National Audit Office: Privatization of state-owned real estate management has failed

Riigi Kinnisvara AS building. (Postimees/Scanpix)
10/30/2016 9:01 AM
Source: BNS
Category: Business

The National Audit Office is of the opinion that the government’s failure to agree on coherent policy has led to badly managed real estate properties, which will cost some 500 million euros to renovate now already. In the 15 years since the establishment of a private company to deal with the state’s real estate, the government had been unable to agree on a common approach.

Auditor General Alar Karis wrote in a statement published on Wednesday that the state property reform had been plagued by problems at every stage since its beginnings. “The problems related to state property have been known for a very long time, but there is still no agreement on how to solve them,” Karis said, commenting on the work of state-owned Riigi Kinnisvara AS as the provider of property services to the state.

According to Karis, it is still unclear how much and what kind of property the state needs for the performance of its functions, and how the renovation of buildings will be financed. The lack of agreement in the government was the reason why the development of the state’s property reform had been uncoordinated, and the understanding and practices of ministries concerning the use of the state’s property were different, Karis said.

In 2001 the government initiated the state property reform, the goal of which was to leave only the buildings in state use required for its performance and services, and to have them renovated. A newly founded state-owned public limited company, Riigi Kinnisvara Aktsiaselts (RKAS), was to become the central manager of the state’s property.

The objective of the reform was to have all state agencies transfer almost all their developed property to RKAS by 2003, and lease the premises required for the performance of their functions back from RKAS on market conditions.

One of the main expectations in relation to the reform was to renovate the state's developed property by borrowing money via RKAS, and to do this in such a manner that it would not affect the state’s debt burden or budgetary balance, as RKAS was not established as a part of the government sector. The change was also expected to lead to a more efficient use of the premises, and to more professional property management, which again was to help save money on property maintenance.

According to the National Audit Office, by 2016 the reform had not been completed, and its objectives not achieved. Only around 25% of the premises used by state agencies had been transferred to RKAS.

An assessment of 11 properties revealed that the expected savings had not been achieved either. Property expenses of the audited sites had increased in the according state agency’s budget after it entered into lease agreements with RKAS.

The main reason for this, according to the National Audit Office, was a change of the property financing model. In addition to the expenses paid by the state agencies before, they now had to pay RKAS rent that corresponded to market conditions, as well as a fee for the management of the properties and regular payments for renovation.

The main reason why the state property reform had not achieved its goals in 15 years was the government’s inability to agree on a common property policy that would help choose the most practical property management model. The reform had been undertaken without any coordination, and had been slow and unpredictable, depending on single decisions made by ministries.

The state didn’t have a clear idea what it was spending on its real estate either, the National Audit Office pointed out. While RKAS as a professional property manager had an excellent overview of the property transferred to them, consolidating the data of real estate still in the state’s possession was complicated, and the available information sometimes incomplete.

The National Audit Office advised the government to define and decide how much and what kind of property the state needs for the performance of its functions, and how to finance the renovation of the necessary buildings.

The office also suggested that common goals for the efficient use of premises and buildings for all areas of government should be defined.

According to the most recent consolidated report on the state’s property management, state agencies own 1.6 million hectares of land as well as 2,453 buildings or parts of buildings that have more than 1.5 million square meters of space in total.

Editor: Aili Vahtla

The name field cannot be empty
No more than 50 characters
Comment field cannot be empty
No more than 50 characters
Comment field cannot be empty
No more than 1024 characters
{{error}}

Message forwarded to the editor

This Ip-address has limited access

See also

There are no comments yet. Be the first!

Reply to comment

+{{childComment.ReplyToName}}:
Reply to comment
Reply

Laadi juurde ({{take2}})
The name field cannot be empty
No more than 50 characters
Comment field cannot be empty
No more than 1024 characters
{{error}}
Add new comment
  • foto
    Latvian PM: Latvia ready to sign Rail Baltic agreement
    18.01

    Latvia is ready to sign the international agreement on the implementation of the Rail Baltic European-gauge railroad project.

  • foto
    Government to discuss keeping companies from moving untaxed profits out of the country by means of loans
    18.01

    The government will discuss a proposal by the Ministry of Finance on Thursday calling for the introduction of a deposit tax on businesses’ loans to parent companies abroad. Currently loans are used to move untaxed profits out of the country on a large scale.

  • foto
    Estonia approves conditions for applying for agricultural crisis support worth €16m
    18.01

    On Tuesday, the Estonian Minister of Rural Affairs approved the conditions for applying for agricultural crisis support, funded by the EU and Estonia, totaling 16.2 million euros. Applications for the support, which is open to farmers who had cows at the beginning of December or pigs at the beginning of May, will be open as of Jan. 30.

  • foto
    National Defence Committee: Local contractors have export potential, should be supported
    18.01

    The Riigikogu’s National Defence Committee heard representatives of the Estonian Defence Industry Association (EDIA) on Tuesday, getting an overview of the state and activities of the sector. Both the association and the committee see export potential, and think that legislation should be adapted where needed to support them.

  • foto
    Newspaper: Rosimannus' involvement in new Tallinn shopping center comes to light
    18.01

    Rain Rosimannus, considered the mastermind of Estonia’s Reform Party, recently formalized, via a Singaporean business, his holding in Arsenal Centre, a shopping center opened in Põhja-Tallinn last fall whose property was sold by state real estate firm Riigi Kinnisvara AS (RKAS) in a selection procedure of remarkably short duration as a result of decisions made by politicians of the ruling IRL and Reform coalition. The RKAS board was headed at the time by Taavi Rõivas.

  • foto
    €23.6m earmarked for pay hikes in health insurance fund budget
    18.01

    While last May healthcare workers had demanded 68 million euros for a pay increase, a total of 23.6 million euros of the Estonian Health Insurance Fund's (EHIF) 2017 budget has been earmarked for covering their potential wage hikes.

  • foto
    Enterprise Estonia: There will be no new Estonian logo
    17.01

    Enterprise Estonia marketing director Piret Reinson confirmed that an Estonian brand did not mean an Estonian logo and that there were no plans to introduce a new logo for the country, which is set to take over the presidency of the EU from Malta in the second half of this year.

  • foto
    Estonian presidency of EU likely to cause hike in hotel prices
    17.01

    The Estonian presidency of the EU, which will last from July through December of this year, will bring scores of visitors to Estonia, all of whom must be accommodated as well. Hotel room rates will likely accordingly increase to above-average prices.

  • foto
    Ratas: Adding stops to Rail Baltic needs to be examined
    16.01

    According to Prime Minister Jüri Ratas (Center), at present the plan is to build three Rail Baltic train stops on the Estonian section of the Rail Baltic project, but more thorough analysis was needed to determine whether or not increasing that number would make sense.

  • foto
    Russian company not to build LNG bunkering facility in Saaremaa
    16.01

    While Russian news portal portnews.ru had reported in December that Russian gas trading company LNG Gorskaya LLC was planning on building a bunkering center for liquefied natural gas (LNG) at the Port of Mõntu on Saaremaa, Estonia's largest island, which would be part of a 33 million euro project of the company, it has become clear by now that the planned LNG terminal will not be built there after all.

  • foto
    Port of Tallinn ordered to pay €25,000 to former manager suspected of corruption
    16.01

    Former manager of state-owned ports operator AS Tallinna Sadam (Port of Tallinn), Alan Kiil, who is himself suspected of having accepted bribes in the millions of euros, took his former employer to court last year and has now been granted compensation for the way his contract was terminated.

  • foto
    New 14% tax on dividends likely to come in 2018
    16.01

    The government is working on a plan to lower the tax rate on redistributed corporate profits from currently 20% to 14%. With this step, the government is hoping to increase Estonia’s competitiveness in comparison with the other Baltic countries, and to increase its tax revenue.

  • foto
    Competition authority taking extra time to investigate Elisa-Starman merger
    16.01

    Finnish-owned telecommunications company Elisa announced its buyout of television and internet provider Starman Estonia in December, however the Estonian Competition Authority, which has extended its investigation period beyond the initial 30 days in order to more thoroughly examine the situation, has yet to approve the transaction.

  • foto
    Baltic states to sign Rail Baltic agreement on Jan. 31
    16.01

    Lithuania, Latvia, and Estonia are about to sign an agreement to regulate obligations and competencies regarding the European-gauge Rail Baltic railway construction project. The agreement is expected to be signed on Jan. 31 at a meeting of the Baltic prime ministers.

  • foto
    Estonia's E-piim to sell €2m in cheese to Japan
    14.01

    Estonian dairy producer E-piim has signed an agreement worth two million euros according to which the company will deliver 500 tons of cheese to a Japanese partner in the first half of the year, while the Estonian company expects to enter into another agreement already during the second half, daily Postimees reported.

  • foto
    Leedo contests impounding of ferry St. Ola in court
    14.01

    OÜ St. Ola Maritime, owned by Estonian businessman Vjatšeslav Leedo, has contested in court the impounding of the ferry St. Ola as security against the claim of around one million euros in port fees that Leedo has allegedly failed to pay state-owned regional ports operator AS Saarte Liinid.

  • foto
    Estonian sharing economy turnover €40.3m in 2016
    13.01

    According to a recent survey, the total turnover of Estonia’s three largest sharing economy sectors reached €40.3m in 2016, and is expected to keep growing at a fast pace.

  • foto
    Second-column progressive funds finish 2016 profitably
    13.01

    Despite having reported deficits in the first half of 2015, almost all progressive pension funds reported a profit at the end of 2016. Most of Estonians’ pension money is invested in these funds.

  • foto
    Sudden boom in Ida-Virumaa’s oil shale mining
    13.01

    Eesti Energia and Viru Keemia Grupp (VKG) were planning to raise the amount of oil shale mined this year, which would bring with it longer working weeks as well as new jobs, local paper Põhjarannik wrote on Friday.

  • foto
    Estonian minister: EU needs new alcohol strategy
    13.01

    According to Estonian Minister of Health and Labour Jevgeni Ossinovski (SDE), the EU needs a new alcohol strategy, and among other aspects, cross-border trade shouldbe addressed and it should be considered whether the alcohol by volume of wine should be taken into consideration in taxation, as is the case with beer.

  • foto
    Nordea, DNB hope to receive all necessary merger permits in February
    12.01

    All the necessary permits for the merger of Nordea and DNB Bank in the Baltics should be received by the end of February, after which the two banks will quickly proceed with merging their Baltic operations, Jānis Buks, head of Nordea in Latvia, told LETA.

  • foto
    Port of Tallinn corruption case to reach court this year
    12.01

    Prosecutor General Lavly Perling confirmed on Thursday that the Port of Tallinn corruption case would reach court within the first half of 2017. The work leading up to the trial included international efforts, including Poland, Turkey, and Norway.

  • foto
    Polish authority grants license to Estonian Inbank
    12.01

    Poland’s financial inspection authority gave Estonian financial services provider Inbank the permission to take up business in the Polish market, the company reported on Thursday.

  • foto
    More than 111,000 people use Mobile ID in 2016
    12.01

    The Police and Border Guard Board (PPA) reported on Thursday that the number of Mobile ID users had reached 111,000 by the end of 2016, and that the stable gain of the solution’s popularity continued.

  • foto
    Newspaper: New bill would strip Taxify's ability to rent cars to rideshare drivers
    11.01

    While the government has been changed out and changes have been made in Riigikogu committees, the Economic Affairs Committee of the Riigikogu has continued to work on changes to the Public Transport Act, referred to as the Uber bill. An updated version of the bill will include a slew of changes compared to the previous version, one of the most important of which would no longer allow the use of rental cars for ridesharing.

  • foto
    Survey: Russian-speakers fluent in Estonian more likely to work as managers than Estonians
    11.01

    The ratio of Russian-speakers proficient in Estonian woking in a managerial or specialist position was higher in Estonia in 2015 than the ratio of people working in such positions among ethnic Estonians, it appears from the results of a survey presented by Statistics Estonia on Wednesday.

  • foto
    Unemployment slightly higher in 2016
    11.01

    At the end of December 2016, 4.5% of Estonia’s working population were registered as unemployed, the Unemployment Insurance Fund reported. This represented a 0.2% decrease compared to the end of 2015, although on the annual average 2016’s numbers were slightly higher.

  • foto
    Parties knew about large-scale donations in return for family support
    11.01

    According to dailies Postimees and Eesti Päevaleht, the parties knew ahead that they would receive sizeable donations by eight Estonian businessmen. A total sum of €800,000 was donated to the three coalition partners as well as to the leader of the opposition, the Reform Party.

  • foto
    Russia may partially lift ban on Baltic sprats
    11.01

    Russia may partially lift the ban on Baltic sprats this year, Alexei Aleksejenko, a representative of the Russian Veterinary and Phytosanitary Surveillance Service (Rosselkhoznadzor), told RNS news portal.

  • foto
    Exports increase 6% on year in November 2016
    10.01

    In November 2016, the export of goods from Estonia increased by six percent and imports to the country by seven percent compared to Novembr 2015.

RECENT STORIES

Features