Scandal with Latvian army – winner of major procurement unable to abide by contractual obligations

TV3 programme Nekā personīga reports that Latvian company Dobeles Dzirnavnieks JSC has refused to cooperate with Zītari LZ LLC, which is the company that was declared the winner in the procurement worth EUR 200 million of the Latvian National Armed Forces.
Latvia’s biggest grain product producer calls the contract impossible and suspicious.
Because of Dobeles Dzirnavnieks’ decision, however, Zītari LZ is unable to meet requirements of the contract – create emergency food reserves for the needs of the Latvian army.
Friday, the 3rd of March, marks the deadline for the Ministry of Defence to complete the investigation as to how a tiny Roja-based firm managed to get its hands on a massive food supply order for the army. According to the contract, this company is also responsible for the army’s reserves in the event of war.
Nekā personīga reports that

several large food producers have refused to work with the winner of this procurement.

The company in question – Zītari LZ – has ties to the political party For Latvia’s Development. On top of that, an employee of the now ex-Minister of Defence Artis Pabriks worked in the procurement committee.
The food procurement for the army’s needs consists of two parts. The first is the supply of food products for everyday needs – to prepare meals at the base. The second is creation of strategic food reserves for the army in the event of war. The winner received a five-year contract. The price is EUR 220 million, which can grow to EUR 330 million.
The order is enormous, which is why it would be logical for the client – NBS – to look for an experienced logistics or wholesale trade company or producer with a large network of warehouses and fleet of transport vehicles.
There were five contenders in the first stage of the tender. The companies already providing goods to the Latvian army – Sanitex LLC, Rēzeknes gaļas kombināts JSC and Lanekss LLC – participated in it. The procurement permitted catering service providers that have three years of experience even though the army needs supplies and storage of food products, not chefs.
This little condition allowed the small catering company Zītari LZ to participate as well. In 2021 this company’s turnover was half a million euros. For comparison: Sanitex turnover was EUR 411 million, Rēzeknes gaļas kombināts’ turnover was EUR 52 million, Suppliers’ association had a turnover of EUR 55 million, and Lanekss had a turnover of EUR 4.1 million.
Three companies were declared appropriate for the needs of the tender. Sanitex, however, did not apply for participation.
The company’s board member Kārlis Ābele explained in a conversation with TV3: «For a long time we’ve been one of the biggest food suppliers to the entire state sector, including NBS. This experience allowed us to meet requirements of this procurement. […] After looking through various requirements, however, Sanitex concluded that

the requirements of the project include excessive risks – penalties listed therein are unreasonable.

If we signed it, it would have put the company in a clearly unequal legal situation.»
Two companies submitted offers in the final stage of the procurement – Zītari and Lanekss. The offer of the former was later declared the most economically sound of the two.
The winner of the impressive food supply contract with the Latvian army is based in Roja. It has a contract for catering services in Riga with public transport company Rīgas satiksme. This contract is set to end on the 31st of March 2023. The company’s annual account mentions that the it also provides catering services to Roja middle school. During the Covid-19 pandemic the company received aid for current assets. Information from states the company owns nine vehicles – four light vehicles, four cargo trucks and one trailer.
Administrative costs proposed by Zītari and Lanekss differed more than 40 times. Food storage tariffs of Zītari LZ were also 40 times lower when compared to the other contender – 1 EUR/t. Experts in this field told Nekā personīga: considering warehouse rent, employees’ wages and taxes, this tariff is unrealistic in the current market situation.
The head of Latvia’s Procurement Monitoring Bureau Artis Lapiņš comments: «Assessment of offers is the duty of the client. The client is responsible for discerning whether or not offers are unjustifiably cheap or unjustifiably expensive. If the client had questions, we would consult them.»
Minister of Defence Ināra Mūrniece told the programme: «We are doing all we can to determine the situation». She stressed that the ministry is ordered to investigate this particular procurement.
The procurement for the needs of the army commenced approximately one year ago when Artis Pabriks, who is a representative of For Latvia’s Development political party, was Latvia’s Minister of Defence.

Zītari LZ was picked as the winner last year before Christmas.

National Alliance member Ināra Mūrniece had entered her post by then.
The procurement committee included representatives from the armed forces, the state defence logistics sand procurement centre and the ministry. Three weeks later the committee voted in another member – lawyer Valdis Verners from Artis Pabriks’ office.
Verners is an important person for Attīstībai/Par. He worked in the Central Election Commission as the party’s representative. He also previously served as legal advisor to a different minister that hailed from For Latvia’s Development – Juris Pūce. When the aforementioned army procurement was announced, Verners was already employed in the Ministry of Defence and provided legal advise to Pabriks.
When asked by Nekā personīga about he whole deal, State Defence Logistics and Procurement Centre’s Centralised Procurement Management Department manager Māra Ozoliņa had this to say:
«Is it normal practice for an employee of a minister’s political office to participate in a procurement?»
«No, I would not say this is normal. But if the ministry uses an opportunity to put one of their people in a committee, we have to do it.»
Ex-Minister of Defence Artis Pabriks is categorical: «We are accused of putting an additional lawyer to some important committee. This is absurd. I don’t see any reasons for this! No one told me this is something prohibited. If I’d known that, I wouldn’t have done it!»
Meanwhile the owners of Zītari LZ are more well-known than the company. One of them is Modris Supe. Last summer he was appointed as the company’s procurement officer with representation rights. For 20 years Supe represented the Freeport of Riga, then under Leonids Loginovs, in various lawsuits. After Loginovs left, Supe participated in the selection process for the new head of the port. Ansis Zeltiņš won that one. He is the brother of Zītari LZ executive director Jura Zeltiņš.
According to information from the database of the Corruption Prevention and Combating Bureau, in 2021 and 2022 Modris Supe had donated money to For Latvia’s Development political party: EUR 2 000 in 2021 and EUR 2 500 in 2022.
Pabriks explained this the following way: «Unfortunately, I did not know this. I didn’t pay attention. Had I known it would be such an important factor, I would have insisted on returning this money. In any case, I can promise I don’t know this person or this firm.»
The Ministry of Defence reports that the price of the contract – EUR 220 million (without VAT) – was calculated by experts from Latvian National Armed Forces.
Last year food supplies for the need of NBS cost EUR 8.5 million.

How his amount grew 20 times, no one can explain.

Also read: Ex-Defence Minister’ office representative involved in questionable army food procurement