AUDITS REVEAL STAGGERING COST OVERRUNS IN

C O N F I D E N T I A L SECTION 01 OF 02 RIGA 000174

SIPDIS

E.O. 12958: DECL: 03/26/2019
TAGS: PGOV KJUS KCOR LG
SUBJECT: AUDITS REVEAL STAGGERING COST OVERRUNS IN
GOVERNMENT CONSTRUCTION

Classified By: Charge d'affairs a.i., Bruce D. Rogers. Reason 1.4(d)


1. (C) Summary: Audits of several state-funded construction
and renovation projects have uncovered staggering cost
overruns. The State Audit Office has submitted these cases
to the Prosecutor General to determine whether and, if so,
where to initiate investigations. Meanwhile, other
large-scale construction projects, most of which are tied to
the largest Latvian construction company, Skonto Buve,
continue under a cloud of controversy. The audits have
confirmed widespread suspicions of waste and mismanagement in
these projects, though only post-project and disappointingly
not through internal checks during the project lifespan. End
Summary.


2. (U) The State Audit Office exposed extraordinary cost
overruns in several state-funded construction and renovation
projects. Inguna Sudraba, Head of the State Audit Office and
a person highly-trusted by the Latvian public, has recently
announced the detailed findings of a number of major audits.
The State Real Estate Management (VNI) office ran over budget
by 22.1 million lats ($44 million) in the building or
refurbishment of many government structures including the
Ministry of Foreign Affairs and the Ministry of Interior.
Another recent report, which the Riga City Council tried to
block, stated that 27 million lats ($64 million) were
squandered on Riga,s Southern Bridge - an amount that Guntis
Ravis, Chairman of Skonto Buve, the bridge,s prime
contractor, rationalized as due largely to inflation. Prime
Minister Valdis Dombrovskis stated to the press that the
amount did not surprise him and that the Southern Bridge
seemed to be "among the most costly bridges in the world."



3. (C) In all of these cases the State Audit Office has
identified "cost overruns" but not specifically stated that
these were the result of corrupt practices or kickbacks. The
audit office has forwarded information from the audits to the
Prosecutor General,s office. If they suspect corruption,
the cases will be forwarded to the Anti-Corruption Bureau
(KNAB) for investigation. If the Anti-Corruption Bureau
(KNAB) uncovers evidence of corrupt activity, the case will
then be returned to the Prosecutor General's office for
prosecution. This is a process that can take years, appeals
are many, sentences can be light and those benefiting from
padded budgets know that they face little likelihood of
either swift or serious punishment.


4. (U) These audits have not stopped the construction of the
National Library, where allegations of cost overruns and
corrupt contracting are rampant. Ints Dalderis, the current
Minister of Culture, has vowed to continue with the Library,
and has promised transparency and control of expenses in the
over 24 million lat ($48 million) budget. Dalderis'
predecessor, Helena Demakova, was forced out when she signed
a design contract for a similar project, a new concert hall,
in secret and without the knowledge of the Prime Minister.
Yet there was only the briefest of reactions to this because
most Latvians simply assume problems in these large
construction projects.


5. (C) Skonto Buve, Latvia's largest private construction
company, with alleged ties to several political parties, is
included on some level in every large-scale building project,
all of which the public views suspiciously. However, even in
the most egregious of these cases, the Southern Bridge
project, the State Audit Office found no derogatory
information on Skonto Buve's activities. As NGO
counter-corruption watchdog Transparency International/Delna
Director Laura Mikelsone put it, "The reputation of Skonto is
undermined but not on a concrete or factual basis." Local
businessmen hear rumors of corrupt activity involving
contracts and land deals with Skonto Buve. Even the KNAB has
investigated allegations against them, finding no
illegalities.


6. (C) Comment: To the public and to the international
community, the Latvian government has reacted to the economic
crisis with much lamenting and sincere promises of belt
tightening. Yet somehow construction scandals such as these
still surface, involving total cost overrun sums which
approach a significant percentage of painful government
budget cut amounts. There have always been whispered
suspicions of waste and mismanagement, and it is a positive
step that the State Audit Office has put real numbers on
paper. However, it is concerning that post-construction
audits, and not internal checks during the life of the
projects, uncovered the overruns. Even if the prosecution of
corrupt officials and those who knew of irregularities
happens sometime in the future as a result of the reviews, it
still seems more like closing the barn door after the cash
cow has escaped. End Comment

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ROGERS