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Wednesday 13.12.2017 | Name days: Veldze, Lūcija

Riga Freeport's strategy: “no” to budget deductions, “yes” to luxurious cars and bonuses

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe fines presented to the Board of Riga Freeport (currently near LVL 160,000) are likely to be seen as insignificant nuisances when considering the fact that the Competition Council (CC) has initiated secondary inspections to find out if Riga Freeport abuses its dominant position on the market once again. There seems to be enough money for bonuses in the budget, but whenever the idea to transfer some amount to the state budget is mentioned, heated arguments soon follow.

Never-ending story – fine followed by fine

The Supreme Court of Justice of Latvia has decided to leave in force the January 7 ruling of the Administrative Court regarding the obligation of Riga Freeport Board (RFB) to pay a fine of LVL 105.000 for distorting tugboat service market at the port. This is the third lawsuit RFB has lost since 2009. The total amount of money in fine now reaches LVL 160,000.

The first fine was presented in March 2009 – LVL 45,000. Back then, it was uncovered by CC that RFB had illegally changed cooperation conditions with other tugboat service providers. This came soon after the purchase of two tugboats – Santa and Stella. This allowed RFB to get involved in the tugboat service market and arbitrarily provide itself beneficial conditions.

An additional fine (LVL 10,000) was added on April 2010 for not complying with presented obligations. CC had concluded that four out of six obligations of the Board were not carried out at all and the remaining two were carried out too late.

The third lawsuit was launched in September 2010. First the CC, then the Administrative Regional Court had concluded that the decision of RFB to deny PKL Flote the right to perform tugboat services using Marss – 1 tugboat was an act of abuse of dominant position. CC had also concluded that RFB had repeatedly denied PKL Flote the right to perform tugboat services and often limited the freedom of choice when it came to tugboat service providers within the port. This had greatly benefited RFB and caused significant losses to PKL Flote.

The fourth lawsuit was launched May 2013 in regard to Section 13 of the Competition Law. The aforementioned section of the law states that any market participant who is in a dominating position is prohibited to abuse this position in Latvia. PKL Flote has turned to CC in regard to the abuse of power of RFB and Riga Freeport activities, denying or delaying their right to perform tugboat services since 2010 with unjustified reasoning and often actively interfering with the company’s activities. CC is currently reviewing the findings in-depth. According to regulations of the Competition Law, CC will need to present its decision within six months of launching an investigation.

Even though there have been many lawsuits against RFB in which the Supreme Court had declared that activities of RFB had the signs of abuse of dominant position, the latter continues to distort the market. This is largely shown by the recently launched lawsuit of CC. This means only one thing – regulations of the Competition Law are not enough. The industry needs additional mechanisms to prevent RFB from abusing its power any longer. One such “safety mechanism” may be the Criminal Law and the sanctions mentioned in it about ignoring standards of market competition.

The Criminal Law provides for short-term imprisonment sanctions for not following competition and state interest requirements and if such activity causes losses for the state.

“No” to state budget deductions, “yes” to private car park

It seems as though the aforementioned fines have not had even the slightest impact on RFB’s wallet – bonuses paid to managers remain rather generous. It is only with help from state officials that this practice is somewhat limited.

A rather generous bonus was paid to Leonid Loginov this July – LVL 48,075. This was done even though he was criticized the most by State Audit for the misappropriation of at least LVL 41 million.

The State Audit had informed the Prosecutor General’s office of its findings. Upon publishing results, SA stated that a practice when officials remain in their posts in light of misappropriations of such a scale has no place in a developed and democratic country.

“A bonus of LVL 48,000 to Riga Freeport manager Leonid Loginov is but another clear example in favour of developing new port management regulations in Latvia,” – says Reform Party’s representative at RFB Inga Antane.

In the middle of September, RFB had approved amendments to the personnel selection system, noting that workers can only receive a maximum of tree bonuses no larger than three salaries. Amendments were adopted based on suggestions from SA. Loginov’s income could notably reduce as a result of these changes, because lately he has been receiving more money from bonuses than from his salary. Loginov’s main source of income is RFB. Last year, he received LVL 124,646 in salary, which is LVL 6,435 more than one year ago. On top of that, his salary as the only Board member of Riga Freeport Fleet was LVL 40,348 last year. He was paid LVL 800 more as Board member of Mersrags Freeport Fleet. The pension of the 59-year-old manager remained the same last year – LVL 23,466. Loginov keeps a total of LVL 36,000 in cash and LVL 196,084 in non-cash. His savings are kept in different currencies – LVL 37,137.82. LVL 10,000 of this amount is kept at SEB Bank open pension fund. He also keeps $12,769 and EUR 216,231.

Loginov also owns a large collection of different vehicles – Jeep (1993), MB G400 CDI (2004) and BMW Mini Cooper (2011). This also includes a BMW X5 (2002), a Harley Davidson (2002), two quadricycles (Kawasaki Brute Force 750 and Bombardier Commander 1010XT) and two motorboats – a 1939 Colin Arhe and 2005 Starfisher 8-40, Mila Primero.

Every RFB member is paid a salary – nearly LVL 3,000. Loginov is a good leader. He often listens to the needs of others. Olefs Pulks was recently bought a brand new portable computer and mobile phone. Juris Vaskāns wants to broaden his knowledge at the port’s expense (even though it is clear he will have to leave his post soon enough). “One of our own wants to travel to London. He wants to attend special training their. To learn,” – says Loginov.

Generosity in regard to his workers is not the only thing currently opposed by Reform Party. The latter has turned to Economy Ministry with a proposal – to increase state budget revenue by introducing a port budget deduction. This proposal provides for having port Boards (not companies working at the port) pay an additional amount to the state budget from their revenue. This will make sure Latvian ports do not lose competitiveness. The deductions ports will be obligated to provide will depend on work results. According to Economy Ministry’s estimates, the total revenue of Riga, Liepaja and Ventspils port combined for 2012 was LVL 57.2 million.

“According to SA, over the course of 2009-2011, Riga Freeport had misappropriated LVL 41 million. As a comparison – in order to increase salaries for all teachers or doctors by 10-20%, only 14 million are necessary,” – Daniels Pavluts’ advisor Ilona Platonova had previously said.

According to her “another state resource user – Latvian State Forests – manages forested areas and pays the state budget both dividends and corporate income tax. Last year, a number of state companies had transferred 90% of their profits to the state budget. If the management of all Latvian ports acted in a similar way, additional funds would be found in a large enough amount to cover all needs of our society. The total value of Latvia’s transit industry is estimated at LVL 1 billion annually.”

Economy Ministry notes that “ports are similar to state and municipal companies in regard to their management model. Their goal is effective management of state assets and increase of returns. Therefore, ports will be obligated to transfer returns to the state budget starting 2014”.

There are three large ports in Latvia: Riga, Liepaja and Ventspils. Their total freight proportion was 98.19% in 2012. These ports have been entrusted with strategies state infrastructure. Ports collect fees from companies that use this infrastructure, but do not transfer any money from the revenue they gain from economic activities and other services.

From the point of view of foreign experts

It should be added that the European Commission has launched a violation procedure against Riga Freeport in regard to decisions made by the latter on the tugboat market. Members of the Latvian Ports, Transit and Logistics Council still have not come up with a solution to the possible competition distortion at Riga Freeport. Meanwhile CC and Economy Ministry believe the port should be prohibited to perform any economic activities. It is also proposed to separate sea captain service from RFB.

Prime Minister Valdis Dombrovskis had previously said that this situation presents a real problem, especially given the fact that the European Commission is now involved. The state of Latvia could suffer significant losses.

The World Bank had also performed its own survey in regard to Latvia’s ports. The World Bank mentions the non-existence of any analysis of competition between ports, low efficiency of terminals and general freight activity as the main disadvantages. Experts of the bank had concluded that Latvian ports have lost a notable market share in their region over the years: 37% in 2000 to 21% in 2012.

Analysts also say that the lease of port territories is not transparent. Tenders are not announced and there are no criteria set for land use, nor are the minimum activity requirements. In order to improve general port efficiency, experts of World Bank recommend ports to change their management structure, provide transparent port territory use, announce open tenders in regard to land lease and carry out monitoring of port terminal activities.


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