RIGA – Economics Minister Laimonis Strujevics suspended new privatization payment regulations July 28 that many say could cost Latvia 8 million lats ($13.3 million) in privatization revenue.
Strujevics said the regulations are suspended until the Cabinet of Ministers, Finance Ministry, Parliament budget and finances commission and Prosecutor's General Office review procedure's legal and economic validity.
The new procedure, adopted by the Latvian Privatization Agency's (LPA) council July 17, allows the LPA board to substitute payment in lats with privatization vouchers when more than half and no less than 80 percent of the total price in lats is paid.
The voucher system is only valid if all contract conditions are fulfilled. The regulations apply to the privatization of enterprises, portfolios of shares and state capital shares.
The regulations were prepared by a working group headed by Strujevics, who is the state proxy at the LPA.
Strujevics said the group initiated work in May because the current law on privatization includes no procedure where means of payment can be changed.
According to Strujevics, some of the companies that applied for change of payment were allowed to do so, but some were refused the opportunity. The LPA board's decision was based on subjectivity, Strujevics said, and "anywhere where there is room for subjectivity there is room for corruption."
According to the current law on privatization of state and municipal property, the LPA board can change payment conditions in three situations: if more than half the price is paid, regardless of means of payment; if all foreseen investments are completed; or if a company's workforce was increased by one and a half times.
The paragraph on the change of payment conditions came into force in April 1996, and since then, 183 companies have been allowed to pay a total sum of 7,233,002 lats with vouchers.
The new regulations that came into force July 17 caused a big uproar in the media because they will decrease state budget revenues from privatization by an estimated 8 - 11 million lats.
The LPA's planned privatization fund revenue for this year has already been decreased from 51.7 million lats to 29.1 million lats because the privatization process of major state enterprises has slowed down. The new regulations can decrease the revenue by another 8 million lats, said Vija Kasakovska, LPA public relations officer.
Finance Minister Roberts Zile couldn't estimate the loss of revenues from privatization because he hasn't received the regulations yet. Zile said that the incurred loss will depend on how many companies will apply for the change of payment.
"The regulations are general and any enterprise can ask for change to the means of payment, so until some enterprises apply and are granted a change in payment conditions, the ministry cannot estimate the loss to the budget," said Iveta Bojare, public relations advisor for the Finance Ministry.
In addition, the companies have a payment schedule according to which they pay a certain percentage of the total price every year, and Zile said he can't estimate the exact loss this year.
According to the LPA, 31 companies applied for the change to the means of payment as of July 24, asking to substitute a total sum of 1,517,526 lats with vouchers.
Zile said the new regulations contradict Latvia's international obligations.
"If the price of the privatized company is changed after the auction, this may be considered as state support to a certain company, and that contradicts the law on the state support to enterprises," Zile said.
Latvian Prime Minister Guntars Krasts, however, a fellow member of Zile's For Fatherland and Freedom/LNNK party, was more criticial of the voucher system.
"Changing the means of payment is practically changing the initial conditions of the contract, which makes the auction meaningless and unfair," the news agency LETA quoted Krasts as saying. "It's understandable that the LPA council was not satisfied with the previous system, which allowed the LPA board to change freely the initial price of the enterprise, but the new formula is not free from drawbacks either."
Krasts said the regulations should be suspended until the parliament passes new amendments to the law on privatization. The draft was submitted by the Cabinet of Ministers in June.
Strujevics said he would revoke the regulations himself if he finds something in them that contradicts the current laws.
It's not in Krasts' power to revoke the new regulations, but MP Andris Rubins will propose a vote of no-confidence if the prime minister fails to veto the LPA council's decision, the Baltic News Service (BNS) reported.
According to BNS, the Cabinet of Ministers might consider the issue of the new regulations during its July 28 session.
