TALLINN, 3 March 2005 - When auditing the Rural Development Foundation (RDF), the SAO found millions of kroons of debenture loans and land purchase loans in the amount of EEK 34 million granted on the basis of incomplete documentation, the RDF has also given the banks millions of kroons credit resource free of charge, although banks lend it further with 5 per cent.

Through the Rural Development Foundation (RDF) and its predecessor, during the last seven years approximately EEK 3.5 billion have moved for the development of rural life and undertakings. From this sum loans make up over two billions and financed loans of banks upon securities over one billion kroons. Last summer the loan balance of the RDF was EEK 664.2 million and the balance of contracts of indemnity with the risk of foundation was EEK 190.8 million, hence totally a bit less than one billion kroons. At the moment the RDF is operating on the self-financing principle, is a remunerative enterprise. Founders’ rights are exercised by the Ministry of Agriculture.

The SAO is concerned whether there is enough security that the money that has been lent out will be received. The RDF has not demanded regular quarterly reports from the loan debtors pursuant to the concluded contracts in order to discover any problems in good time. It is not excluded that when the beginning of the repayment of the principal part of the loan arrives, there is no money to get it from, because there has not been started with the business for which the land was purchased. The fact that mainly the loan debtors got the whole amount of loan from the RDF on their account and now can pay the interests from the same amount, is also risky. The SAO found also such land purchase loans in the amount of EEK 34 million according to which one is not convinced at all whether land was purchased for this money.

In its annual survey the RDF reports over and over again that tens and hundreds of millions of kroons have been directed to the rural development, but the SAO is of the opinion that this position is wrong. One should not assess the work of the RDF according to the number of millions contributed to the land, but by the fact whether the contribution has been profitable. “We do not know whether the undertakings have actually made progress, whether new work places have been created, how much the tax basis of the local government has increased etc. These questions remain open, as the RDF does not draw up overviews on these issues”, marked Toomas Mattson, Head of the Public Relations Service of the SAO. He added that obviously the activity of the RDF has helped many undertakings, but we must not forget whom the money we operate with belongs. The risks shall be reduced to the minimum possible.

According to the assessment of the SAO, the risk is big in connection with the loans granted to the savings and loan associations (SLA). The RDF is lending money to the savings and loan associations with the interest rate of 3.5 per cent per year. The RDF has granted loan to eight savings and loan associations, EEK 20 million in total that is uncovered. There is a small likelihood to get the money back in case of insolvency of the SLAs.

As to the savings and loan associations, the SAO also condemns the conflict of interests in connection with the loan granted to the savings and loan association of Kehtna by the RDF. Some of the loan contracts were signed in the part of the RDF by Tõnis Blank who was, at the same time, a member of Board of the Foundation and a member of the savings and loan association that got loan, although the contract was signed in the name of the association by someone else. Many of contracts have been signed by Mr. Blank in the name of the loan debtor and in the name of the Foundation by someone else. At the moment Mr. Blank is the County Governor of Rapla, he is not in the management board of the RDF any more.

Although this savings and loan association, like the others, has received loan in millions, there is an amount of EEK 70 000 that has been granted by the RDF without any interest rate. The other savings and loan associations have not received loan under such conditions. The savings and loan association of Kehtna is also one of them that, due to the alleged mistake, has been granted loan for five years in stead of the permitted three years.

By the middle of 2004, the RDF has granted loans to credit and financial institutions at the interest rate of 0 per cent for re-lending in the amount of EEK 38 million. “If the state keeps such an organization as the RDF, it would be meaningful if the rural undertakings will receive loan from the RDF on more generous terms than from the bank. According to the many contracts, the actual beneficiaries of the activities of the RDF are still the banks”, stated Mr. Mattson.

It appears in the report of the SAO that the RDF gives money to the bank that in its turn grants the money to a rural undertaking. The problem is that in many cases the bank does not pay to the RDF any interest during the first three years or during the whole lending period, i.e. taxpayer, in essence, presents credit resource to the commercial banks. A rural undertaking that borrows the money through the bank, started to pay interest at once. Many contracts have been concluded so that if the interest rate, imposed by the bank, exceeds five per cent, the RDF will get one per cent. Recklessness of the RDF upon lending the money has already caused problems to the taxpayer, e.g. some of the loans concluded in 2001-2003. By the middle of 2004, already ten contracts were cancelled, for EEK 12 million in total. Here the RDF has been careless, as it did not follow the terms of loan disbursement when granting the loans, not demanding submission of many necessary basic documents: there were missing purchase prices of real estate, certificates presenting evidence on lack of arrears of payments etc. Upon collection of loans, it appeared that the values of securities were insufficient for repayment of the loans.

The SAO sent its proposals on the RDF to the Ministry of Agriculture. The Minister declared that the proposals would be taken for implementation. The audit was also discussed in the Supervisory Board of the RDF.


Toomas Mattson
Communication Manager of National Audit Office
Telephone: 6400 777
Mob: 51 34900
E-mail: [email protected]

• Posted: 3/3/2005 12:00 AM
• Last Update: 9/22/2015 9:45 AM
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