The Latvian State Audit Office has identified significant shortcomings in the governance of Latvijas Valsts meži (LVM) and in the oversight exercised by the Ministry of Agriculture (ZM) as the holder of state shares in the company, resulting in clearly measurable negative consequences for the state.
According to the State Audit Office’s estimates, shortcomings in LVM’s strategic and dividend planning, management of free financial resources, and support provided to the timber industry have caused negative consequences amounting to tens of millions of euros.
The audit found that the Ministry of Agriculture failed to direct at least 130.3 million euros to the state budget in the form of additional dividend payments. Furthermore, decisions initiated by the ministry and approved by the Cabinet of Ministers and shareholders’ meeting resulted in LVM reducing prices for second-grade spruce and pine sawlogs in 2024–2026, decreasing the company’s revenues by 49.4 million euros.
In the State Audit Office’s assessment, these decisions were taken outside the competence of both the Cabinet and the shareholder and constitute actions that caused losses to the state-owned company.
The institution noted that
LVM manages 47% of Latvia’s forests and is one of the country’s most significant state-owned enterprises.
In 2024 alone, it paid 141.3 million euros in dividends to the state budget, accounting for 37% of all dividends received by the state. LVM’s net turnover in 2024 reached 586.1 million euros.
“When there is a lack of clear goals, transparent governance, and economically justified decisions, not only does the state budget suffer, but also public trust in how state forests are managed,” emphasized Oskars Erdmanis.
The audit concluded that since 2021 no forestry sector guidelines have been approved to define medium-term objectives, priorities, and expected results for the forestry sector while balancing the interests of all industries involved.
Despite this,
the Ministry of Agriculture last year pushed through significant amendments to legislation
aimed at reducing tree felling age limits, increasing clear-cutting areas, and maximizing permitted logging volumes in state forests — even though 10% of the currently allowed logging volume has not yet been utilized.
The State Audit Office also concluded that LVM’s strategic financial indicators are not ambitious enough, as actual performance ranged from 100% to as much as 329% of planned targets. For example, EBITDA performance between 2021 and 2025 ranged from 153% to 329% of the planned level. LVM’s supervisory board did not revise these indicators, thereby failing to promote the company’s growth.
Furthermore, several indicators that the State Audit Office considers essential — including forest capital value, which reflects the preservation and growth of state forest assets — were excluded from the company’s operational strategy.
The audit also found that
the strategy failed to include shareholder expectations regarding timber stock growth and dividend payouts,
effectively accepting that from 2027 annual dividends paid to the state budget would be up to 33.8 million euros lower than the shareholder’s expected dividend level.
The State Audit Office explained that during the preparation of the state budget framework, LVM submits dividend forecasts to the Ministry of Agriculture, which then forwards them to the Ministry of Finance.
However, LVM’s initially planned dividend amounts were significantly increased within just three to seven months — by between 21.3% and 71.6%. This raised doubts for auditors about the reliability and accuracy of the forecasts. Moreover, LVM failed to provide the calculations underlying these dividend forecasts during the audit.
The ministry also proposed using increased dividend payments as previously unplanned “additional budget resources”
to finance specific measures, thereby limiting the ability of the government and parliament to evaluate whether such funds should instead be directed toward broader national priorities.
Auditors found that over six years, 316.9 million euros — nearly half of all LVM dividend income — was allocated to measures proposed by the Ministry of Agriculture. Of this amount, 91.1% (288.6 million euros) was used for internal ministry-sector needs, including agricultural and rural development support.
The State Audit Office also found that by planning smaller dividend payouts, failing to implement investments at the planned level, and not defining clear principles for the use of retained profits, LVM had accumulated 405.3 million euros by the end of 2025. Over four years, 47.5 million euros in investments were not implemented, while more than 119 million euros in profits remained under LVM’s control without a specific purpose.
According to auditors’ estimates, the amount actually required for the company’s operations and dividend payments by the end of 2025 was approximately 275 million euros. Therefore,
at least 130.3 million euros could have been directed to the state budget as additional dividends.
The audit also revealed that for three years — from March 2023 to February 2026 — LVM was supervised by the same temporary supervisory board, which the Ministry of Agriculture repeatedly reappointed annually without an open competition or adequate justification.
According to the State Audit Office, Latvian law allows the appointment of a temporary board only in exceptional cases and for no longer than one year. Therefore, the ministry failed to comply with legal requirements regarding open selection procedures for supervisory board members.
Auditors further found that after a 2024 decision to reduce the number of supervisory board members from five to three in the name of more effective corporate governance, a new position — adviser to the chairperson of the supervisory board — was created instead, with 48,059 euros spent on remuneration for the role over 15 months.
The State Audit Office stressed that such action cannot be considered efficient,
since ensuring effective corporate governance is already the responsibility of the supervisory board itself.
As previously reported, former adviser to the LVM supervisory board chairperson Valdis Lūks is among the individuals against whom criminal proceedings have been initiated and at whose premises procedural actions were carried out on the 14th of May.
Meanwhile, at the beginning of 2026, after a decision to reduce the number of LVM board members from five to three, the company — following the supervisory board’s recommendation — hired two former board members into newly created positions within their previous areas of responsibility without holding a competition. Auditors concluded that the reduction in board members was therefore not implemented in substance.
The supervisory board also failed to ensure transparency in the decision to dismiss the chairman of the management board,
resulting in a 27,470 euros severance payment being made without clearly documented justification.
The audit stated that decisions by the Cabinet of Ministers and the Ministry of Agriculture as LVM’s shareholder regarding changes to coniferous sawlog supply contract prices in 2024–2026 were made outside their legal competence and resulted in a 49.4 million euros reduction in LVM revenue.
Under Latvian law on governance of state-owned companies, operational decisions of a joint-stock company fall exclusively within the competence of the management board, the State Audit Office stressed. Therefore, neither the Ministry of Agriculture nor the Cabinet had the authority to decide on pricing changes in sawlog supply contracts.
As a result, LVM had no obligation to implement these decisions reducing previously agreed contract prices for spruce and pine sawlogs.
Auditors found that in 2024, 12 medium-term supply contracts and two contracts concluded during the restructuring of long-term logging agreements were subjected to a different pricing system based on average short-term contract prices, reducing LVM revenues in 2024 by 37.07 million euros.
Further pricing changes applied to two additional contracts for 2025 and 2026 would reduce LVM revenues
by another 12.3 million euros by the end of 2026.
The State Audit Office concluded that by initiating, approving, and implementing these price reductions, the Ministry, Cabinet, and LVM management violated legal requirements obliging state assets to be sold at the highest possible price.
Auditors also criticized the Ministry of Agriculture’s information report that formed the basis for the Cabinet’s decision to reduce sawlog prices, describing it as insufficiently comprehensive and lacking alternative solutions or economic analysis.
The report contained incomplete information and conclusions that did not fully reflect reality. Comparisons with prices in other countries were based on inconsistent analysis — although the report claimed Latvian timber was 40% more expensive, this difference applied only in comparison with Sweden,
while price differences with the Baltic states were below 20% in 2023.
The State Audit Office also noted that publicly available data did not indicate any significant threat to the financial stability of coniferous timber processing companies, most of which maintained stable financial performance and had experienced rapid growth in turnover and profits in previous years.
Auditors emphasized that companies themselves had bid for second-grade spruce and pine sawlogs in long-term auctions at prices averaging 23% above the starting auction price at the end of 2021.
Despite this, the Ministry of Agriculture opted for a price correction mechanism that lacked sufficient economic justification. Following the corrections, long-term contract prices in 2024 were even lower than average short-term contract prices.
The audit also found that the short-term auction prices used in long-term contracts were not objective market prices
and reflected only 11% of LVM’s total sawlog sales volume. Furthermore, almost all coniferous timber processing companies ended 2024 with a profit.
The State Audit Office additionally concluded that the Ministry of Agriculture and LVM had long failed to ensure sufficiently coordinated and purposeful action in resolving issues related to historically inherited long-term logging agreements — an issue that has also prompted an investigation by the Competition Council.
In total, the State Audit Office issued eight recommendations to the Ministry of Agriculture and LVM.
According to the auditors, implementing these recommendations would ensure that the forestry sector operates according to updated medium-term strategic goals and clearly defined policy outcomes, while also reducing negative environmental impacts before adopting major forestry regulations.
The recommendations would also ensure that LVM oversight is carried out by supervisory board members
selected through open competition and that the company’s medium-term strategy functions as an effective management tool.
In addition, implementation would ensure that LVM’s retained financial resources do not exceed the amount necessary for its operational activities.
As previously reported, the State Audit Office had planned to publish the audit findings on the 13th of May, but the Ministry of Agriculture challenged the results at the last moment.
The audit examined state forest governance processes, the distribution of responsibility, and the efficiency of public resource use, and is directly linked to the so-called timber industry support case.
Earlier, an internal investigation commission concluded that the financial condition of the timber companies that received government support at the end of 2023 had not been systematically or structurally unstable. The report highlighted several facts raising doubts about the justification for the support provided.
Former Agriculture Minister Armands Krauze had previously claimed that
the ministry’s internal investigation found no evidence that the state suffered losses
from support provided to timber companies in 2023.
Meanwhile, the Prosecutor General’s Office is conducting criminal proceedings over possible offenses related to abuse of office and unlawful support provided to timber companies through price adjustments in LVM long-term contracts.
Among the ten individuals against whom criminal proceedings have been initiated are Armands Krauze, former ministry state secretary Raivis Kronbergs, current state secretary Ģirts Krūmiņš, ministry official Ilze Silamiķele, former LVM chairman Pēteris Putniņš, supervisory board chair Zane Driņķe, adviser Valdis Lūks, Latvian Woodworking Federation vice president Kristaps Klauss, Valmiera municipal councillor Reinis Muižnieks, and Uldis Mierkalns, owner and head of the Pata group.
The Prosecutor General’s Office launched an investigation on the 20th of November last year into whether state officials acted lawfully when approving support measures for timber companies. The review found indications of possible criminal offenses related to unlawful state support through price adjustments in LVM long-term contracts, leading to criminal proceedings under Latvia’s Criminal Law chapter concerning offenses committed in public service.
At the same time, the prosecutorial review remains ongoing in cooperation with the State Audit Office.
Read also: In Latvia, Prosecutor General accuses politician of lying, Krauze demands retraction
The post State Audit Office harshly criticizes LVM and Ministry of Agriculture: At least 130 million euros not directed to the state appeared first on Baltic News Network.
