The performance audit by the State Audit Office of Latvia has concluded that the electric bus and charging infrastructure purchase measure by local and regional governments has not been implemented effectively. Even at the planning stage, the Ministry of Smart Administration and Regional Development (MSARD) envisaged a decentralized approach, significant restrictions on the use of buses and unclear quality criteria, which created risks of cost inefficiency. Despite significant administrative investments and high acquisition costs, 14 local and regional governments purchased 19 electric buses for 8.4 million euros with significant restrictions on use, some of inadequate quality, and, moreover, they are not completely zero-emission vehicles (ZEVs) and thus do not achieve the goals set for the measure fully.
IN BRIEF
- The electric bus purchase measure was implemented inefficiently when 14 local and regional governments purchased 19 electric buses for 8.4 million euros with significant restrictions on use, some of inadequate quality, and they are not completely zero-emission vehicles, and they do not achieve the goals set for the measure fully. Due to the restrictions, electric buses are idle for an average of 53% of the year.
- Procurements were organised in a decentralised manner, they did not ensure sufficient competition, and public funds were not spent economically. Local and regional governments conducted about 33 separate procurements, which increased the administrative burden, narrowed competition, created significant price differences and higher costs. If all local and regional governments had purchased minibuses according to the lowest price, the savings could have been 677,000 euros.
- Some of the “new” electric buses had significant quality deficiencies already at the time of their delivery such as rust, cracks in the ceiling cladding, as well as the inability to provide adequate heat inside a bus. Nine of the 12 minibuses delivered were “newly built” by combining two bases of cargo minibus.
“The measure was implemented with the aim of absorbing available funding rather than of achieving the best possible result. Although the set goals were justified, the achieved result was expensive and of limited practical applicability, thus the invested public funding has not yielded proportionate benefit. During the audit, we encountered the opinion repeatedly that local and regional governments would not purchase such vehicles without European Union (EU) funding. The State Audit Office of Latvia considers that such an approach is incorrect and it is time to change the attitude because the EU funds are public funds and should be treated in the same way as one’s own money,” emphasised Mr Mārtiņš Āboliņš, Council Member of the State Audit Office of Latvia.
The conditions of the measure limited the practical use of electric buses
The aim of the measure was to improve the functions of local and regional governments by focusing on the mobility of students while promoting the greening of public sector transport at the same time. To achieve this goal, local and regional governments were provided with support for the purchase of class M2 or M3 zero-emission or electric buses and the necessary charging infrastructure for them by using the Recovery and Resilience Facility (RRF) funding of 8.8 million euros. The MSARD was responsible for the implementation of the measure while local and regional governments were beneficiaries of the funding.
The conditions for the implementation of the measure limited the use of the purchased buses significantly from the very beginning. Electric buses were intended only for transporting students to the place of study and back to their place of residence. They can be used to a limited extent in other occasions directly related to the educational process, that is, up to 20% and special accounting must be carried out for this.
Such a restriction does not result from EU requirements but it has been set nationally during the development of the Latvia’s RRF Plan to narrow the demand by local and regional governments for electric vehicles in conditions of limited funding. It reduces the return on investment significantly and limits the possibilities for flexible use of buses for actual needs of local and regional governments, which were not identified during the planning of the measure sufficiently.
The auditors have estimated that due to usage restrictions, electric buses are idle for an average of 53% of the year (194 days), especially in summer and during school holidays. The annual mileage of buses is 43% (13.4 thousand km) less than planned on average. In some cases, buses were not used for a long time for other reasons. For example, an electric bus was idle for more than four months because the vehicle, worth approximately 665,000 euros, did not have a driver in Ogre Region while a bus was under repair for a long time due to defects in Preiļi Region. Although it was planned to purchase zero-emission buses, they meet this requirement only partially, as they are heated with diesel fuel. Therefore, the emission reduction is smaller than planned. In addition, the overall reduction in GHG emissions is small compared to the public funding invested.
Decentralised approach did not promote fair competition in municipal procurement and economical use of public funds
Although the content and conditions of the measure were the same for all local and regional governments, neither the MSARD nor the local and regional governments or their representative organization organised a single procurement and developed standardized technical specifications. Instead, each local or regional government organised the purchase of electric buses, charging equipment and infrastructure independently to purchase one or two electric buses, although they had no experience in such procurements.
As a result, 14 local and regional governments implemented approximately 33 separate procurements by consuming approximately 4.2 thousand working hours, which cost the local and regional governments approximately 57.1 thousand euros. At the same time, many local and regional governments purchased the same vehicles from the same suppliers. A centralized approach would have been more effective.
“The State Audit Office of Latvia has already indicated in its previous audit of public procurement that a centralised approach to public procurement allows for greater competition, lower costs and a smaller administrative burden. In this case, there was no single procurement, which created unnecessary risks and public funds were not used effectively. Similar measures should be implemented centrally in the future,” indicated Mr Āboliņš.
Municipal procurement did not always ensure fair competition and economical use of funds. Market research was carried out formally by addressing the same suppliers, including those that did not offer electric buses. Two suppliers who participated in the planning of the measure were actively involved in the market research. These companies won 79% of municipal procurements directly or indirectly and supplied 15 out of 19 electric buses. In some cases, the technical specifications were developed by the winner of the procurement itself or an individual possibly related to them.
The average price of purchased minibuses is 277,000 euros while the average price of purchased buses is 581,000 euros. Prices for the same models of buses and charging equipment differ significantly. For example, the price difference for the same buses purchased in Jelgava and Preiļi Regions is approximately 43,000 euros whereas the same model was purchased for an average of 37% or 168,000 euros cheaper in Lithuania in 2022.
In the Anykščiai Regional Government in Lithuania, the price of one minibus was around 192,000 euros while a minibus of the same model in Smiltene Region cost 227,000 euros. This is 77,000 euros cheaper on average than the average price of 11 minibuses supplied by a Latvian entrepreneur, id est, 287,000 euros. If all local and regional governments had purchased minibuses at the lowest price set in the measure, the savings could have been 677,000 euros.
The construction of charging infrastructure also often did not meet the goal of the measure. In some cases, large asphalt areas were built and expensive improvement areas were installed.
“New” electric buses with significant quality deficiencies already at the time of delivery
The rules of the measure did not distinguish clearly between what was considered a new, industrially produced vehicle and what was considered a zero-emission converted vehicle. The measure allowed the purchase of both a new electric bus and a fossil fuel-powered vehicle up to 10 years old that had been converted to a zero-emission vehicle. For the purposes of the measure, both were considered new, with the same maximum support of up to 300,000 euros for the purchase of an electric vehicle of class M2. It confused local and regional governments as regards what vehicles were actually purchased and what conversions had been made to them.
Although local and regional governments purchased new vehicles mostly, the auditors consider that the way minibuses were produced does not allow them to be equated with new, full-cycle industrially produced vehicles fully. Nine of the 12 minibuses supplied were “newly built” by combining two bases of Mercedes-Benz cargo minibus. They are registered as new, not converted, because only new parts are used in their production process. Auditors also found parts manufactured in 2019 and 2020 in these minibuses registered in 2024.
In the electric buses purchased by particular local and regional governments included in the audit sample, significant quality deficiencies were found at the time of acceptance or shortly after commissioning such as rust, cracks in the ceiling cladding, loose wires, dust entering the cabin, damaged door systems, as well as the inability to provide adequate heat inside a bus.
At the same time, the audit revealed a systemic problem, namely, there were no uniform quality requirements for school transport and the vehicles used in them in the country. Although local and regional governments have obtained certificates for self-transportation, they only certify the vehicles’ compliance with road traffic safety requirements at the time of issuing the certificate mainly. The requirements for bus equipment, quality and safety of school transport depend on the understanding of each local or regional government.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
At the end of the audit, the State Audit Office of Latvia has made five recommendations, three of which to the Ministry of Smart Administration and Regional Development, one to local and regional governments, and one to the Ministry of Transport. The implementation of the recommendations shall facilitate the centralization of vehicle procurement in local and regional governments allowing for the use of public funds more effectively and economically. Wider possibilities for the use of electric buses shall reduce their downtime and increase the benefits of their purchase. In its turn, improved supervision of similar measures and strengthened internal control procedures of local and regional governments shall help prevent the recurrence of the identified irregularities. At the same time, in the field of school transportation, the introduction of uniform quality requirements for transportation and the vehicles used in them is planned, for which the Ministry of Transport is primarily responsible.
Additional reading: interim audit report*, infographics
*The State Audit Office of Latvia has drafted interim audit report “Has the electric bus measure of local and regional governments been implemented effectively?” during performance audit “Achieving climate goals in the transport sector”. The audit aims to assess whether the ministries in charge have ensured the prerequisites for the effective achievement of climate goals in the transport sector, whether the measures related to them are implemented efficiently and the interests of the population are taken into account at the same time.
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.