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Competition Council: Riga City Council takes no responsibility for its own mess

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«It is unfortunate that Riga City Council has involved others in resolving its own negligent problems without taking any responsibility. Competition Council has issued multiple warnings to make Riga City Council to prepare and prevent the very situation we are in now,» says Competition Council chairperson Skaidrīte Ābrama in regards to the state of emergency declared in Riga.

Looking back a couple of years at waste management businesses and how this sector was narrowed and restricted for a long time, Ābrama reminds that the Competition Council started talking about it as far back as 2007-2008, when the council voiced objections against creation of municipal businesses.

«Municipalities had simply told us – there will be a company, and so private businessmen will no longer have anything to do,» says Ābrama. According to her, there was no market insufficiency, nor were there any strategic or security reasons for Riga City Council to enter the market.

According to the chairperson for the Competition Council, municipalities are moving towards a monopoly because in previous years there had been a very strong lobby of municipalities.

«Many initiatives were shot down in the Saeima and elsewhere, because municipalities wanted far more freedom, justifying it with allegedly ‘very logical’ arguments that do not fit anywhere in the topic of economic problems.»

She adds: «One of the given arguments was as follows: waste management is the autonomous function of municipal administrations. We [Competition Council] objected – autonomous function does not mean you should found capital associations and manage waste that way. You have to supervise how waste management is performed, organize fair procurements, and develop guidelines for provision of services.»

«In many cases I have observed municipalities making their procurement requirements more complicated. Often companies with an interest in municipalities prepare specifications for procurements,» says Ābrama.

As for people who, prior to entering the business arena, had worked in politics and had approved laws beneficial for their business, Ābrama stresses that such practice is very negative. Unfortunately, this is something of a common occurrence in Latvia.

When asked by journalists what the Competition Council thinks about the real situation with waste management business, Ābrama said: «Competition Council needs to trust the Register of Registers. Specifically in regards to records detailing beneficial owners.»

She notes that in regards to the situation in Riga, the Competition Council had, as far back as 2013, written a proposal for Environment Protection and Regional Development Ministry and various committees, saying that it is necessary to ensure Riga municipality is able to pick multiple service providers so that there is competition in the waste management sector.

«But now we have to look at what has been accomplished with new amendments from the ministry and if there is any progress in development of competition».

Baltic context

As for how Latvia looks in the context of Baltic States, Ābrama says approximately half a year ago in Tallinn, Estonia’s Justice Minister had told her that the practice of municipalities founding their own businesses is on a rise there as well. However, it is not as apparent as it is in the other two Baltic States.

«I believe this is very clear in both Latvia and Lithuania – public persons distort the market with their failure to maintain neutrality and their movement towards founding their own in-house companies.»

The problem, according to her, that in such cases municipalities are freed from the responsibility of organizing procurements even though Competition Council is against this. «We believe that if we cannot convince legislators to limit in-house companies, it is still necessary to have other internal companies to ensure pressure from competition – at least then procurements would be organized and include private companies. This would force municipal companies to become more efficient,» explains Ābrama.

According to her, Lithuania, unlike Latvia, could be the first to make the step and limit in-house formations. «Lithuania’s previous president said it well – that in-house companies of municipalities are a hotbed for corruption. I can say in the context of the Law on Competition that it represents a form of corruption that limits private businesses in any given industry.»

According to her, municipal companies that are put in this exclusive position are not in any way motivated to work more efficiently or reduce prices, because there is no pressure from competition.

«Competition pressure always forces businesses to think of ways to develop services and come up with better prices. In an exclusive position, there is no pressure from competition. Otherwise we come to situations when we read through reports from the State Audit, stating that something has become more expensive, something is not done, the quality of services of products has diminished, there are amounts of money no one has received, etc. Competition is what drives quality and development.»

Ābrama stresses that Lithuania is ahead of Latvia in regards to the authority of competition institutions.

«Since 1990 Lithuania has had a section in its Competition Council that limits the freedom of public persons in regards to the issue of different regulations in the interest of their owned companies.» Additionally Lithuania’s competition supervisory institution has gone further, as public persons who found their own companies have to ask permission from Lithuania’s competition supervisory institution, says Ābrama.

Latvia’s Competition Council, meanwhile, has only the right to recommend and advise others. «Yes, we also review the necessity of founding capital associations, expansion of influence, justifications behind continuing activities, but out authority reaches only advisory status. In Lithuania rules are much stricter. Nevertheless, even Lithuania has its fair share of problems,» comments Ābrama.

Competition Council says that in Lithuania there are far more violation cases launched against municipal companies, because Latvia still lacks a legislative regulation that would allow actions against public persons that distort the market. This is planned to be fixed on 1 January 2020, when such a regulation is planned to be adopted.

At the same time, the director of the Competition Council says the situation in Latvia is slowly improving – the Saeima has approved amendments that permit the council to punish companies. «This means we will have an appropriate repressive tool at our disposal next year.»

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