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

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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