Fundamental Problems in the Management of Real Estate Owned by the Riga Local Government

Lack of Political Planning, Ineffective Normative Acts, Limited Information Availability

Fundamental Problems in the Management of Real Estate Owned by the Rīga Local Government – Lack of Political Planning, Ineffective Normative Acts, Limited Information Availability

Transparency International Latvia today released a report on management of real estate by the Rīga local government, pointing to several problems in this area. Normative acts and practices related to real estate management must be criticised, because management effectiveness is not maximised, there are vast risks for corruption in this area, and it is entirely possible that the work is not being done in the interests of the public. TI Latvia has pointed to a lack of long-term political planning, with insufficient attention being devoted to this first step in real estate management. Existing normative acts in the field of real estate leasing create serious risks for corruption and do not allow the local government to extract maximum benefits from the leasing. TI Latvia has also pointed to a serious lack of transparency in real estate management. Much work remains to be done to make sure that these processes are effective, in line with public interests and without the risk of corruption.

For four months after October 2006, TI Latvia conducted a study called “Practices Related to Land Resource Management at the Rīga City Council and Ways of Improving Same”. The Rīga local government is the largest owner of land and real estate in the city, which means that these resources must be managed effectively and in line with public interests. Some of the property is managed by the City Council, while the rest is managed by subsidiary and decentralised institutions such as agencies and enterprises. These are institutions which have a great deal of freedom in terms of what they do with the management of real estate, which is why TI Latvia particularly focused on them. The institutions include the Rīga Forest Agency, the local government agency “Mežaparks”, Rīgas pilsētbūvnieks, Ltd., and Rīgas nami. TI Latvia identified existing problems with real estate management, and it offered proposals as to how the situation can be improved.

TI Latvia calls on the Rīga City Council to devote greater attention to the political planning level in real estate management, which is the first step for success in this process. Leasing is just one type of real estate management, and the Council should first come to a clear sense as to what it wants to do with its properties.

An illustration of how insufficient attention is devoted to political planning is an incident related to the Rīga Forest Agency. It was given control over significant forest resources in the city and in surrounding areas. The agency’s strategy says that forestland is an extremely important ecological, social and recreational resource, particularly in the environs of major cities. The agency has stressed the need for careful planning in relation to this land, and there are very strict limitations on any transformation of the land. In fact, however, TI Latvia feels that the Rīga Forest Agency and the Rīga City Council have not followed the strategy. Forestland has been leased for transformation and construction of cottage-type hotels, attraction parks, and buildings for leisure, tourism or even residence. TI Latvia does not deny that forest territories can be developed in this direction, but it would like to argue that such development must be carefully planned, and it must certainly be in line with strategic documents which have been approved before. Decisions which are in violation of those documents are impermissible.

The next problem to be identified is the existing system of normative acts in terms of regulating the use of the aforementioned resources. There are no all-encompassing regulations in Latvia to regulate the leasing of property. The existing normative acts, moreover, ensure a system which creates a very high risk of corruption, keeping the system from gaining maximum benefit from the use of its properties. The main problem here is a lack of transparency about the properties that are to be leased. Economically valuable information is in the hands of a narrow range of individuals, and there are unequal opportunities for those who wish to lease properties. That, in turn, creates the risk of corruption. The methodology for determining leasing fees is not based on the idea that maximum benefits or the market price should be obtained for the property – something which can be ensured through bids for tender. Instead, leasing fees are determined on the basis of various formulae which lead to decisions on fees which have nothing to do with the existing market situation and are lower than they should be.

The Corruption Prevention and Combating Bureau has designed a commendable draft law to regulate leasing procedures – “A law on leasing of state and local government properties”. This law addresses the aforementioned problems and risks of corruption. Sadly, politicians have delayed approval of this law for a very long time. TI Latvia feels that given the risk of corruption and inefficiency in the current leasing process, it is vitally important to deal with this issue as quickly as possible by approving the aforementioned law.

Finally, it is found that there are significant problems in ensuring openness about the results of managing real estate. Public information about the operations of institutions which manage real estate is an important mechanism in ensuring that these activities serve the public information. In most cases, alas, information about the leasing of real estate is either difficult to find or completely inaccessible. TI Latvia calls upon the Rīga City Council and other institutions which manage and leas real estate to take the initiative in offering clear and understandable information to the public about their operations. Information about leased properties must be published – the person or institution which has leased the property, the fee that is being paid, what is being done with the property, etc.

The existing process of managing real estate must be judged negatively. There is a high risk of corruption, and maximum efficiency is never achieved. TI Latvia recommends greater attention to political planning, and it calls for the approval of the law on leasing state and local government properties as soon as possible so as to bring greater order to the leasing process. There must also be further work in the area of transparency so that people can learn about the results of managing real estate. The full text of the TI Latvia report can be found at www.delna.lv (only in Latvian).

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