OIL EXEC OUTLINES CORRUPTION AND COERCION AT RIGA

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000147 SIPDIS NOFORN SIPDIS E.O. 12958: DECL: 02/28/2017 TAGS: PGOV PINR ECON ENRG ETRD KCRM LG SUBJECT: OIL EXEC OUTLINES CORRUPTION AND COERCION AT RIGA FREEPORT AND RIGA INTERNATIONAL AIRPORT Classified By: Ambassador Catherine Todd Bailey for Reason 1.4(d) ¶1. (C/NF) SUMMARY: Managing Director of Latvia's branch of Statoil Baiba Rubess outlined to emboffs a Riga Freeport and Riga International Airport (RIX) that lack transparency, are dominated by the interests of the political elite, but that ultimately will be developed significantly and profitably--though with less benefit to all Latvians than might otherwise have occurred. Her inside experience and direct dealings with both facilities make her a valuable source of information on what is happening there and how the lack of transparency plays out. Developing the rule of law in Latvia is a key priority for Post, and although the freeport and the airport are among the most difficult to tackle, they also remain the most significant if we hope to bring about a change in the culture in Latvia. END SUMMARY. ¶2. (C/NF) On February 22, Ambassador Bailey, Defense Attache, Pol/Econ Chief and Pol/EconOff (notetaker) met with Baiba Rubess, Managing Director of Latvia Statoil (a subsidiary of the Norwegian company),to gain her views on corruption and the future development of the transportation sector in Latvia, particularly the Riga Freeport and Riga International Airport (RIX). Rubess grew up in Canada, but returned to Latvia in 1993 to help rebuild the newly independent nation. She brings extensive business experience and a western political perspective to bear on the economic and political challenges faced by Latvia. Statoil has a significant presence at Riga Freeport and has been looking to expand its operations at RIX, providing Rubess a unique perspective on these matters. ¶3. (C/NF) Rubess stated that the Latvian political and business elite treat Riga Freeport and RIX as real estate projects for personal gain rather than key strategic assets that should be developed for the maximum benefit of the entire country. In her opinion, the closure of the privatization process in Latvia last year meant that ownership of the land at the two locations had been completed and full development could now proceed. She was very optimistic that there will be significant development at both locations, and she repeatedly acknowledged that the development plans she has seen are excellent and will prove an economic boon to the region. However, she stressed that the development could have been more beneficial to all Latvians were such projects planned and implemented in an above board manner, rather than to benefit the interests of a few people. In her view, the recent change in the Riga City Council, especially removing the New Era party (which puts fighting corruption at the center of its platform) were designed specifically to remove the last governmental obstacle to realizing these plans. ¶4. (C/NF) She noted the case of a Statoil service station next to the passenger terminal at the port as an example of the connections between the sea port and airport. Statoil was, in essence, threatened that its ability to operate at the airport would depend on facilitating the transfer of the land under the service station, which would be prime land if the maritime passenger capacity of the Freeport is increased. ¶5. (C/NF) Rubess described another instance in which Statoil bid on a project to provide aviation gas to Air Baltic. Mid-way through the bid process, she was informed that Statoil lost the bid and it would go to a local company tied to political interests, Kurzemes Degvielas. (Note: Rubess also said that Kurzemes Degviela appeared to be ultimately owned by some of the former KGB officers who are doing so well in the energy sector in Russia. End note.) She asserted that the selection process was patently corrupt and driven by non-economic considerations. She said she was clear with the head of Air Baltic that in a transparent competition, Statoil's bid had to be the most competitive given the combination of price and service, but was simply rebuffed. ¶6. (C/NF) In yet another instance, a Singapore-based Statoil trading subsidiary considered establishing a project at RIX in cooperation with Ryanair, but was informed it would have to set up an additional subsidiary and allow local entities part ownership in the project for it to go forward. Although not involved in the discussions, Rubess said Statoil did not proceed as this is not a practice it condones. ¶7. (C/NF) Rubess spoke at length about her impression of Ainars Slesers, minister of transportation and head of the First Party. Slesers has been very active in trying to develop the airport in particular. She talked about visiting "the godfather" -- "to kiss the ring" and get his blessing for a proposed deal at the airport (unclear which specific airport project she meant). She did not consider him to be RIGA 00000147 002 OF 002 without moral scruple, however, stating that Slesers believes in Latvia and believes in capitalism, but most of all believes in himself ) "L'etat c'est moi" she said of him. She elaborated that he generally works for Latvia's interests, particularly as he defines Latvia's interests as coinciding with his own. She also commented that she takes his profession of conservative Christian values at face value, rather than as rhetoric used solely for political expediency. ¶8. (C/NF) According to Rubess, Statoil is the largest tax payer in Latvia, and "business is very good." Although she listed a number of challenges with corruption, Rubess asserted that things are improving. With Latvia's entry into the EU and further economic development, standards are improving and the business climate is somewhat more transparent. In addition, she claimed that the latest generation of Latvians entering the corporate world wants things to operate more transparently. ¶9. (C/NF) Comment: Rubess' description of corruption in Latvia was for the benefit of Post's understanding, and she was not asking for assistance from the Embassy. Latvia, as with so many post-transitional economies, often exemplifies capitalism in its worst light. Now that eventual profits have been apportioned among the oligarchs, robust development plans for Riga Freeport and Riga International Airport that are solid and well thought out are likely to go forward. However, the corruption and lack of transparency mean that such development will benefit the powerful few rather than society as a whole. Strengthening the rule of law is a key mission priority and this conversation exemplified that we still have much work to do. Financial and political interests are firmly entrenched at both Riga Freeport and RIX, and there is no quick and easy means to effect reform. Yet, precisely because they are so hard to tackle and so potentially lucrative for various oligarchs and political players, the Freeport and airport should remain central elements in our battle to fight corruption and promote the rule of law in Latvia. BAILEY