Competition Council finds a breach of competitive neutrality by state-owned JSC Latvijas valsts meži and imposes a fine of more than EUR 7 million

On 4 August 2026, the Competition Council of Latvia (CC) adopted its first decision finding an infringement of competitive neutrality since the relevant regulatory framework entered into force in 2020, finding that state-owned enterprise (SOE) JSC Latvijas valsts meži (LVM), by continuing to perform long-term logging contracts (IML), had conferred unjustified competitive advantages on six undertakings (the Decision). For the infringement, the CC imposed a fine of EUR 7,859,606.89 on LVM and required it to ensure equal terms of sale for all qualified bidders in future timber sales.

The CC found that, from 1 January 2020, LVM, by continuing to perform the historically concluded IML, guaranteed six wood-processing undertakings access to a specified volume of roundwood outside public auctions. Other market participants did not have such an opportunity, as they could acquire timber only through public auctions, competing with other bidders.

Chair of the Competition Council Ieva Šmite: “This is the first CC decision finding an infringement of competitive neutrality, i.e. the obligation of a public person and its capital company to ensure free and fair competition, and it therefore marks an important milestone in the practical application of this framework. The competitive neutrality framework requires public persons and their capital companies to ensure a level playing field for all market participants. This means that public resources must also be allocated in a non-discriminatory manner, on the basis of transparent and objective principles, without granting unjustified advantages to individual undertakings.”

IML and their impact on the market

The long-term logging contracts (IML) were concluded between 1991 and 1998 by the State Forest Service and wood-processing undertakings operating at the time, with the aim of supporting the development of the forestry sector following the restoration of Latvia’s independence. Most of the IML were initially concluded for approximately 10 years; however, between 1996 and 1997 their terms were substantially extended, with some contracts running until as late as 2096.

The IML guaranteed the IML partners rights to purchase standing timber, while requiring those undertakings to carry out forest maintenance and management works. Following the establishment of LVM in 2000, LVM assumed the obligations of the State Forest Service in respect of 361 IML then in force. By 2023, only 11 IML remained in force, concluded with JSC PATA Saldus, LLC ACA Timber, LLC BERIVS, LLC KREBSAR and JSC PATA Strenči (the IML partners).

At the same time, in accordance with regulatory requirements, LVM took over responsibility for forest management and maintenance, meaning that the IML partners were no longer required to perform those obligations arising from the IML.

Between 2013 and 2014, LVM began concluding agreements to restructure the IML, shortening their duration without reducing the volume of timber allocated to the respective IML partner. In addition, the sale of standing timber was replaced by roundwood supply contracts. Under these supply contracts, LVM was required to supply the IML partners with roundwood suited to their technological capabilities and business needs, irrespective of the types of timber available in the areas specified in the original IML, thereby reducing the availability of such assortments to market participants acquiring them under competitive conditions.

Table 1

List of IML currently in force

Breach of competitive neutrality and its effects

Competitive neutrality is based on the obligation laid down in Section 14¹ of the Competition Law (CL), requiring public persons and their capital companies to ensure free and fair competition, as well as on other requirements imposed on public persons by legislation. Under this framework, the market conduct of a capital company owned by a public person must be based on the same economic and commercial considerations that govern the conduct of private market participants.

The CC opened proceedings against LVM concerning a possible breach of competitive neutrality on 5 February 2026, after negotiations initiated on 20 December 2024 had continued for more than a year and ended without result. The purpose of those negotiations was to bring to an end the distortion of competition resulting from the performance of the IML.

In the Decision, the CC found that the performance of the IML had, over a prolonged period, created unequal competitive conditions in the timber market. While other market participants wishing to purchase timber from LVM had to participate in public auctions, meet specified qualification criteria and compete by submitting price bids, the IML partners were guaranteed the right to purchase timber outside public auctions and without competing with other undertakings. Moreover, those rights were secured for exceptionally long periods, whereas LVM’s contracts under the general sales arrangements are concluded for substantially shorter terms.

This gave the IML partners significant advantages in planning and developing their business activities and reduced their business risks, as they did not have to rely on the outcome of public auctions or on the volume of timber available through such auctions. In addition, under the restructured IML, timber supplies were tailored to the partners’ technological capabilities and business needs. The IML partners were also not required to meet the qualification criteria imposed on other undertakings seeking timber supplies. Consequently, the IML partners were placed in a substantially more favourable competitive position than other market participants.

The fact that the timber volumes allocated to IML partners did not enter public auctions and were therefore unavailable to other market participants is particularly significant in relation to scarce and sought-after resources, including softwood sawlogs. LVM’s supply is particularly important in this segment because the proportion of softwood in state-owned forests is considerably higher than in privately owned forests. Other undertakings therefore competed not only under different conditions, but also for a smaller volume of sought-after timber available through public auctions.

In its investigation, the CC found that, between 2020 and 2025, an average of 9.6% of the total timber volume sold by LVM was sold to IML partners. Softwood sawlogs sold to IML partners accounted for an average of 16.4% of LVM’s total sales of that assortment. This timber did not enter public auctions, meaning that other market participants had no opportunity to bid for it, even if they were prepared to offer a higher price.

The CC also found that, following the restructuring of the IML, the volume of softwood sawlogs available through public auctions decreased by 12.6%, even though LVM’s total sales volume of this assortment increased. This demonstrates that the performance of the IML had a material impact on competitive conditions in the timber market.

The CC further concluded that there was no longer any objective justification for the advantages granted to the IML partners. Originally, in exchange for long-term rights to harvest state forests, IML partners were also required to carry out forest management and maintenance works. Since 2000, however, these obligations have been performed by LVM, while the IML partners no longer carry them out. One of the key original grounds that had once justified the advantages granted to the IML partners had therefore ceased to exist.

Industry assessment of the impact of the IML

During the investigation, the CC also sought the views of timber market participants on the impact of the IML on competition. The 15 largest purchasers of roundwood from LVM that are not IML partners were invited to provide their views, and 11 market participants responded. Several stated that the long-term access to timber outside public auctions guaranteed to IML partners gave them an advantage over undertakings that must compete for scarce timber resources through public sales procedures.

Market participants particularly emphasised the limited availability of timber resources and the fact that timber volumes sold under the IML were unavailable to other market participants. They also pointed to the advantages enjoyed by IML partners as a result of guaranteed long-term logging rights and timber supplies, the ability to purchase timber outside auctions and, in certain cases, the exclusive opportunity for IML partners to participate, without a procurement procedure, throughout the entire timber harvesting and processing chain - from logging and transport to timber processing and sale.

For example, one market participant stated: “There is no rational explanation for concluding contracts whose duration bears no reasonable relationship either to investment payback periods or investment life cycles, or even to the length of a human lifetime. In effect, contracts have been concluded that some businesses will inherit over several generations, while several generations of other businesses in the sector will be unable to compete for the resources supplied under those contracts.” The Employers’ Confederation of Latvia also stressed the need to ensure that all timber volumes controlled by the state are sold through transparent and equal procedures that provide all market participants with equal competitive conditions.

The CC also notes that, already at the end of 2022, the Prosecutor General’s Office drew the attention of LVM and the Ministry of Agriculture to issues concerning the IML. On 28 December 2022, LVM was issued a warning in connection with the IML restructuring procedure, highlighting the need to comply with the regulatory framework applicable to state-owned capital companies when concluding contracts and to assess whether the chosen procedure was justified. The Ministry of Agriculture was, in turn, invited to consider developing a regulatory framework governing the operation of the IML in order to prevent the risk of unequal treatment of market participants.

Fine imposed on LVM

Having assessed the circumstances of the case, the CC concluded that LVM’s infringement lasted for more than six years - from the entry into force of the competitive neutrality framework on 1 January 2020 until the date on which the Decision entered into force. At the same time, the infringement had previously been partially suspended in accordance with court rulings granting interim protection.

A fine of 0.7% was set for the gravity of the infringement and 0.6% for its duration. Accordingly, the total fine imposed on LVM amounts to 1.3% of the undertaking’s 2025 turnover, or EUR 7,859,606.89. No aggravating or mitigating circumstances were established in the case.

Public persons—state and municipal authorities, as well as capital companies owned by them - are prohibited from preventing, restricting or distorting competition. The prohibition entered into force on 1 January 2020 and is laid down in Section 14¹ of the Competition Law.

To ensure compliance with the law, the CC conducts negotiations with the public person or its capital company. If the negotiations do not result in compliance with the law and an outcome favourable to competition, the CC may continue infringement proceedings against a capital company owned by a public person and adopt a decision finding an infringement, imposing a legal obligation and a fine.

1. ^

    LLC PATA Jēkabpils is the transferee of part of JSC PATA Saldus’s obligations under a supply contract. On 6 January 2017, an agreement was concluded on the partial transfer of the obligation to conclude a supply contract from JSC PATA Saldus to LLC Jēkabpils mežrūpniecība (later renamed Jēkabpils kokapstrāde). Under a business-unit purchase agreement of 20 May 2022 between Jēkabpils kokapstrāde and LLC PATA Jēkabpils, the permanent part of Jēkabpils kokapstrāde’s undertaking related to wood processing (sawing, planing, impregnation and manufacture of wooden packaging), together with all associated rights and obligations, was transferred to LLC PATA Jēkabpils.

2. ^

    LLC ACA Timber was formerly LLC Metsa Forest Latvia

3. ^

    Before the restructuring, the latest expiry date of the IML concluded by JSC PATA Saldus was 30 September 2096.

4. ^

    Until full performance of the obligations, but no later than 31 March 2027.