State Audit Office: formation of the VNĪ Council is legal nihilism

​Elizabetes Street building in Riga was considered to be demolished until recently in order to build an acoustic concert hall in the city center. It is now planned to be converted into an office for civil servants. The architects, who previously actively fought to preserve the building in its current form, also agree with this idea. The idea of ​​a concert hall on the site of the former Central Committee building appeared 3 years ago. The government supported the idea, but the architects did not want to allow the model of Soviet-era modernism to be demolished. The culture minister also gave in to the pressure. The concert hall will be built right there, in the adjacent Congress House. But the building on Elizabetes Street has been standing empty for two years and is making losses.

VNĪ intends that public sector employees could work under one roof. And they called it the “Office of the Future”.

VNĪ board member Andris Vārna says: “Speaking of Elizabetes iela 2, it is now at the level of ideas, but what we want is to leave the first floor accessible to the public, because exhibition halls are also possible there, in this way we would also make a contribution to the city and the environment. “

Such a plan is being developed together with the State Chancellery (VK). Because currently working in inappropriate conditions both in state institutions and ministries. It is important to move from old apartment buildings in the center of Riga to new, modern offices. Until then, we have to wait at least another 5 years. For now, the building is empty. It is forbidden to operate it because it does not meet the fire safety requirements.

The Elizabetes Street house is just one example of the chaotic approach to managing state-owned real estate. A large number of state institutions could also move to the current building of the Ministry of Agriculture. However, the building at Republika Square 2 does not belong to the capital company VNI. It is managed by another organization.

In the latest audit, the SC has found that, in general, the provision of state institutions with premises is not coordinated.

VK Rolands Irklis points out: “The management and administration of real estate on the state side is still extremely decentralized and fragmented. The principles according to which properties are managed and managed, how they are rented, are very different.”

After checking dozens of lease agreements, the auditors of the State Audit Office have discovered that not all properties have sufficient reserves for repairs. And this may lead to higher costs for the state budget in the future.

There are also the opposite cases where impressive profits have been made from the rent.

The building complex in Čiekurkalnė is used by the Ministry of the Interior, the Directorate of Citizenship and Migration Affairs, the State Police. At one time, a loan of 68 million euros was taken out for it. VK has discovered that this is currently costing them dearly.

Irklis points out: “An extremely high rent has been set. Namely, there are 11 – 12 euros per square meter. And, what is interesting, there are no restrictions here. The rent is set by the “internal procedure” of VAS VNI itself.”

The State Security Agency of the Ministry of the Interior covers the rent of the Čiekurkalns building complex. VK concludes that it is grossly overpaying. This is related to the inclusion of borrowing and interest in the rental calculation.

Interest payments are included much higher than actually. And even in 2020, when the rent was slightly reduced, the State Security Agency still paid more than the bank loan rate, VK concludes. 7 million euros were overpaid in four years.

Irklis states: “We know very well the condition of many properties of the internal affairs sector, the police stations are not in order.

Police officers are forced to work in deplorable conditions unsuitable for the working environment in many places, on the other side we see that the Department of Internal Affairs overpays considerable sums every year, providing the largest share of profits to the capital company VNĪ.

A similar situation exists with the notorious building in Mežapark, whose main tenant is the State Revenue Service (SRS). During the government of Laimdota Straujuma, the state bought back the shares of the company partially owned by Russian billionaire Viktor Vekselberg for 21 million euros and became the sole owner of the building. The government called the purchase profitable, as it will be able to reduce the rent. At the same time, the state had to take over the 55 million euro bank loan of the company associated with Vekselberg.

Also in this case, the bank loan and interest components were included in the rental fee of the VNĪ. The auditors do not consider it economically justified.

“Only these two objects account for 40% of all VNĪ revenues,” says Irklis. “It’s the lion’s share. These are the main objects that provide the profit generators of VNI.

What we see in the case of the Čiekurkalns line or in the case of Talejas Street, there are no brakes, no limits. You can actually make a huge profit.”

VNĪ board member Andris Vārna states: “We do not agree with this accusation. This (interest) rate has really been calculated. If at that time the rate was low, then for that moment. If the audit was carried out today, from 2023 onwards, then that criticism would be the opposite. That we haven’t taken enough. We, as the borrower of this loan, have to create a savings in order to even this out in the long term.”

The representative of VNĪ also pointed out that during Covid-19, the capital company applied reduced rental fees to private entrepreneurs and that VNĪ covered these, totaling less than two million euros, from its own budget.

Both the State Security Agency and the SRS replied that they are still evaluating the audit report of the SC and will decide on further action.

The VK also draws attention to the management of VNĪ, and specifically to the council.

Three of the four council members are temporary representatives, and two of them are in their fourth year in office. The law allows that a temporary representative can be appointed for up to one year.

The state auditor calls this legal nihilism because it weakens public trust in public administration. In addition, all members of the council also hold full-time jobs in leading positions in ministries and state-owned companies.

The Chairman of the Council, Jānis Garisons, is also the second person of the Ministry of Defense. His deputy, Ieva Braunfelde, is the head of the Administration of the Ministry of Finance. Jolanta Plūme, as deputy state secretary, is responsible for budget issues in the same ministry. On the other hand, Raitis Nešpors, who is considered to be the only independent representative of the council in VNĪ, is a member of the board of the state company “Pasažieru vilciens”.

The Ministry of Finance (MoF) emphasizes that working in the council is not a full-time job, and they can combine it. The long-term presence of temporary representatives in the council is explained by two unsuccessful tenders.

FM representative Aleksis Jarockis explains: “There was an insufficient number of applicants, and we extended the competition. But even after the extension of the competition in 2021, the range of applicants has been as it has been. And as a result, two applicants were selected, and we can see that as a result of the competition, only one has been appointed. Therefore, there are objective reasons that prolong this process.”

At the moment, however, no actual competition has been announced. Jarockis explains: “Because in our opinion, it is important to finish the projects that are currently being implemented by VNĪ with maximum quality.”

The assessment of the board’s activity in 2021 was lower than before. However, the council has allowed Renārs Griškevičs, the chairman of the board of VNĪ, to combine his position with the duties of the chairman of the council in “Latvia’s road maintainer”.