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Saturday 25.05.2019 | Name days: Junora, Anšlavs

KNAB checks Latvian Railways’ wall project – half a million spent but there is no wall

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUCorruption Prevention and Combating Bureau has commenced an investigation in relation to the protective wall project near Šķirotava railway station in Riga – Latvian Railway (LDz) has partially paid for the project, but the firm in charge of it has simply transferred the money to some company in Hong Kong, as reported by public broadcaster TV3 programme Nekā personīga.

Six years ago, LDz signed a contract with private firm Composite Constructions for the construction of a noise-dampening protective wall in Latvia, Šķirotava railway station. LDz transferred to the company EUR 500,000 as an advance payment but there is still no wall and the owner of the private firm has disappeared, the programme found out.

The project was originally launched when Ugis Magonis was still in charge of LDz. At the time, the now board chairman of LDz Edvīns Bērziņš, who has recently received a great deal of bashing from Latvia’s Transport Minister Tālis Linkaits, was a board member in the company. The partner for the project, curiously enough, was selected without a public tender.

Bērziņš told Nekā personīga that he remembers the meeting during which development director, then the manager of Railway Engineering Association Māris Riekstiņš, presented the project, stressing that no one suspected a thing at the time.

Riekstiņš notes that talks were held with different specialists and someone recommended Composite Constructions, which had experience working with innovative materials.

It was planned that the wall would cost EUR 1.5 million and half of this amount would be covered by the European Union. Jump several years forward – the project has not commenced and Composite Constructions does not provide explanations how the EUR 540,000 was spent. LDz did turn to State Police, but no signs of a crime were found. The decision made by State Police was not appealed in the prosecutor’s office.

According to Bērziņš, police explained that the company has sufficient finances and is economically active. Because of that, LDz will ask the company to either do its job or return the money.

Nekā personīga found out that most of the money transferred to Composite Constructions to two Hong Kong-based firms. The names of those firms imply they work with nano-technology and trade. One of them – Nanotech Industrial Engineering, which received EUR 328,825.68, was liquidated in March 2019. The other company – Inco Trading International Limited – was transferred EUR 198,100.

Last year, LDz was forced to pay back the money allocated for the sound wall project by the European Union. In autumn 2018, a request was put to commence Composite Constructions’ insolvency procedure.

Four years have passed since LDz concluded in an audit that there are problems with the project. When governance of the company was taken over by an insolvency administrator, there was no longer any money left on its accounts. Insolvency administrator Andrejs Voroncovs found it strange that the company was picked without holding a public tender and was able to receive funding from LDz. This is why he turned to KNAB, the programme reports.

Voroncovs said he believes there is no way the board of LDz had no idea about this situation and their behaviour in response to it was inappropriate. In relation to Composite Constructions’ former board member Andrejs Žagars’ and the only member’s actions he will turn to State Police, as for actions taken by LDz, he will turn to KNAB.

The administrator also mentioned that LDz should not be considered Composite Constructions’ creditor, but LDz disagreed and turned to court. The court ruled in favour of LDz, but the administrator later appealed the ruling in the Prosecutor General’s Office.

According to Voroncovs, LDz «fought for the creditor’s status to avoid responsibility for certain officials». LDz chairman Bērziņš is confident employees of the company who were responsible for the contract acted responsibly.

At the same time, the programme has found out that in another matter Competition Council and European Commission have launched cases on possible violations committed by LDz. Competition Council member Jānis Račko explained that LDz and its subsidiary have exclusive rights to carry freights on specific routes. There are concerns regarding companies possibly abusing their positions on the market and applying excessive tariffs and possibly pushing out competitors from the market.

Only a handful of companies in Latvia carry freights on the railway – LDz subsidiary LDz Cargo and two other private firms. However, LDz Cargo is the only company allowed to carry freights on the small portion of railway from Latvia’s border with Russia and Belarus all the way to LDz hubs in Daugavpils and Rezekne. It is not possible carry freights in Latvia without passing through these hubs. This is why LDz Cargo is able to influence the entire freight-carrying business, says Nekā personīga.

State Railway Administration’s director Juris Iesalnieks reveals that efforts are being performed to convince European Commission that there is no need to interfere and that Latvia can resolve the problem on its own.

As previously reported, on Tuesday, 7 May, Linkaits publicly bashed the board of LDz, proposing its dismissal.

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