Promises from the Latvian government to provide support to businesses impacted by Covid-19 pandemic were as though manna from heaven in the last year and a half. However, when a company applies for rent fee relief or reduction, as provided by rules issued by the Cabinet of Ministers, usually the process enters a bureaucratic mess and support is refused.
This is the situation AS Ventpils Commercial Port ended up in when it requested Freeport of Ventspils authority to provide the state-backed discount on rent fee in accordance with the level at which the company’s commercial operations had reduced, as reported by Ventspilnieks.lv.
In summer 2021 the Ministry of Economics reported that in order to stabilize the economic situation during Covid-19 crisis and after, a number of state support programmes were developed to assist local businesses. This support ranged from downtime benefits for employees to tax relief, etc.
The Ministry of Finance announced in September 2020 about extending the payment terms for most benefits. The Cabinet of Ministers claim they understand the difficulties businesses face during this crisis. The government issued Cab. Req. Nr. 453 based on the Law on the Suppression of Consequences of the Spread of COVID-19 Infection. These rules state, among other things, that the user of movable or immovable property owned by public person and public person’s controlled capital company may, for a specific period of time, but no longer than 30 June 2021, use rent fee relief or reduction without adding changes to the rent contract.
It should be noted that this option is also covered by Cab. Min. Rules Nr.180, which were issued as part of the so-called initial Covid-19 law. Of course, the tenant is required to meet certain criteria – not have tax debts or any unresolved payments, they must not have signs of impending insolvency, they must not be an offshore legal person and must not have received rescue aid as of 31 May 2021.
According to Ventspilnieks.lv, everything is clear in theory – if a business honestly performs its duties before the state, the state and its capital associations, freeports and special economic zones included, provide assistance to businesses during times of global crisis. Ventspisl Commercial Port meets are the necessary criteria but Freeport of Ventspils authority still does not provide any aid. Why?
What about coal consumption in the world?
According to Freeport of Ventspils authority, the refusal to provide Ventspils Commercial Port with a rent discount during Covid-19 crisis is related to the Global Energy Outlook and the 8% drop in demand for coal in the world. However, according to data from the World Economic Forum, the drop was only 5%. It is entirely possible this is the case in a global context, but when it comes to Latvia the situation is completely different. This much is indicated by data from the Central Statistical Bureau of Latvia, which indicate that last year sea ports in Latvia had the lowest freight turnover since 1995.
Freight turnover at the Freeport of Riga was 23.7 million tonnes (27% less than the year prior), at Freeport of Ventspils it was 12.9 million tonnes (36.9% less), and at Liepaja it was 6.6 million tonnes (10% less).
Volumes of all important types of freights have gone down. The most significant decline was for coal freights – 13.4 million tonnes or 79.6%. This means for Latvia the drop in coal freights was nearly 80% and it is unlikely sea port businesses are in any better spot than they were before the crisis.
Russia has been gradually moving its freights away from Baltic States in recent years. Covid-19 has made this situation catastrophic. Market changes brought by Covid-19 have caused a major drop of coal freights from Russia to EU member states. The measures put in place to limit the spread of Covid-19 have further limited the use of electricity in industrial manufacture. The reason is because there are countless businesses in downtime, which also means reduced coal consumption. As a result, companies whose operations involve handling coal freights have also been forced into downtime.
At the end of 2020 the governor of the Bank of Latvia Mārtiņš Kazāks commented: «Latvia’s economy has weak points – the first is transit, where railway freight volumes have dropped considerably […].» the freights, as we all know, do not arrive at ports – they are carried using the railway…
Latvian Railway has no complaints about the lack of support
According to the logic from the Freeport of Ventspils authority, which gathers information about global coal market developments but refuses to assist businesses working within port territory (even though state regulations dictate it should), no support should go to Latvian Railway. But this company has received considerable aid from the state. Why?
LDz explains this situation in its annual account for 2020 the following way: «The situation that formed on the global market after the drop in demand for coal and oil products and the consequences caused by different international level political decisions for economic processes were further deepened by the challenges that were caused by Covid-19. […] Slower global economic activities meant either halting production processes or lowering production to a minimum. This also meant reduced demand for freight-carrying.»
LDz turned to the state for aid, and was provided. Even the Minister of Finances Jānis Reirs did not even ask for proof how exactly the global pandemic had impacted the decline of freights.
In July 2020, based on the long-term economic decline in neighbouring countries caused by Covid-19 restrictions, Latvia’s government decided to increase LDz base capital by EUR 32.42 million, compensate the costs of public railway infrastructure use by EUR 14.22 million and provide a financial balancing advance payment of EUR 13 million, as reported by Ventspilnieks.lv.
Freeport of Ventspils issues fines instead of aid
Under Covid-19 crisis Ventspils Commercial Port suffered a dramatic drop in revenue. The sea port asked Freeport of Ventspils authority for aid in the form of reduced rent fee in accordance with the level of drop of the company’s economic operations.
Freeport of Ventspils authority responded, and responded fast. Officials started looking for reasons to not reduce rent fees. In the end the conclusion was made that Covid-19 has not impacted Ventspils Commercial Port at all and that the company is not eligible for any benefit. It should be added that Freeport of Ventspils authority had previous refused to provide Ventspils Commercial port a discount for rent fees for the period between 12 March 2020 and 31 October 2020. An administrative case was commenced over this. No ruling has been reached so far.
An odd situation has formed. Freeport of Ventspils Authority believes the global Covid-19 pandemic has not impacted Ventspils Commercial Port that much and refuses to provide support, but at the same time the authority does not hesitate to present a receipt with ‘fines’ for missed payments between December 2020 and May 2021. Additionally, in an attempt to enforce the penalty, Freeport of Ventspils authority ignores Section 14 of Law on the Suppression of Consequences of the Spread of COVID-19 Infection, which states that «state and local government institutions, and also derived public persons and capital companies controlled by a public person, free ports, and special economic areas shall, by 30 June 2021, exempt merchants and other performers of economic activity, associations, and foundations affected by the emergency situation determined due to the spread of COVID-19 from lease payments for a public person property and a property of a capital company controlled by a public person or decide on reduction of lease payments, and also shall not apply late interest and contractual penalties in case of a late payment».
Instead Freeport of Ventspils authority even threatens the company – if Ventspils Commercial Port does not pay up, the authority may decide to terminate the rent contract without prior warning or trial.
A curious way of providing aid to a company in a difficult situation! But there’s more – Latvian officials ask for countless proof of the company’s economic operations being impacted by global restrictions but the Council of Europe and European Parliament approve an interesting amendment to Regulation 2017/352 related to ports: «In view of the severity of the consequences of the COVID-19 outbreak, it is appropriate to allow the managing body of a port or the competent authority to decide to waive, to suspend, to reduce or to defer the payment of port infrastructure charges due for the period from 1 March 2020 to 31 October 2020.»
How Freeport of Ventspils authority [didn’t] support a company heavily impacted by Covid-19
