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'Pealtnägija': Estonian prosecutors suspect collusion behind Kredex grants

KredEx logo.
KredEx logo. Source: Siim Lõvi/ERR

The Prosecutor's Office has suspected large-scale fraud going on behind renovation grants provided by the Estonian Business and Innovation Agency (EISA) – and predecessor Kredex – involving construction companies, consultants and owner supervision. Should this suspected collusion between businesses be confirmed, it could mean the recovery of grants issued to dozens of apartment associations.

This past December and January, the Central Criminal Police organized several raids across Estonia and filed suspicions of corruption in two criminal matters against a total of five companies and 14 private individuals who renovated apartment blocks with the help of EU subsidies. Suspected in both criminal matters are similar schemes, but involve different parties.

In the interests of the investigation, neither EISA, the police nor the Prosecutor's Office will release any definitive information, however, according to the information of ETV investigative program "Pealtnägija," suspicions have been filed in the Northern Region under paragraphs involving distortion of competition and fraud.

Based on the hypothesis of the investigation, a construction company manipulated prices in such a way that it drove up the price of construction work for an apartment association to exceed the market price by tens of thousands of euros.

In the Southern Region, a suspicion has been filed against Rivo Soo, one of the field's most experienced technical consultants, several owner supervision specialists as well as Balti Vara Ehitus, the biggest construction company in the field. Bribery is suspected in this criminal matter as well.

"What we identified was that, in fact both in the north and the south, rather active consultants involved a lot of the same companies and individuals in their activities, and over time, these patterns began to repeat themselves," explained Aivar Sepp, director of the Corruption Crimes Office of the Central Criminal Police (KKP).

According to Southern District Prosecutor Gerd Raudsepp, such agreements put other competing construction companies at a disadvantage.

"They aren't able to earn income and work, and they've been excluded from this process," Raudsepp pointed out.

When the state-owned Kredex first started providing apartment associations with favorable renovation grants 18 years ago, the term "green transition" wasn't even in use yet. But as Europe began moving in a more economical and sustainable direction, so increased all kinds of support measures for the insulation of apartment buildings as well.

To date, more than 1,400 apartment buildings across Estonia have gotten a new look and energy class, for which more than €300 million in support has been paid.

According to Ivo Jaanisoo, undersecretary for the living environment and circular economy at the Ministry of Climate, the financial volumes of renovation projects average in the range of €800,000-900,000, i.e. in the same ballpark as new builds, which is why organizing procurements is often out of reach for apartment association chairs.

"They don't have the qualifications; they need help," Jaanisoo explained.

That's where Rivo Soo and his colleagues come in. Some ten years ago, the position of technical consultant was established in order to navigate EU implementations and the bureaucracy of structural engineering. The consultant's job is to advise [apartment] associations on everything from the selection of construction materials and equipment to the legal preparation of a procurement and finding a builder.

Although the consultants would seem to be advised and managed by EISA, each apartment association nonetheless signs a separate employment contract with them. Currently, there are officially more than 100 such consultants in Estonia, but only about a quarter of these are more active.

Rivo Soo was one of the first to complete this training, and about a decade ago he stepped down from the helm of Ropka Elamu, one of the biggest apartment building management companies in Tartu, and started focusing solely on his technical consultancy work.

At his peak, Soo had been running dozens of apartment associations close to home in Southern Estonia.

Same companies winning procurement after procurement

About a year ago, the Central Criminal Police noticed that for some reason, Soo's projects tended to be won by the same companies. Particularly striking was Balti Vara Ehitus, which on average won one in every three procurements in which Soo was involved; in the last eight years alone, Balti Vara had won 12 of 37 projects with EU funding involving him.

Soo himself said there was nothing unusual about this, especially considering this company specializes in renovations with EU support.

"At some point I kind of started to realize that if you do one site with them, you do a second site with them, you do a third site with them – then all of their site managers and project managers are excellent," he explained. "If you're able to choose or end up via selection criteria with Balti Vara as your builder, then yes, many other technical consultants will certainly do the same as well."

Soo himself is without a doubt very qualified in his work. In April 2023, EISA, the agency formed in the merger of Kredex and Enterprise Estonia, announced yet another application round in which the renovation grant applications drawn up by him saw strikingly good results; of the 161 projects to receive pre-financing decisions from EISA, 25 of them were Soo's.

While the other projects are still in the works, according to "Pealtnägija" information, four Soviet-era buildings in Southern Estonia ultimately received funding: in Tartu, Võru, Vastse-Kuuste and Põlva. Of these four, listed as the main contractor in the documentation for two of the renovations is Balti Vara Ehitus.

For investigators, this confirmed their hypothesis, and on December 12, several seizures and detentions took place simultaneously in Tartu County. Among others, police searched the offices of Balti Vara Ehitus, but according to CEO Meelis Karro, the content of the suspicion remains unclear to them at the moment.

"The entire market today is built on this very communication [with consultants] so that it would result in the best possible end result for the apartment association," said Karro. "And now it's being investigated, then, whether this communication between parties has been sound."

From the police and prosecution's perspective, however, procurement rules enable technical consultants to direct a winner to suit themselves to a certain extent.

For example, deadlines are one definite criterion – whether some deadlines are realistic or improbable. And if these deadlines are somewhat unrealistic, then the "right" company will know that it may be possible to extend these deadlines while the others won't, Aivar Sepp explained.

On one hand, businesses are claiming that Kredex rules have significantly tightened the rules in recent years; all documentation is listed in the official public procurement register, and everything is verifiable ex post. On the other, Soo says that there were times when he arranged things, not in his own but in an apartment association's interests, in such a way that companies with problematic backgrounds wouldn't stand a chance.

"The association itself doesn't actually want a company coming to renovate the apartment association that has previously received a lot of [negative] media attention, that has issues," said Soo. "Then yes, we can either play with these systems this way or, you know, exclude them; look at them and say that this builder doesn't qualify, we can disregard them and then choose the next one."

While Soo states that he got along well personally with the executives at Balti Vara Ehitus as well as some other businesspeople in the field, and was also in touch with some of them even informally, so to speak, prosecutors suspect he was given a bribe to ensure that work would come their way specifically.

According to one version, this was done via another company affiliated with Soo. Namely, it is remarkable that Balti Vara often subcontracts ventilation work in apartment buildings out to one particular company – OÜ SP Grupp. Just two years ago, SP Grupp was still owned by Soo, and they still share the same office to date. Soo and SP Grupp's current owners jointly own another business as well.

Karro, Balti Vara's CEO, stated that he was aware of the previous connections between Soo and SP Grupp, but that as far as he knew, all relations have been terminated by now.

"If you're asking me whether Rivo Soo is linked to SP Grupp, then my concrete answer is that he isn't linked," the construction company chief said. "I open up the commercial register and I see that he isn't linked. Whether he's indirectly linked to SP Grupp – as far as we know he isn't, but we can't verify, confirm or refute this."

It is hypothesized that the bribe passed through these subcontractor invoices. What may have drawn investigators' suspicion is that in the span of five years, SP Grupp had made cash withdrawals for unclear purposes in the total amount of more than €200,000, while Soo in turn deposited large sums of cash in his personal account during the same time period.

According to Soo, these sums don't have anything to do with him.

"I have never accepted a bribe from any construction company; I've ruled that out completely," he stressed. "I can say that even now because I've made the decision that I can take care of myself and I don't want anyone else's money."

Violation of fair competition also an issue

The police and prosecutors won't speculate at what expense the companies earned back the money allegedly given as a bribe, but according to them, just the violation of fair competition alone is a problem. They've stressed that the investigation has only just begun, not all links are clear and that no agreements between businesses are automatically illegal.

Nonetheless, investigators also found that Soo often used specific contractors as building supervision specialists as well. Namely, for an apartment association to be able to hire Soo as a technical consultant in the first place, the rules also require several competing offers. This is where Soo's close consultant contacts come into play, who submit a more expensive offer and then whom he later hires in turn to conduct building supervision.

Soo admitted to "Pealtnägija" that this is common practice in the field, ensuring that good workers don't go without work.

"I've been invited to speak [with the apartment association]," he said, describing such a scenario. "'Come, Rivo, tell us about the Kredex renovation process!' And once I've sold them [on the idea], then I'd also like to start working on this site."

Asked by "Pealtnägija" to specify whether he has called other consultants requesting that they submit a competing offer, Soo answered in the affirmative.

"I've given them info or a message saying, 'Listen, what's up is that they want me as consultant there, please [submit an offer too]," he admitted.

From the investigative authorities' perspective, there's a much broader angle to the story as well. The apartment building grant program is set to continue at least through 2027, and slated to distribute hundreds of millions more euros, which is why the police and the Prosecutor's Office have already made a number of proposals to EISA on how to better ensure fair competition and prevent misuse.

"In truth, nowadays a technical consultant is actually a private individual that isn't an official," Sepp from the KKP pointed out. "They aren't a Kredex or EISA employee. For the most part, they are not subject to the requirements and restrictions imposed on various officials – even just talking about procedural restrictions in the legal sense. And therefore we have to devise these alternative mechanisms for monitoring their activities. Options exist for doing so, and right now it looks as though this could have been done better."

Apartment associations may be forced to repay grant

According to Jaanisoo at the Climate Ministry, several proposals from investigative authorities are already being worked on.

"Maybe these technical consultants shouldn't be involved in so many things; maybe they shouldn't be advising on these procurements," the ministry undersecretary acknowledged. "That's one part of this system we're planning on changing. We have no choice, but this will also mean additional administrative resources."

The real kicker in this saga, however, is this: if the alleged manipulation of procurements and collusion is confirmed by the courts, the apartment associations mixed up in all of this – even if they themselves did nothing wrong and are essentially victims in this situation – may be faced with the recovery of the allocated aid.

"Theoretically it's possible, as [the association boards] conduct procurements; they decide both the conducting of procurements as well as the conclusion of agreements," Jaanisoo explained. "All final decisions are theirs to make."

According to "Pealtnägija" information, currently around a couple dozen apartment buildings involved in the matter have been informed of the situation.

"I wouldn't want to cause that kind of panic," said Aivar Sepp. "Right now, these specific proceedings are focused on very particular apartment associations and consultants. All of the apartment associations have been contacted and had things explained to them."

SP Grupp chief: Suspicion is unfounded

SP Grupp CEO Timo Taaramäe confirmed that his business had a criminal suspicion brought against it in December and that the company's office was searched.

"I'll be honest: I'm relatively calm about it, because the content of the suspicion is unfounded – at least in which SP Grupp is implicated," Taaramäe said.

The company chief acknowledged that he has worked together with Balti Vara a great deal over the years, but stressed that all projects have been won in honest competition.

"Email exchanges were seized in the course of the investigation; there you can see clearly that the price has been negotiated for each site," he continued. "Nothing has fallen in our laps for nothing."

The CEO also emphasized that the preliminary version under investigation, according to which the parties had reached a verbal agreement that the company has to get work as a subcontractor on Rivo Soo's projects, is unfounded, and that he's positive that the investigation will confirm this.

"Something like that isn't going to work on our market today," he said. "There is no such thing."

Asked about the more than €200,000 in cash that has been withdrawn from the company within the span of a few years, Taaramäe confirmed that the company has indeed made these withdrawals, but added that this is just typical business; cash is needed for subcontractors, running costs as well as material suppliers.

"Some places don't have the option to pay by card; all of this is fully documented," he said, confirming that his conscience is clear. "There really is no collusion here."

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Editor: Aili Vahtla

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