Development of Free Economic Zones and Industrial Parks

The National Audit Office has performed an audit of the development of free economic zones (FEZ) and industrial parks.

Two free economic zones have been operating in Kaunas and Klaipėda for seventeen years. As from 2005, eight industrial parks have been developed in Lithuania, five of which (those in Naujoji Akmenė, Marijampolė, Šiauliai, Kėdainiai, and Panevėžys) have also been planned to be rearranged into FEZ during 2011–2012. The state has invested LTL 160 million into the development of these industrial areas. Presenting the audit conclusions, Auditor General Ms Giedrė Švedienė said, “Development of industrial areas should not be regarded as the key factor which encourages investments. The success of such parks also depends on the manner and extent of their integration into the local economy. It can happen that establishment of new free economic zones attracting new investments with additional tax incentives only in specific areas will not produce effective results.”

The auditors established that there is no clearly regulated distribution of investment risks, obligations and responsibility between the state and the private companies which manage the free economic zones, though the development of the currently operating FEZ is mainly funded by the state. The free economic zones have been granted an exclusive right to rent and manage the area on easy terms providing special favourable economic and legal conditions, however, no appropriate results and accountability have been required from the FEZ management companies. As a result, the management companies have not been encouraged to seek larger investments, creation of jobs and other indicators important for the Lithuanian economy.

When establishing Kaunas and Klaipėda free economic zones, Kaunas County Governor’s Administration and Klaipėda City Municipality were obligated to organise international tenders for the selection of the best plan of the business zone, the zone status and the group of founders. During the audit, however, neither the Administration and the Municipality, nor the Government and the Ministry of Economy, which is responsible for state supervision of free economic zones, were able to provide the tender documentation. Consequently, at present the state does not have all data on the obligations taken on by the parties and on the zone development plans which were provided for in the business plans and which are required for the assessment of the execution of the agreements on the establishment of free economic zones. In the auditors’ opinion, the Ministry of Economy has been failing to carry out state supervision of the FEZ in an appropriate manner and to show interest in the activity indicators and their effectiveness to a sufficient extent.

Also, the auditors established that lately privately-owned lots of land have been included into the area of the free economic zones, although the state does not intend to purchase these lots. Such model has not been regulated in relevant legislation.

To date, only 13 per cent of the area of the operating FEZ and 10 per cent of the area of the industrial parks have been rented out for investors. Nevertheless, the industrial areas are further expanded without having assessed their actual demand and the effectiveness of investments.

The National Audit Office established that 16 agreements were signed with investors as at the end of May 2012. These investors rented 57 ha of the area of the industrial parks and planned to invest there LTL 236 million and to create 407 jobs. To date, however, only LTL 9 million have been invested and 14 jobs have been created. Actual activities are carried out only by two investors in Šiauliai and Kėdainiai. One of the main reasons of such situation is insufficient regulation of the establishment and operation of industrial parks and lack of human resources allocated and attention given by the municipalities which organise the activities of such parks.

The National Audit Office recommended to the Government to approve clear criteria and indicators for further investments by the state into the development of the infrastructure of free economic zones. The Ministry of Economy was recommended to impose specific obligations on the FEZ management companies concerning FEZ expansion and activity results and to provide for liability for failure to meet these obligations, as well as to initiate regulation of the operation and management of industrial parks. It was also proposed to initiate amendment of the legislation on the operation of free economic zones and to adopt a procedure for the inclusion and use of privately-owned land.