Finance Ministry audit: Ilves should pay back up to 90% of Ermamaa grant (7)

President Toomas Hendrik Ilves entertaining ambassadors to Estonia at Ärma Farm. June 20, 2016. (facebook.com)
11/2/2016 12:46 PM
Source: BNS, ERR
Category: Business

An audit by the Ministry of Finance suggests that former president Toomas Hendrik Ilves’ company, Ermamaa, should be made to pay back 90% of the support it received from Enterprise Estonia for the development of the Ilves family’s country home into a tourism farm.

The audit also states that Enterprise Estonia was wrong when it found grounds to grant Ermamaa €190,000 support in 2006.

Moreover, the audit recommends that the government declare 90% of the support granted to Ermamaa as not eligible for assistance, and that because of this it should start the necessary procedure to pay the money back to the European Commission.

Enterprise Estonia should review its decision made in 2012 to only demand 10% of the grant back, and instead insist on a substantially larger amount, the audit read. The decision was based on Enterprise Estonia’s claim that it couldn’t be ascertained to what extent Ilves’ company had defaulted on the grant’s requirements; the ministry’s audit finds this argument to be erroneous.

Audit: Enterprise Estonia's 2012 decision to only demand 10% back not justified

In its 2012 decision, Enterprise Estonia argued that it was not possible to assess the damage incurred by Ermamaa’s failure to meet the terms of the grant. This is not justified, the Finance Ministry’s audit argues, as the damage done could be ascertained based on the duration of time during which the facility had been used in accordance with its intended purpose.

In addition, Enterprise Estonia failed to justify why it settled for a 10% payback only, as it could have demanded back up to 25%, the audit finds.

The ministry finds there to be an apparent conflict in the decision of Enterprise Estonia, which found that Ermamaa’s obligations had been met by 90% – while its facilities, built with the help of the grant, had not been used according to its business plan 90% of the time. While Ermamaa had agreed to terms specifying at least 60 months of Ärma Farm to be used as a tourism farm, it had really only hosted guests for a total of six months.

Ermamaa’s reasons why it didn’t run Ärma as a tourism farm — as explained by Toomas Hendrik Ilves later on, this was impossible due to the security requirements of the office of President of the Republic — have to be assessed separately, the ministry’s audit finds.

Hosting guests of the president is not the same as running a guesthouse

Enterprise Estonia’s 2012 decision to completely stop the project and demand only 10% of the grant back was not consistent with its policy of suspending it in 2007, the audit finds. Hosting guests of the president, for which the state compensated OÜ Ermamaa, was not necessarily consistent with Ermamaa’s core purpose of offering accommodation and conference services to the public.

The situation gets more complex, as Ermamaa, owned by the Ilves family and operating on land that belongs to Toomas Hendrik Ilves, then sublet its facilities to Toomas Hendrik Ilves again — so that he could host his guests as president.

With this, the ministry’s audit finds, Ärma Farm wasn’t open to the public, hence Ermamaa didn’t run a business offering accommodation and conference services to the public, and in consequence it couldn’t be said that it had met the terms of the grant.

Positive effects caused not by Ermamaa, but by President of the Republic

Suspending the intended business and replacing it with the guests of a national institution does not meet the goal of the grant, the audit finds. In such case, a situation develops where meeting the objectives of the project is taken over within the framework of a state activity.

And since the objectives of the project are then met by the state instead of a private entrepreneur, the support granted to the private entrepreneur becomes uneligible.

In his explanations of the situation, Toomas Hendrik Ilves claimed that OÜ Ermamaa had met the objective of a positive effect on presenting Estonia as a tourism destination. The audit also declares this as irrelevant, as in the present case, these positive outcomes were caused by the activities of the President of the Republic, and not OÜ Ermamaa.

KPMG audit: Most favorable solution for Ermamaa chosen, other options not taken into account

An audit commissioned by Enterprise Estonia following a corresponding demand by Minister of Entrepreneurship Liisa Oviir (SDE) and carried out by KPMG also finds that there wasn’t sufficient justification for Enterprise Estonia’s 2012 decision to demand only 10% of the grant back.

There were different interpretations possible at the time of the 2012 decision, the auditors find. The final decision was made based on an interpretation favorable to the applicant, and wasn’t in accordance with the approach normally applied by Enterprise Estonia if a project that received such a grant didn’t follow its five-year requirements, they add.

According to the KMPG audit, it is not clear why interpretations less favorable to OÜ Ermamaa were not taken into account.

Timeline

2005: Enterprise Estonia receives a grant application from OÜ Ermamaa. The support the company applies for is to be used to build a “guesthouse/library/conference center” in Abja, Viljandi County.

2006: Enterprise Estonia decides to support OÜ Ermamaa with a grant in the amount of 2,979,000 EEK, or €190,392.80. Conditions of the grant require Ermamaa to invest the same amount in the project.

2007: OÜ Ermamaa submits the project’s report, Enterprise Estonia accepts the listed expenses and submitted documents. On Mar. 3 Enterprise Estonia makes its last payment to Ermamaa in the amount of 738,874.29 EEK, or €47,222.55. The same year, Enterprise Estonia agrees to temporarily suspend the project until Oct. 9, 2011. Toomas Hendrik Ilves has been elected president, and as the president explained later on, the tourism farm couldn’t be run for practical reasons.

2011: Toomas Hendrik Ilves is elected for a second term as President of the Republic. Again following a request of OÜ Ermamaa, Enterprise Estonia agrees to suspend the project until the end of Ilves’ second term.

2012: On Mar. 30, following a request by Ermamaa, Enterprise Estonia decides that the assets acquired with the help of the grant are no longer used as originally intended, and will have to be returned to their intended use on Jan. 1, 2017.

In the same decision, Enterprise Estonia states that Ermamaa would have to pay back 10% of the grant if this did not happen.

2016: On Oct. 10 OÜ Ermamaa informs Enterprise Estonia that it isn’t planning to put the assets acquired with grant money to their intended use. Following this, Enterprise Estonia informs Ermamaa on Oct. 11 that it demands 10% of the grant back. On Oct. 12 Ermamaa pays back €19,039.28 to Enterprise Estonia.

Other audits and investigations

The European Commission has demanded information from Enterprise Estonia in the matter, and the Riigikogu’s Anti-Corruption Select Committee are investigating the issue as well, with opposition party members demanding hearings involving Maria Alajõe, at the time Enterprise Estonia’s CEO, former Minister of Economic Affairs and Communications Juhan Parts (IRL), and current Minister of Entrepreneurship Liisa Oviir (SDE).

Editor: Dario Cavegn

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