2021.07.12 08:00

Lithuanian big timber lobby's clandestine influence – LRT Investigation

Mindaugas Aušra, Jurga Tvaskienė, LRT Investigation Team, LRT.lt2021.07.12 08:00

New amendments to the law on forests would limit timber exports and favour local wood processors in state-owned timber auctions. Previously ruled unconstitutional, the bill was influenced by some of the largest Lithuanian wood processors, LRT Investigation Team reports.

In April, former government vice-chancellor Lukas Savickas and former environment minister Kęstutis Mažeika, representing the Farmers and Greens Union (LVŽS), registered amendments to the Forest Law. Under these amendments, local wood processing factories are favoured in auctions for timber from state-owned forests.

Local wood processors have been trying to get similar legal acts adopted since 2013. During his speech in 2018, Gintautas Pangonis, the former chairman of wood trade association Lietuvos Mediena, openly admitted influencing MPs to register the amendments. Pangonis also mentioned that the association had influenced the adoption of the reform of forestry enterprises in 2017.

The previous government was a few votes short of adopting the amendments last June, and the businesses who benefit from the amendments are once again being included in work groups and closed meetings, MPs have told LRT Investigation Team.

Lietuvos Mediena director in internal parliament meetings

Former MP Algimantas Salamakinas named Vakarų Mediena, Juodeliai, and Grigeo as the three wood processing companies that benefit from the proposed amendments.

Both Vakarų Mediena and Grigeo are members of Lietuvos Mediena. The association claims that small and medium-sized enterprises make up nearly 70 percent of its members, however, reports show that Lietuvos Mediena also includes some of the largest wood processing companies in Lithuania.

Gintautas Pangonis, the controlling shareholder of Grigeo, was the chairman of Lietuvos Mediena administrative board until the beginning of 2020, when he resigned following Grigeo’s water pollution scandal. Sigitas Paulauskas, shareholder of Vakarų Mediena, is the current chairman of Lietuvos Mediena.

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In October, Andrius Zimnickas, owner of Juodeliai Group, founded Wood Processing Association, which unites and represents Zimnickas’ corporations.

Politicians named Lietuvos Mediena and Wood Processing Association as the two organisations lobbying the parliament and the Environment Minister regarding state-owned timber sales.

Pangonis stated he had no information whether Lietuvos Mediena had any contacts with politicians. Zimnickas also could not comment on Juodeliai Group's activities.

MPs named Raimundas Beinortas, director of Lietuvos Mediena, as the figure most involved in parliament discussions regarding the Forest Law. He is a member of the Forest Advisory Council, established by Environment Minister Simonas Gentvilas, and the Social Interest group of the National Forest Initiative.

Beinortas also participates in internal government meetings. In January, he took part in a remote meeting on building renovation, where he was the only businessperson among representatives of government agencies.

When asked about Beinortas’ involvement, Gentvilas has stated that he participates in meetings as a representative of an association.

Unregistered lobbying organisation

Under current laws, associations attempting to influence adoption of policies are required to register themselves as lobbying bodies, which Lietuvos Mediena did not do, according to data from Chief Official Ethics Commission (VTEK).

Beinortas denied Lietuvos Mediena partaking in lobbyist activities, however, as a representative of wood processor associations, he was the one most involved in the decision-making process, according to the former chief forest officer Marius Pulkauninkas. He added that Beinortas was present at nearly all related meetings, conferences and working groups.

The bill, registered on April 6, also suggested favouring wood processors that have paid no less than 0.5 million euros in tax and social insurance.

According to data by Baltpool, 456 companies, 11 of which were foreign processors, bought state-owned timber between 2019 and 2020. If the 0.5 million euro tax limit is approved, only about 8 percent of all processors (38 companies) would be eligible buyers, according to the State Tax Inspectorate (VMI).

The Special Investigations Service (STT) criticised the proposed bill for favouring specific interest groups, while the Competition Council stated that it ran counter to the principle of free competition. The Lithuanian parliament’s legal department said the restriction of access for foreign buyers was unconstitutional.

A new bill was registered on June 15, and the 0.5 million euro tax requirement was eliminated. The bill focused on local wood processing and how it lessens CO2 emissions. The authors of the bill claimed that under this version of the law, the majority of wood processors would have access to state-owned timber.

Lithuanian timber sector still profitable

Timber exporters and foreign processors purchase a third of all timber produced in Lithuania, according to official statistics.

A Latvian wood processor had bought off the majority of timber sold in a semiannual auction this May. This sparked discussions about Lithuania neglecting local processors and favouring higher bids.

However, statistics show that timber export has been decreasing since 2018. In 2020, timber export dropped by 6 percent compared to 2019, according to timber import and export analysis of 2020, published by Lietuvos Mediena.

The analysis also shows that Lithuania’s annual turnover of international timber trade in 2020 was 4.81 billion euros, only 0.6 percent lower than before the pandemic.

Vaidotas Jonutis, head of trading at Baltpool, says that the Lithuanian timber sector is still highly profitable due to very high demand for timber.

The authors of the bill also highlighted that the prioritised wood processors are economically and socially beneficial to the country, and also that they carry a heavy tax burden. However, data from VMI shows that 11 of the firms that would be favoured under the amendments actually claim more tax refunds than they contribute.

Foreign companies as the main competitors

The new regulation would create more jobs and increase state-owned wood prices, since the state can save on transportation by selling to local processors, says Gentvilas.

However, Egidijus Kontrimavičius, the head of the Wood Trade Association, argues that prices would not increase since local processors buy different wood products, and there is no competition.

The State Forestry Enterprise would lose a third of its revenue if foreign wood processors were disqualified from competing for timber, according to calculations by the Wood Trade Association. The organisation also claims that the State Forestry Enterprise would lose some 50 million euros out of the expected 180-million-euro revenue.

Meanwhile, calculations from Baltpool show that the amendments would lead to a decrease of 4 million euros in annual revenue for the State Forestry Enterprise.

Big firms influenced the bill

Lietuvos Mediena was present when the parliament made decisions regarding roundwood trade and effective use of timber, according to Pangonis' annual report in 2018.

The former chairman of Lietuvos Mediena also pointed out that the association influenced the registration of the very first amendments to Forest Law in 2014, and the passing of a reform of forestry enterprises in 2017.

While former Prime Minister Saulius Skvernelis denied Lietuvos Mediena's involvement, Pangonis said that the association did receive a confirmation from Skvernelis on the implementation of the Forest Law.

A document issued by the government said that Raimundas Beinortas, director of Lietuvos Mediena, and a spokesperson from the Forest Owners Association were invited to a government meeting that took place in March 2017 in order to give recommendations on amendments of the Forest Law and related bills.

In April 2018, Beinortas was also invited to a working group that set out the procedures for trade of state-owned timber.

In a remote meeting on Forest Law that took place on April 28, 2021, Beinortas claimed that the bill did not prioritise large companies, but instead ensured that state-owned timber is sold to local wood processors, and that it generated more value added.

Last February, the government led by Skvernelis approved procedures for wood trade. Under these procedures, local wood processors are favoured in auctions of state-owned wood.

Earlier, the Environment Ministry had initiated a temporary cut to the minimum state-owned wood price by 20 percent, which could have led to State Forestry Enterprise losing some 68 million euros of revenue, according to former chief forest officer Marius Pulkauninkas.

Pulkauninkas admitted that the government seemed more keen to protect the interests of wood processors than the state-owned enterprise.

Back in 2007, former president of Vakarų Mediena, Sigitas Paulauskas, addressed former Prime Minister Gediminas Kirkilas, asking to form a negotiating team over the construction of the company’s factory in Mažeikiai.

Vakarų Mediena wanted a 10-year contract for an annual supply of 500 cubic meters of state-owned timber, also to rent some 25-30 hectares of land. Paulauskas negotiated for lower electricity costs and tax exemptions as well. The construction was cancelled.

Lietuvos Mediena was the author of the bill on the regulation of roundwood trade, drafted in 2007. The bill said that long-term contracts could only be signed with wood processors that had invested more than 25 million litas – an equivalent of 7 million euros – in Lithuanian timber sector over seven years.

In 2008, Vakarų mediena again asked for long-term contracts of an annual supply of no less than 500 cubic metres of timber, signed by the General Forestry Enterprise rather than the 42 separate forestry enterprises. Vakarų Mediena also asked for a representative of Lietuvos Mediena to be included in the commission monitoring the process.

In 2011, the then Prime Minister Andrius Kubilius received a memorandum from Vakarų Mediena asking to limit timber exports and ensure state-owned wood distribution to local processors.

The recommendation to favour manufacturers of wood products in auctions was first mentioned in the amendments to Forest Law registered in 2013.

A new bill was registered in 2015. However, the Seimas then agreed on 42 separate forestry enterprises. The decision was overruled in 2017, following a reform on forestry enterprises.

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