objections from the State Audit Office and the Competition Council and decide: continue the sawmill project or abandon it.
How justified are the concerns that have been raised that the commercial forests owned by Riga could be transferred to some private company for management through a tender process for a fixed annual fee?
Forests are Latvia's green gold: everyone knows this. Many could undeniably have an interest in "managing" these forests. I will repeat myself, but the current city leadership will have to evaluate the perspective management plan for "Rīgas Meži", and transferring commercial forests into long-term lease could be one of the solutions. "Rīgas Meži" is one of the largest forest managers in Latvia in terms of managed forest area (about 60,000 ha) and, as I have already said, extracts about 180,000 m3 of roundwood from its forests annually. Since the autumn of 2020, the company has held forest management and wood supply chain certificates from both of the world's largest forest certification systems – PEFC and FSC. "Rīgas Meži" owns a high-level nursery that not only provides seedlings for the renewal of the areas harvested by the company but also sells a certain amount on the market. If there is a lease tender, I think there would be many interested parties: both from Latvia and abroad. The question is about the amount of the annual lease fee, because... to maintain Riga's gardens, parks and Mežaparks, about 3-4.5 million euros are needed each year, which until now was provided by profits from the sale of roundwood and sawn products.
There was information that only one applicant applied for a log auction and "the board member who was ill at the time supposedly 'recovered' for a moment just to sell it to them at a low price"!
Everything in order! In February, both Juris Buškevics and I had caught Covid. "Rīgas Meži" was overseen by the recently appointed temporary board member Anita Skudra. In this situation, she had to solve issues regarding the sale of roundwood and sawn timber, specifically, to approve the results of auctions. This is particularly responsible in cases where the winning price does not reach the hidden one. It should be added that "Rīgas Meži" has its own procedure for setting hidden prices, which works poorly in the case of very rapid market fluctuations. Even in January 2021, birch veneer log prices were high, when... the main buyer "Latvijas Finieris" experienced a Covid crisis and stopped purchasing logs, the chartering of sea containers rose catastrophically and rapidly, and the weather was unstable – frost alternated with thaw. In such conditions, the price of veneer logs fell rapidly. Only one candidate participated in the auction, offering 50 euros/m3 (below the hidden price). Realizing the risk and, first and foremost, the changing weather conditions, as access to the stockpile is only possible in dry or frosty weather, this auction had to be approved with 90% certainty. This was discussed, but A. Skudra nevertheless did not approve the auction. A subsequent auction was announced, in which, unexpectedly, another purchaser participated, but also only one, with a price of 65 euros/m3. Like in a card game! We don't play cards in the forests. The result, after the claims submitted by the purchaser regarding the quality of the birch veneer logs (which had begun to deteriorate while waiting for the second auction), was no longer so brilliant, a fact which A. Skudra for some reason does not mention in interviews.
How did you manage to invest more than one million euros in the "Green Classroom" (which reminds some of a hunting lodge), of which more than 100,000 euros were invested without consulting the holder of the capital shares?
It is not a hunting lodge! That is how it seems only to a few people. It is a Green School, not a classroom, it is not one building or one room, but four buildings, compactly located and reachable via short walks of a few hundred meters. The first room for environmental education in the Daugava forestry building was created more than 10 years ago. That is where the Green School excursion in forestry begins, followed by a visit to the deer park 300 m away, to the nursery with a gazebo. Another classroom has also been created in the sawmill building. Already in 2009, the main buildings for the Green School were planned in the deer park. As a basis for the implementation of the idea, an unfinished log forestry house was purchased in the Balvi region. The architectural firm "Arhis" was engaged for the project development. It was intended to include not only a study classroom but also rooms for teachers, a utility building with workshops and a room (40 m2) for potential practical training of young hunters, which could be implemented by professionals in the field. There was an intention to finish this project this year. At the beginning of 2020, construction was stopped; by working with the architects, we found a series of rational solutions within half a year to reduce the construction costs of the utility building project by 30%. We gave up on the complete construction and equipment of the practical training room for the young hunters' school. In total, the project costs for the Green Classroom – the house and utility building – were estimated at €989,530, their total area is 351.4 m2, and the cost per m2 is on average €2816. At the meeting of the Riga City Council's Housing and Environment Committee on April 20, a different sum of 6270 euros/m2 was mentioned. Whether this figure was named for selfish or political reasons, or forced by a lack of mathematical knowledge, I do not know. It was a big surprise that a winch, a cold storage room and other attributes appeared on the list of works to be done. I found out on March 18 that a hunting lodge had been created under my leadership. I don't know any hunter who has been provided with hunting-related services in this lodge, and there would be none in the future either. Auditors concluded that the Green Classroom was visited by 54 excursions (1573 students) in 2019, and 20 excursions (464 students) in 2020.
Who are these fictitious board consultants who received 65,000 euros last year, and what is more, with no evidence for one of them of the work performed?
That is not true! In all the companies I have managed, I have always followed the principle – there is a function, there is a performer! It has never been otherwise. This fully applies to the two long-term board consultants as well. If someone does not want to find out their contribution to "Rīgas Meži" at this moment, most likely, that will be the responsibility of the "non-wanters"!
Objectively assessing, there is at least one board member currently being fictitiously employed at the company – Līvija Stukovenko, because she is absolutely not suitable for such a position but is being generously rewarded for other merits. Remotely following the events at "Rīgas Meži" and what has been publicly said, A. Skudra's contribution, to put it mildly, is also destructive!
There was an idea for a walking trail above the treetops in Mežaparks. What will be the fate of this project?
Again, a question for the Riga leaders. The concept was borrowed from Germany and Austria, where walks above the treetops are very popular. The idea was to create something similar in Mežaparks, where it would be another place to visit alongside the existing Riga Zoo and the park's attractions. The German company Stogel+Kolbl Architekten GmbH, having won the announced procurement, was ready to develop the project. The plan was: to create the trail and then lease it to a private service provider. I think that sooner or later such a trail will definitely be built in Latvia.