The decision made by the Latvian Competition Council mentioned that members of the construction cartel were involved in at least 70 procurement projects the total value of which was close to EUR 687 million. The cartel investigation period reaches as far back as 2011 all the way to 2019.
The total turnover of companies involved in the construction cartel in 2019 was EUR 44.8.47 million, equal to 8.54% of the total turnover of all construction companies in Latvia.
Of the total building construction turnover, according to estimates from the Competition Council, the turnover of cartel members in 2015-2019 was 16-20%.
Lursoft has concluded that in recent years turnover results of those companies has fluctuated. In 2015, their turnover was EUR 415.42 million. The year after it reduced to EUR 274.23 million. Another year later turnover experienced an increase (EUR 418.73 million in 2017, EUR 513.39 million in 2018).
In recent years the biggest profit index was achieved by cartel members in 2017 – profits after taxes reached EUR 20.62 million.
Competition Council found that cartel agreements covered different construction sectors and different forms of construction. This means this cartel may have had an impact on Latvia’s entire construction market. The decision of the Competition Council mentioned that the objective of members of this cartel was limiting competition and securing the biggest possible profits at the expense of the client. It is estimated that the cartel may have cost the state at least EUR 18 million in EU structure fund financing.
Considering the severity of the crime committed by the cartel, a penalty was applied based on cartel member’s last financial account. The fine ranges from 4.6% for SIA Velve to 6.1% for SIA Re & Re and SIA Skonto buve.
Looking at financial accounts of the cartel’s members in 2020 and 2019 it becomes clear that all participating companies had suffered turnover decline last year. Drops varied between 23.41% in the case with AS LNK Industries to 72.49% in the case with SIA RERE BUVE. The turnover of SIA Skonto declined by more than 70% last year. SIA Skonto buve explains the drop in its account with completion of massive projects in 2019 and the reduced construction rates, which came as a result of Covid-19 pandemic, which also reduced the volume of work available for the company.
The Competition Council has punished cartel companies with a fine of up to EUR 16.65 million. On top of that, companies that are members of the construction cartel will not be allowed to participate in public procurement projects for a year. Most of the aforementioned companies have already announced plans to appeal this decision. This means it has yet to come to force.
A look at public procurement results reveals that companies mentioned in the decision by the Competition Council still continue participating and winning in procurement projects. SIA Skonto buve and SIA Latvijas Energoceltnieks are two exceptions. According to information from Lursoft, neither has won a single procurement project so far this year.
The biggest procurement project won by one of the companies involved in the construction cartel is Rail Baltica project’s railway station infrastructure construction project at Riga International Airport.
Among the winners of the project the contract price of which is EUR 236.96 million are companies, including AS LNK Industries. SIA Re & Re has won four procurement projects so far this year.
According to data from Lursoft, in all procurements this company has won this year the majority has been won together with SIA RERE MEISTARI or SIA RERE BUVE. The biggest one is Riga Eastern Clinical University Hospital’s procurement for the reconstruction of the building on Hipokrata Street 2 into pharmacy logistics building. The contract is worth EUR 4.98 million.
Although clients should ensure effective competition in procurement projects, available information suggests the opposite, Competition Council has concluded. Participants of the project actively used the option to communicate with representatives of different procurement clients to influence procurement projects and accomplish results favorable to the goal of the cartel members.
In the past, ten cartel members had won in multiple municipal and state procurement projects. For example, in 2017 SIA Abora won in four procurements organized by the National Defense Military Facilities and Procurement Center (total contract price reached EUR 27.93 million). SIA Arcers won in six of this institution’s projects (total price reaches EUR 15.26 million).
Despite last and this year’s procurements won by cartel members, certain companies have also used the option to receive Covid-19 benefits from the state in the last one and a half years. This support was offered to businesses to compensate for losses from the pandemic and help them overcome the crisis. According to information from Lursoft, this option was used by six out of ten cartel members.
For example, data published by the State Revenue Service showed that SIA Skonto buve received EUR 300,000 and SIA Velve received EUR 200,000 from the state in the past three months. It should be said that all six state support recipients received grants from the state. SIA Latvijas Energoceltnieks was provided support in the form of re-scheduling of missed tax payments. SIA Abora also received state financing for wage subsidies. (BNN/Business World Magazine)
