Latvia has a long privatization history. Even in 2003 the government was aware that the goal of privatization had already been reached. With that, officials had suggested ending the process back then.
In 2005, the government adopted the Law on Conclusion of Privatization of State and Municipal Properties and Use of Privatization Certificates. This law created a legislative base that should have led to a soon conclusion of the privatization process. Unfortunately, no fixed terms were established and privatization continues to this day.
As concluded by the State Audit in its recent survey regarding the state of the situation with privatization of state property, privatization is, indeed, in its finishing stages, which has been continuing for the past seven years. Over the course of these seven years, only 3% of available state owned apartments were added to the list of privatized properties and only 2% of certificates were used. The Privatization Agency has only a small list of real estate properties that has not changed over the course of the past several years, which points to the low degree of interest of private persons for their privatizations.
The Privatization Agency also carries out the alienation of apartment homes and other residential real estate properties. The volume of alienated objects is larger than the volume of privatized properties. The audit’s uncovered information regarding long-lasting attempts to alienate real estate objects points to the fact that the level of interest residents is also low. With that, the country’s revenue is also low.
The number of unused privatization certificates – is only slightly above 2% of the initially issued certificates. Servicing privatization accounts costs the state more than EUR 300,000 annually. In addition, the number of those accounts does not seem to decline. Furthermore, 62% of privatization accounts for private persons have no more than 1 certificate per account: this means that the majority of residents have already used their privatization certificates for state and municipal objects.
The State Audit has recommended to Economy Ministry, as the institution responsible for the privatization policy, to assess the possibility of concluding the privatization process and use of privatization certificates with preliminary efficiency analysis of measures and policies. This would allow the planning of future actions and necessary steps to conclude the privatization within predicted terms. Continued inability to find a solution in relation to the conclusion of privatization and the inability of making the decision on a specific term for the conclusion of the privatization process will likely create additional expenses for the state budget.
Revenue of the Privatization Agency is formed at the expense of finances received from the privatization process. Unfortunately, the revenue has not been sufficient to cover the agency’s own expenditures since 2013. Because of this, the State Audit has asked Finance Ministry to assess the situation and decide whether or not the agency should be dissolved.
Economy Ministry has informed State Audit that the Privatization Agency has developed a project for medium-term strategy for 2016-2018. It is planned to submit this plan for approval in the nearest future. The Privatization Agency plans to become a single platform for selling state assets. It is worth mentioning that Economy Ministry has not yet developed and submitted documents in regards to the agency’s future activities to the Cabinet of Ministers for review.
As noted by State Auditor Elita Krumina: «This is a case when the cart is put before the horse. No matter the intentions of the Economy Ministry or the Privatization Agency, all actions must be carried out consecutively and in order governed by law. First of all, it is the government’s duty to develop a comprehensive objective for the agency. Only once it is complete will it be possible to develop a strategy for the Privatization Agency».
The State Audit calls the ministry to assess the point of allowing the agency to continue to function. Most importantly, the assessment should be based on the core function of the agency – the privatization process. The fact of delegation of other tasks to the agency shows that securing the privatization process costs the agency less and less resources. If the agency has managed to acquire other competences, not related to privatization, over the years, it is necessary to assess how those competences can be used more effectively.
Improvements are necessary for Economy Ministry’s management of the agency. Flaws include the fact that the ministry has not approved specific and measured results for the agency and has not assessed the agency overall results. Consecutively, indexes of results provided by the agency are not focused at ending the privatization process anytime soon: in 2014, in comparison with the year before, they were reduced by 70%.
In addition, by allowing board members to combine posts, the ministry did not assess the possible lack of contribution to the accomplishment of results of the agency such permission would provide. At the same time, increasing the number of board members has increased the agency’s expenditures by at least EUR 36,000 annually.
In total, State Audit has extended 13 proposals to Economy Ministry. State Audit will monitor compliance and realization of those proposals.