“e-talons” summer audit reveals possible corruption and overpayment

Take note – story published 4 years and 7 months ago

The officials responsible have known for some time that there are problems within the “Rīgas satiksme” (Rīga transport) subsidiary “Rīgas karte”, which is responsible for maintaining the “e-talons” electronic card payment system operated by public transport in Riga, reports LTV's De Facto investigative show.

Until now, it’s been impossible to track how much money went where, but the results of this summer’s audit are beginning to reveal the extent of the suspected corruption, which has lead to Riga citizens overpaying vast amounts for public transport use.

“Last year the 'e-talons', Riga resident card, parking system maintenance was the largest expenditure item for “Rīgas satiksme”. In 2018 it paid “Rīgas karte” almost 28 million euros. In comparison, fuel expenditures were only 14.5 million euros, and new bus and tram procurement cost 19.5 million euros,” explains De Facto Journalist Olga Dragiļeva.

Most of the money paid to “Rīgas karte” went towards maintaining the “e-talons” and personal smart card systems, which added up to 18 million euros according to an audit by Deloitte Latvia. Comparatively, Tallinn pays 1.2 million euros a year for a similar system. In Tallinn electronic cards aren’t used to pay for school lunches and it has one-third less buses and trams, but it pays 18 times less annually for this service. 

Taxpayer money reaches the “e-talons” service provider only through several intermediaries, who apply high surcharges and pay themselves unreasonably high salaries for the market, the research suggests.

In reality the “e-talons” validators and sales systems, parking payment systems and other devices implemented 10 years ago are serviced by two large subcontractors - “BMS Technology” and “Burlat”. Their owner Andrejs Blažko has connections to former “Rīgas Karte” board member Aleksandrs Brandavs. The surcharges due to these subcontractors alone could have saved Riga taxpayers five million euros.

For example, “Rīgas karte” purchases the paper “e-talons” cards from Burlat for around three million euros per year, which adds up to 45 cents per card. On the internet anyone can find similar gift cards for half the price. Auditors also uncovered that “e-talons” payment system setup and maintenance costs “Rīgas karte” approximately195 euros per hour, whereas the going industry rate is anywhere from 6.63-17.73 euros per hour.

When questioned on-camera, former “Rīgas satiksme” and “Rīgas karte” Board Member Maksims Tolstojs (Harmony party) could not provide an explanation regarding the methods used to evaluate and compare providers. Tolstojs left the “Rīgas karte” board a few years ago when council members were barred from controlling corporations, and a few weeks later his partner Jeļena Jakovļeva become a Business Development Manager, which Tolstojs claims to know nothing about. Jakovļeva left this position in March.

Jakoļeva’s business partner and sister-in-law Inna Novika also worked as Business Development Manager for a year. While working at “Rīgas karte” Novika donated almost 11,000 euros to “Harmony”, while Jakovļeva donated 46,000 euros.

Auditors noticed the connection between Aleksandrs Brandavs and Andrejs Blažko when they revealed that two companies owned by Brandav’s company “B-Noma” were purchased by Blažko’s company “Detol”. Even without an official position Brandavs maintains informal connections to “Rīgas karte”. For example, the son of the head accountant is a board member at several of his, or his father’s companies. “Rīgas karte” declined to answer any questions regarding Blažko or his companies, citing a leak of confidential information.

Andrejs Blažko owns an array of companies, but his company “BMS Technology” closed a 53 million euro contract in 2009 with “Rīgas karte” half a year after it was founded for the implementation of e-ticketing in public transport. It’s currently responsible for servicing parking payment systems, however e-ticketing system servicing was taken over in 2010 by “Burlat” - another one of Blažko’s companies.

Their employees were trained by “Rīgas karte” French investor “Conduent”, but auditors were unable to determine why the contract was transferred. While “Conduent” claims high corporate social responsibility on their website, they have declined to answer any questions from LTV.

The auditors learned from “Rīgas karte” Chair and Managing Director Eric Morizur that the company doesn’t have a procurement procedure before closing important contracts. Therefore, auditors were unable to determine if the contracts with Blaško’s companies for millions of euros were fair. LTV has unofficial information that Eric Morizur has been dismissed from his board position, but maintains his directorship. At the time “Rīgas karte” was founded Blaško became a business partner to Riga City Council Member and “Honor to serve Riga” Board Member Irina Vinnika, who went on to serve as a “Rīgas satiksme” board member.

The excesses signaled in the audit results are possibly why the auditor calculations remain a secret, and the officials responsible claim to not have yet seen the audit. “Rīgas satiksme” Acting Board Chair Ernests Saulītis claims, on-camera, to know nothing of the audit. The Deputy Mayor responsible for “Rīgas satiksme” Vadims Baraņiks claims to know nothing of the audit results, simply saying he must wait for the “Rīgas satiksme” board decision. The newly appointed “Rīgas satiksme” supervisory board replied to De Facto by writing that these issues are the responsibility of the board.

Saulītis confirmed that a ticket system development strategy working group has been convened to decide what to do further with the “e-talons” system, but declines to comment himself, as he plans to have left his position by then. This group, consisting of six “Rīgas satiksme” employees, a Riga City Council Finance Department representative and “Rīgas karte” board member, will have no access to the secret audit.

Individual members of the working group may have a personal interest in continued cooperation with “Rīgas karte”. One example is “Rīgas karte” Board Member Pāvels Tulovskis, who has connections to supplier “HiPark Solutions”, which was paid 120 000 for system repairs over four years. The owner and board member is Irina Zagorodnova, and her family members are business partners of Tulovskis. They are on the board of “HiPark Systems”, of which Tulovskis, and now his wife, owns a 15% share. Tulovskis maintains that the businesses are not related and do not pose a conflict of interest.

“Rīgas satiksme” Supervisory Board Chair Normunds Narvaišs has admitted that the contract with “Rīgas karte” is not favourable, however due to penalties “Rīgas satiksme” will not break the contract before it runs out in 2020. The vacancies for five “Rīgas satiksme” board positions will be announced soon, and based on the working group suggestions, the new board will make a decision on further cooperation at the beginning of next year. 

It will be difficult for former board members to return to their positions. “That’s one of the issues we discussed in the first meeting - what we consider to be an unblemished reputation. It’s further debatable, but I presume that these persons couldn't be candidates for the new board” explains Narvaišs.

With the risk of further dependence on inconvenient and shady subcontractors, it’s important for “Rīgas satiksme” quickly make a decision on further cooperation with “Rīgas karte”. The “e-talons” contract runs out in 2020, and the parking payment system contract runs out in 2025. The audit revealed that “Rīgas karte” could manage its own systems without intermediaries, however there is currently no alternative.

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