Audit office: One billion in state COVID-19 loans issued haphazardly
State agency KredEx's criteria and objectives in allocating close to billion euros of extraordinary loans and guarantees during the coronavirus pandemic have been opaque, the National Audit Office (Riigikontroll) finds.
Auditor General Janar Holm noted that large sums of money and a lack of clear direction was a recipe for problems.
In its overview, the office finds that as the KredEx loans which followed the supplementary state budget set up in response to the first wave of the pandemic have been vague in their intentions, further distribution of loans and guarantees will need significantly clearer rules to ensure equal treatment of target group enterprises, and the best use of public money.
The office is referring to a measure entitled, in English: "Extraordinary loan for projects of national importance" and the authority has looked at both KredEx measures and those from the Rural Development Foundation (Maaelu Edendamise Sihtasutus) to ascertain what has been going on.
Loans approved before terms and conditions clear
Among its criticisms, the audit office says it remains unclear how businesses get ministerial approval for loan applications, which had sometimes been done ahead of submitting a KredEx application.
For instance, the government approved shipping line Tallink's €100-million loan (Tallink had initially sought €150 million - ed.) just the day after the terms and conditions of the KredEx measure entered into force, i.e. before it was actually implemented.
In the Tallink case, the company should have needed more time to consider its proposals, even by KredExes' own guidelines, the office found.
Audit office: Porto Franco loan ran risk of damaging state's reputation
A €39.4-million loan given to a part-completed real estate project in Tallinn's harbor area, known as the Porto Franco development, was in KredExes' own eyes a reputational risk.
The deal hit criticism since Porto Franco is an unfinished construction project; the coronavirus state aid was in principle supposed to go to existing businesses who could prove they had been hit hard, directly as a result of the pandemic and its ensuing regulations.
Even after the Porto Franco loan was approved, other potential applicants from the real estate field found terms restricting what could and couldn't be eligible, the audit office says.
What benefits are expected by the state arising from the guarantee and loan measures which began in spring should be clearer, including information on which projects are of national importance and why (Prime Minister Jüri Ratas later said Porto Franco was significant because it would create jobs – ed.), along with greater transparency on this.
KredEx objectives too generalized
The audit office finds the declared objective of the KredEx measures too generic:
These are namely not only to alleviate the impact of the coronavirus crisis by helping to overcome liquidity problems, but also to take advantage of new business opportunities derived from the spread of COVID-19.
While the audit office says it understands he pressures which emerged early on in the crisis, but this did not remove the requirement for KredEx activities to be assessed, not least since many agreements entered into between businesses and commercial banks in spring are now starting to expire.
There also seems to have been an element of buck-passing between KredEx, a state agency, and the government, the office found.
Auditor General: Unclear objectives and large sums of money not good combination
Auditor General Janar Holm said:"Unclear objectives and large amounts of money should never go together."
"When the National Audit Office wanted to learn from KredEx how its objectives are established for a loan measure of national importance and how the achievement of said objectives is monitored, KredEx suggested directing the questions to the government," Holm went on, saying they, KredEx, lacked sufficient information to give a comprehensive answer."
At the same time, demand for KredEx aid has turned out to be far less than anticipated, with 5 percent of the volume of business applications predicted in spring actually benefiting in real terms from the schemes (300 enterprises out of a forecast 6,000).
This mismatch demonstrates the need for better knowledge of the situation, including why the low take-up has occurred.
Projects of national importance
The audit office analysis covered projects of supposed national importance which would require loans of €10 million and more. Other successful applicants have included fuel retailer Alexela, whose €37-million state loan, via KredEx was approved in late October. State airline Nordica got an €8-million loan via KredEx plus €22 million boost in share capital earlier in October. Both companies were demonstrably hit hard by the pandemic, however.
Conversely, package robot firm Cleveron, based in Viljandi, recently announced it has applied for a €30-million loan to develop hi-tech automated terminals, both available to the public and in or near private houses, from KredEx itself.
The audit office says that KredEx has been unable to explain how impact is assessed and how proposals are presented to the cabinet; this works the other way round as well – businesses have been kept in the dark on changes to terms and conditions, the office says, which may mean both unequal treatment of enterprises and a misuse of taxpayer and public funds.
Audit office: Riigikogu did not green-light KredEx crisis measures
The legislative basis of granting loans is also not clear, the office says; the Riigikogu has not, for instance, granted permission via the 2020 supplementary budget for KredEx measures.
If KredEx continues to be used, its criteria, particularly on what constitutes a project of national importance, must be clarified as well as the terms and conditions applying.
Consideration should also be given to whether the focus would better be on guarantees rather than direct loans, in the case of extraordinary support measures for enterprises. This might achieve the state's objectives in a more cost-effective way, the office says.
A fuller overview is here.
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Editor: Andrew Whyte