The State Audit Office of Latvia has concluded after its audit that the Ministry of Agriculture of Latvia and the Council and Board of JSC “Latvijas valsts meži” (Latvia State Forests) have not ensured sufficiently effective governance of the state-owned enterprise (SOE). Significant problems have been identified in the planning and implementation of the forest sector policy and the strategy of this SOE, in the planning of the amount of dividends to be paid into the state budget, and in the management of current financial resources. The Ministry of Agriculture has not allocated at least 130.3 million euros to the state budget in the form of additional dividend payments. Similarly, as a result of decisions initiated by the Ministry of Agriculture, as well as those adopted by the Cabinet of Ministers and the shareholders’ meeting, JSC “Latvijas valsts meži” reduced the prices of spruce and pine class II sawn logs in 2024–2026 by reducing the SOE’s revenues by 49.4 million euros. In the opinion of the State Audit Office of Latvia, these decisions were made outside the competence of the Cabinet of Ministers and the shareholder and are considered to be actions that caused losses to the SOE.
At 10:00 a.m. on 21 May 2026, a press conference will be held at the State Audit Office of Latvia, with the participation of Auditor General Edgars Korčagins, Council Member of the State Audit Office Oskars Erdmanis, and Prosecutor General Armīns Meisters.
IN BRIEF
- Significant irregularities have been identified in the management of JSC “Latvijas valsts meži”, including strategic and dividend planning, disposal of free financial resources, as well as supervision by the Ministry of Agriculture as a shareholder.
- Since 2021, the forest sector has been operating without approved medium-term policy guidelines while making important decisions on the volumes and conditions of felling simultaneously.
- Dividend planning of JSC “Latvijas valsts meži” is not transparent, as almost a half, or 316.9 million euros of the dividends was used for measures “designated” by the Ministry of Agriculture in six years but the company had accumulated 405.3 million euros by the end of 2025, of which at least 130.3 million euros could have been directed to the state budget.
- The decisions of the Cabinet of Ministers and the Ministry of Agriculture, as a shareholder of JSC “Latvijas valsts meži” on price changes in the supply contracts for coniferous class II sawn logs in 2024–2026, have been made outside their competence, and their implementation has resulted in a revenue reduction of 49.4 million euros for JSC “Latvijas valsts meži”.
- Timber industry companies bid for sawn logs in long-term auctions themselves at the end of 2021 at prices that were on average 23% higher than the initial ones, and public data does not indicate that the industry as a whole was in a critical financial situation.
JSC “Latvijas valsts meži” manages 47% of Latvia’s forests and is one of the most important state enterprises because it paid 141.3 million euros in dividends to the state budget, or 37% of the total dividends paid to the state budget in 2024. Net turnover of the SOE reached 586.1 million euros. The Ministry of Agriculture is a holder of the shares of JSC “Latvijas valsts meži”.
“JSC “Latvijas valsts meži” is entrusted with managing a crucial state resource. In the audit, we found that the absence of targeted policy planning and shortcomings in the management of JSC “Latvijas valsts meži” caused clearly measurable negative consequences for the state. If there is a lack of clear goals, transparent management and economically justified decisions, both the state budget and public trust in how state forests are managed suffer,” emphasised Mr Oskars Erdmanis, Council Member of the State Audit Office of Latvia.
The forest sector has been operating without a medium-term state policy for five years
Since 2021, the Guidelines for Forest and Related Industries, which would set medium-term goals, priorities and expected results in the forest sector, have not been approved to implement the interests of all industries in a proportionate manner simultaneously. Despite this, the Ministry of Agriculture has promoted significant amendments to the laws and regulations in 2025 by providing for a reduction in the age for felling trees, an increase in clear-felling areas and the maximum permissible felling volume in state forests, although 10% of the permitted felling volume has not been used so far.
The medium-term strategy of JSC “Latvijas valsts meži” is not being used as an effective management tool for the SOE
The strategy of JSC “Latvijas valsts meži” does not set strategic financial indicators ambitiously enough, as their actual performance ranges from 100% to 329% of what was planned. For example, the profit indicator that is, earnings before interest, taxes, depreciation and amortization (EBITDA) from economic activities has been performed within the range of 153% to 329% of what was planned from 2021 to 2025. The Council of JSC “Latvijas valsts meži” did not revise the indicators, thus not contributing to the growth of the SOE. In addition, several indicators that, in the opinion of the State Audit Office of Latvia, are significant for the corporate operations have been excluded from the strategy, including the forest capital value, which characterizes the preservation and growth of the state forest capital and results from both the Forest Policy and the Forest Law.
The strategy also does not include shareholder expectations regarding the growth of the timber reserve and the share of profit to be paid out in dividends by accepting that the annual dividends to be paid into the state budget will be up to 33.8 million euros less than the amount of dividends determined by the shareholder starting from 2027.
The dividend planning of JSC “Latvijas valsts meži” is non-transparent and unpredictable
In the process of developing the budget framework draft laws, JSC “Latvijas valsts meži” submits forecasts of the amount of dividends to be paid into the state budget to the Ministry of Agriculture, which the Ministry then forwards to the Ministry of Finance. The initially planned amount of dividends of JSC “Latvijas valsts meži” is increased significantly in a short time, from 21.3% to 71.6% within three to seven months. It raises doubts about the reliability and accuracy of the forecasts. In addition, JSC “Latvijas valsts meži” did not provide the calculations justifying the dividend forecast during the audit. By increasing the amount of dividends to be paid into the state budget, the Ministry of Agriculture encourages the use of these revenues as previously unplanned “additional budget resources” to finance specific measures simultaneously. It limits the ability of the government and the Saeima to assess the possibility of directing such additional funds to common state priorities during the budget adoption process. In six years, 316.9 million euros or almost half of the dividend income of JSC “Latvijas valsts meži” have been directed to measures initiated by the Ministry of Agriculture, of which 91.1% or 288.6 million euros were used for the internal needs of the Ministry of Agriculture, including support for agricultural and rural development.
By planning smaller dividends, not implementing investments in the planned amount and not establishing clear principles for the use of profits not paid out in dividends, JSC “Latvijas valsts meži” accumulated 405.3 million euros by the end of 2025. Over four years, 47.5 million euros of investments were not implemented, but more than 119 million euros of the profits were left at the disposal of JSC “Latvijas valsts meži” without a specific purpose. According to the estimates of the State Audit Office of Latvia, the savings necessary to ensure the operations of JSC “Latvijas valsts meži” and to pay dividends were approximately 275 million euros at the end of 2025. So, it was possible to direct at least 130.3 million euros to the state budget in the form of additional dividend payments.
The same temporary council operated for three years instead of real one without sufficient justification; a former advisor to the Council Chairperson and Board Members are hired for other positions without a competition
The supervision of JSC “Latvijas valsts meži” for three years from March 2023 to February 2026 was carried out by a same temporary council, which the Ministry of Agriculture, as the holder of the capital shares, re-appointed each year without an open competition and appropriate justification. The legal framework allows the appointment of a temporary council only in exceptional cases and for a period of up to one year. Thus, the Ministry of Agriculture has not complied with the requirements of the Law on the Management of Capital Shares of Public Entities and SOEs regarding an open selection of Council Members.
Following the decision to reduce the number of Council Members of JSC “Latvijas valsts meži” from five to three to safeguard effective corporate governance in 2024, a position was created in the SOE, namely, an advisor to the Council Chairperson, for whose remuneration 48,059 euros were spent over 15 months. Such action is not considered useful since the Council’s duty is to ensure effective corporate governance. In addition, the Council of JSC “Latvijas valsts meži” has acted outside its competence by instructing the Board to transform the position of Advisor to the Council Chairperson into the position of independent director for governance and legal matters.
In its turn, after the decision to reduce the number of Board Members of JSC “Latvijas valsts meži” from five to three was made at the beginning of 2026, the SOE hired two former Board Members without a competition in newly created positions in their previous areas of responsibility at the request of the Council. Consequently, the reduction in the number of Board Members was not implemented in substance. The Council also did not ensure that the decision to recall the Chairperson of the Board was sufficiently transparent. As a result, the recall allowance of 27,470 euros was paid without clearly documented justification.
The decisions of the Cabinet of Ministers and the Ministry of Agriculture, as a shareholder of JSC “Latvijas valsts meži”, on price changes in the supply contracts for coniferous class II sawn logs were made outside their competence in 2024–2026, and their implementation caused a decrease in revenue for JSC “Latvijas valsts meži” of 49.4 million euros.
In accordance with the Law on the Management of Capital Shares of Public Entities and State-Owned Enterprises, the operational issues of a joint-stock company are within the exclusive competence of the Board. The issue of price changes in sawn log supply contracts is not within the competence of either the Ministry of Agriculture as the holder of the capital shares of JSC “Latvijas valsts meži” or the Cabinet of Ministers. Consequently, JSC “Latvijas valsts meži” was not obliged to comply with the decisions taken by the Cabinet of Ministers and the shareholders’ meeting of JSC “Latvijas valsts meži” on reducing the price initially set in the contracts for the supply of spruce and pine class II sawn logs.
In 2024, a different pricing procedure was applied to 12 longer-term supply contracts concluded for three years and two contracts concluded in the process of converting long-term logging contracts, namely, the average prices of short-term contracts. As a result, the revenue of JSC “Latvijas valsts meži” decreased by 37.07 million euros in 2024. In their turn, pricing changes were also applied to two supply contracts concluded in the process of converting long-term logging contracts in 2025 and 2026, and as a result of these decisions, the revenue of JSC “Latvijas valsts meži” would decrease by another 12.3 million euros by the end of 2026.
Thus, at the instigation of the Ministry of Agriculture, the decision of the Cabinet of Ministers and the shareholders’ meeting of JSC “Latvijas valsts meži” and the implementation by the Board of JSC “Latvijas valsts meži” of the price reduction in the concluded supply contracts, the requirements of the Law on the Prevention of Squandering of Funds and Property of a Public Entity, which imposes an obligation to alienate property at the highest possible price, were not complied with.
An informative report prepared by the Ministry of Agriculture on 19 December 2023, on the basis of which the Cabinet of Ministers made a decision to reduce the prices of sawn logs, was not of sufficient quality and comprehensiveness to make informed decisions. The information provided therein was incomplete in several aspects or did not correspond to the actual situation, there was a lack of alternative solutions and their economic assessment, as well as the process and arguments for preparing the proposals could not be traced. Price comparisons with other countries were based on inconsistent data analysis although it was indicated that Latvian production was 40% more expensive, such a difference existed only with Sweden whereas the price difference was below 20% in 2023 when compared to the Baltic States. The publicly available data analysed during the audit also do not indicate a significant threat to the operations of coniferous wood processing companies, as most companies worked with stable financial indicators, and in addition, the sector had a rapid increase in turnover and profits in previous years. It is important to emphasise that companies auctioned spruce and pine class II sawn logs at longer-term auctions at prices that were on average 23% higher than the initial auction prices at the end of 2021.
At the same time, the Ministry of Agriculture chose a solution regarding the adjustment of sawn log prices, which was not sufficiently economically evaluated and justified. When adjusting prices, the prices of longer-term contracts in 2024 were even lower than the average prices of short-term contracts. The audit found that the average prices of short-term auctions applied in longer-term contracts were not impartial market prices and did not reflect the entire market, since only 11% of the volume of sawn logs sold by JSC “Latvijas valsts meži” was included in their determination. Besides, almost all coniferous wood processing companies ended 2024 with a profit.
The Ministry of Agriculture and JSC “Latvijas valsts meži” have also not provided sufficiently targeted and coordinated action in resolving the issues of historically inherited long-term logging contracts, for which the Competition Council has also initiated a case.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
The State Audit Office of Latvia provided eight recommendations to the Ministry of Agriculture of Latvia and JSC “Latvijas valsts meži”. By implementing them by 2028, the forest sector will operate in accordance with current medium-term strategic goals and clearly defined achievable policy results, as well as their adverse environmental impact will be prevented or reduced in a timely manner before the adoption of significant laws and regulations in the forest sector. In their turn, the supervisory functions of JSC “Latvijas valsts meži” will be performed by Council Members, who have been selected in an open competition, but the medium-term strategy will be used as an effective management tool of the state-owned enterprise. The financial resources at the disposal of the SOE will not exceed the amount necessary for economic activity.
Additional reading: audit report summary, infographics.
About the State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General. Upon discovering deficiencies, the State Audit Office of Latvia provides recommendations for their elimination, but it informs law enforcement authorities about potential infringements of the law.