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24 I Cover story bne December 2018
companies were chosen on the basis of a multi-criteria tendering process and received remuneration upon delivery of the trees they harvested. It was then left to Czech Forest to inspect, store, and sell the wood on its own terms.
This system, widely applied to state- owned forests across Europe, began to change in 2010. According to the new rules, there was no longer a separa- tion between harvesting, planting, and selling of the trees. Instead, private forestry companies compete for the
so called “complex forestry tenders.” These are giant, five-year-long contracts worth millions of dollars that let private companies do all the work: harvesting, planting, and selling.
The change in rules was made perma- nent by the adoption of the so-called “Wooden Book” order by the govern- ment of the Czech Republic in early 2011. Although officially implemented in 2012, the new “long-term strategy for the management of state-owned forests” has been tested since 2010.
Arguably the most important change concerns the selection criteria for awarding the forestry contracts to private companies. In essence, all the criteria were dumbed down, except for one – price. According to the new rules, contracts are awarded to companies that offer forestry work for the lowest price and sell the wood for the highest price. The growing difference between these two prices is what made possible the exponential increase in profits for the state forest owner.
“Unfortunately, the new tendering system was designed in a way that there really is only one criteria – price. Who ended up paying for it were the forests themselves, as the quality of the care for them went down significantly,” Havel told bne.
The new rules have also effectively excluded the vast majority of Czech forestry companies from the competi- tion. Only the largest companies, with sufficient bank guarantees and the abil- ity to offer the lowest price, are able to compete for state contracts.
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“There are no longer many smaller for- estry companies in the Czech Republic; the capital-rich market leaders have swallowed them. Most companies simply weren’t able to compete with such low prices. If there were criteria for awarding state contracts other than price, there would be more diversity and higher employment in the regions,” Havel said.
Forestry lures the sharks
Before the rules were changed for ten- ders for working with the state forestry company, Babis and his Agrofert holding had nothing to do with forests. On more than one occasion, he publicly denied his interest in a field he didn’t understand. But that soon changed. Witnessing the effective takeover of the state-owned for- ests by private companies, Babis would not be Babis if he didn’t try to get a piece of the pie.
After some intentionally misleading public announcements, in 2011, Agrofert bought Wotan Forest, the second largest forestry company in the Czech Republic at the time. Later the same year, it added Uniles, a small forestry company from the north of the country, to its portfolio. It is this small, regional company that soon proved to be the biggest winner of Czech Forests’ new tendering system.
Before the takeover by Agrofert, Uniles wasn’t a particularly large subcontractor for the state.
From 2008 until 2012, Uniles received an annual average of $4mn worth of contracts from Czech Forests. In 2013, that number grew to almost $10mn. This year, Uniles has become the single larg- est subcontractor of Czech Forests with contracts worth nearly $30mn.
Propped up by the financial and administrative might of one of the
Czech Republic’s largest companies, Uniles suddenly found itself in a perfect position to take advantage of the new tendering system. It could afford to offer the lowest price for its services, receiv- ing an abundance of state contracts in return. Uniles has quickly become one
of the leading forestry companies in
the Czech Republic. The average yearly revenue of the company since its founda- tion until 2010 was just below $18mn.
In 2015, it was almost $123mn.
According to the company’s CEO Petr Jelinek, who until his resignation in March this year also worked as an advis- er to the former minister of agriculture Jiri Milek from Babis’ party ANO, the notion that Uniles has somehow profited from the new tendering system of Czech Forests is misinformed.
What actually happened, he claims, is that the company reshaped its business model after the consolidation of Agro- fert’s forestry holding. This resulted, according to Jelinek, not in an increase of state contracts awarded to the com- pany, but a decrease.
“In 2011, Agrofert bought two forestry companies that were doing the exact same thing. After the takeover by our parent company, the decision was made to divide business operations between the two companies. Uniles took over the complex forestry contracts, and Wotan Forest focused on forest nursery and sawmill production,” Jelinek explained during an interview with bne Intellinews.
“If you look at the data about our con- tracts from Czech Forests, you will see that Uniles has less state contracts now than the two companies had before the consolidation in 2011. It’s simply not true that we have somehow profited from the new system.”
Contracts awarded to Uniles by Czech Forests (in mln. CZK)