Month: April 2017

Around 125 million euro were paid from the state budget to service the guarantees given for KAP loans with the Deutsche Bank, VT Bank, and OTP Bank, and in order to fill the budget gaps the Government introduced taxes on owning SIM cards, froze pensions, increased the VAT rates… No one was held accountable for the damage of 125 million euro and for new levies imposed on citizens

The work of the State Audit Institution (DRI) is not followed through and supported properly by the state prosecution. This statement is corroborated by the very low number of cases launched on the basis of DRI findings – only six so far – as well as the fact that no one was held criminally liable for the irregularities the DRI highlighted in their reports.

In virtually all reports the DRI noted that laws and other regulations were violated and that money was spent for unintended purposes. The reports which noted the most severe violations and which led to negative opinions on the work of the bodies that were covered by those reports were submitted to the Supreme State Prosecution (VDT) for further action. According to the data received from almost all prosecution offices, so far one person and one legal entity were held liable for misdemeanours and they were charged with fines amounting to 5.300 euro. This sum is not even 0.001% of the damages caused to the state budget.

The most blatant example of violation of regulations that was felt by all citizens was the case of state guarantees for the loans of the KAP Aluminium Smelter worth 135 million euro. In early 2013, the DRI published their audit of the guarantees issued in 2009 and 2010, worth over 10 million euro. They noted that the Government has issued guarantees for KAP’s loans worth 135 million euro without proper counter-guarantees and with a significant risk that the guarantees could be activated. The epilogue to this story is well known – 125 million euro were paid from the state budget for the loans taken from the Deutsche Bank, VT Bank, and OTP Bank, and in order to fill the budget gaps the Government introduced new unprecedented taxes for owning SIM cards and transmitters for access to electricity and cable TV, froze pensions, raised the crisis tax on all salaries above the national average, and later raised the VAT tax rate from 17% to 19%.

No one was held accountable the 125 million paid from the state budget for the guarantees for a loan taken by KAP, a company that owed 327 million and was incapable of servicing its loan obligations. Daily newspaper Dan was unable to obtain information from the Supreme State Prosecutor’s Office regarding the progress of the KAP guarantees case. According to the latest information they issued to Institute Alternative (IA) in late 2016, they are waiting for the findings and opinion of economic and financial experts and the case is in the preliminary investigation phase.

President of the Management Board of Institute Alternative Stevo Muk said that for ten years now we have only been hearing stories on who needs to do what, whose authority it is to file criminal charges and whose it is not, and so forth.

– What is essential, on the other hand, is that everyone needs to do their job in the best possible manner. And this is certainly not the case with the prosecution as they are taking three years to deliberate on the expert report on the affairs the DRI already described in one of the most significant cases for the state budget. We currently have a situation in which the media and civil society are pushing the prosecution to pay attention to DRI reports, and the prosecution in turn complains that those reports are too big and do not offer sufficient evidence on the existence of criminal liability, and this situation is frankly comical. Any prosecutor that cares about the profession would be looking into the DRI reports without any external pressures and use them as starting points for their checks and for launching criminal cases and related actions – Mr Muk told Dan.

Mla­den Bo­ja­nić, an economist, noted that the issuance of guarantees for KAP is the most blatant example of abuse of the institute of state guarantees, which created direct damages to the budget and served the interest of a privately-owned company.

– There is plenty of evidence showcasing this clearly and unequivocally. First, the guarantees are a type of state aid and, in accordance with the law on state aid, the procedures for issuance of guarantees are determined by strict legal provisions which had to be followed but this was not the case. Second, when the decision on issuing the guarantees was made it was evident that the company will not be able to meet in a timely manner the loan obligations for which the state issued guarantees, a state of facts that was noted also by the commercial audit. Third, contrary to the provisions of the law on state aid, the Commission for the Control of State Aid, which is the line authority in this case, did not monitor the use of funds received on the basis of state guarantees. Finally, the blocking of the privately-owned KAP shares, as the only means of counter-guarantees and security in the case of the activation of guarantees, is a deliberate action aimed at making the refund of state money that has been paid impossible. The outcome of these activities is detrimental to the budget of Montenegro. We paid down 125 million euro, shortly thereafter bankruptcy was declared, the entire property of KAP was sold for 28 million, and it is now more than evident that the state will never be able to recover even a small portion of the 125 million – Mr Bo­ja­nić told Dan.

In addition to KAP, similar problems occurred with state guarantees given for loans of other companies, such as Željezara Steel Mill, Montenegro Railways, old Pobjeda, Melgonija… The total amount of guarantees for all these loans is 180 million, they were all paid from the budget, and, as far as Mr Bojanić is aware, the state did not recover a single euro from their bankruptcy estates, and it never will.

– All this is easy to check and prove, so I see no sensible reason for the prosecution’s preliminary investigation to take years. In order to establish the truth, we don’t need collaborating witnesses, nor polygraphs, nor DNA samples, it’s all in the documents. All that is needed is for someone to sort these documents neatly and all will be clear – how high the damage suffered by the state is, how much private individuals benefitted, who is responsible for the bad decisions, who is responsible for the procedures – Mr Bo­ja­nić concluded.

A case charges Bog­da­no­vi­ć dismissed

Cetinje Basic Prosecutor’s Office dismissed the criminal charges against Mayor of Cetinje Alek­san­dar Bog­da­no­vi­ć, filed on the basis of a DRI report.

– In the activities of the suspect there were no notable characteristics of the reported criminal acts, nor any other criminal acts that would prompt prosecution ex officio – daily newspaper Da­n was told by the Ce­ti­nje Basic Prosecutor’s Office.

The charge against Bogdanović was filed by a M.S. from Cetinje in early November 2014 and the Prosecutor’s Office dismissed it on 19 April 2016.

The DRI established that in its final budget account for 2013 the Municipality of Cetinje noted a surplus of 1,8 million euro, whereas in fact it had a deficit of 921,6 thousand.

There was no response from the Supreme State Prosecutor’s Office, nor from any other prosecution offices, as regards audits of the National Parks of Montenegro and the Municipality of Budva, who received a negative opinion by the DRI.

Gje­ka fined 800 euro

Ulcinj Basic Prosecutor’s Office received two negative DRI reports concerning the Ulcinj-based Democratic Party, one in late 2014 and the other in late 2015.

– Following a preliminary investigation, a request was submitted to the Ulcinj Basic Prosecutor’s Office for launching a misdemeanour procedure against the Democratic Party, as the legal entity, and its President F.G., as natural person responsible for the legal entity. The requests for launching misdemeanour procedures were submitted, in the first case, for the violation of Article 35 paragraph 1 point 11 of the Law on the financing of political parties (for the legal entity) and for the violation of Article 35 paragraph 2 in relation to paragraph 1 point 11 of the Law on the financing of political parties (for the natural person), and in the second case for the violation of Article 53 paragraph 1 point 19 of the Law on the financing of political entities and election campaigns and Article 19a paragraph 1 of the Law on accounting and audit (for the legal entity) and the violation of Article 53 paragraph 2 of the Law on the financing of political entities and election campaigns and Article 19a paragraph 2 of the Law on accounting and audit (natural person). The accused are found guilty and ordered to pay fines, in the first case 1.000 euro (legal entity) and 500 euro (natural person), and in the second case 3.000 euro (legal entity) and 800 euro (natural person), Dan was told from the Ulcinj Basic Prosecutor’s Office.

The President of the Democratic Party is Fatmir Gjeka. The DRI established in their audit of the party’s financial reports from 2013 and 2014 the undocumented withdrawal of funds in the amount of 23.430 euro, which amounted to 38% of all the available funds of the party.

Draško Milačić
Journalist, daily newspaper Dan
(original publication date: 20 April 2017)

This article was drafted in cooperation with Institute Alternative, with the support of the UK Embassy Podgorica. The author holds the sole responsibility for the content of the article.  

First data on state property ought to be made available by the end of April, but Montenegro is still a long way from a comprehensive state property register

How much property, real estate, securities, and money Montenegro owns is not known to this day due to the fact that the line authorities of the Government have still not drafted the state property register, even though the law required this to be done seven years ago. The years of violating the Law on state property, the disregard of auditors’ recommendations, the chaos that rules in the area of management and use of public property, and still to this day no one was held to account. It is expected that the first data on state property will be made available by the end of April for a small number of authorities, but given the current pace of collection of data on state property it is safe to assume that this obligation will not be fully met for many years to come.

The state property register

The Law on state property was adopted by the Parliament and entered into force in March 2009. It prescribes the obligation for state organs and public authorities established by the state of Montenegro and its municipalities to catalogue, evaluate, and record all real estate that fall within their remits and to submit data on them within one year to the public authority in charge for property affairs.

The law requires this public authority to establish a single list of real estate in state property within 90 days following the deadline set for state and municipal bodies. In line with these provisions, the state property register was supposed to be functional by summer of 2010. However, seven years later, the register still does not exist and its establishment will cover several phases where the data will first be entered for the property of direct budget beneficiaries, and only later for indirect budget beneficiaries and local self-governments.

200.000 paid for the programme

In February 2010 the Government adopted a Decree on the manner of work of public administration, which prescribed that the programme for electronic data management for individual records keeping, registers, and single record keeping will be developed by the Ministry of Finance and the line ministry responsible for the information society. The ministries were obliged to set up compatible programmes with the view to establishing a single information system for keeping records of the property of the state.

Even though the decree did not specify whether someone else can do the job for the ministries, a private company from Belgrade, Serbia, called Atos, was hired to do this and they received 199.800 euro for the job. They were the single bidder at the tender published in October 2014.

DRI’s recommendations not applied in practice

The State Audit Institution (DRI) has noted problems in managing state property, as well as failure to abide by the law, as early as 2011 in their report on the audit of the annual financial report on the effectiveness of recording state property for 2010. It was established then that the Property Administration and the Finance Ministry did not meet the objectives and tasks set before them by the Law on state property, that the implementation of this law was not provided for, and that the state property register has not been developed.

Last year’s report and data from this year paint a similar picture. DRI Senator Dr Bra­ni­slav Ra­du­lo­vić, who headed the 2016 audit entitled “Efficiency of tax debt settlement with the property of the taxpayer,” said that the latest controls have established that the records of the Property Administration do not provide complete information on how many subjects (state authorities and local government authorities) are required by the law to submit data on property and real estate.

The DRI gave a set of recommendations to the Property Authority, in which they stated that it is necessary to identify precisely and comprehensively all real estate owned by the state, collect legal, physical, financial, and economic data on state property, and then also to classify, measure, and establish a portfolio of all state property. The Administration was advised to create a database of all state and local authorities and public bodies that are established by the state or the municipality that are obliged to submit data on property and real estate, and that this database be used to monitor submission of data, as well as to undertake legal measures in cases when data is not being submitted. Among other things, it was recommended to draft and submit to the Government a strategy on the use and management of state property, as well as an annual plan of property management.

Mr Ra­du­lo­vić explained that the Property Authority is obliged to submit a report on the implementation of these recommendations by 17 April, as well that it submitted on 22 March an overview of the activities undertaken to implement the three recommendations.

– In all our financial audits and audits on regularity, the DRI puts a special emphasis on state property. The DRI will undertake special audits in 2017 that will focus on state property, such as the currently ongoing audit entitled “Management and use of the property by the Ministry of Defence,” – Mr Ra­du­lo­vić has announced.

First data by the end of April

The Property Administration noted that at the end of 2015 and in early 2016 they held trainings for direct budget beneficiaries and that 62 authorities responded to their call for training. So far, 106 beneficiaries have undertaken the training.

– Given that the drafting and submission of tables posed great challenges for the authorities, we were met with insufficient understanding and readiness to cooperate, which resulted in some delays in data submission. The tables we received were not complete nor drafted properly, so the Property Authority had to do additional editing, which required precise and detailed work and additional time – the Property Administration has said.

The Authority expects the state property register to be operational in the next month or two.

– However, the records will only show data belonging to the authorities that have submitted information in Excel sheets that are designed for data migration into a single record of state property. The purpose of the ARS web application is to enable the users to record the assets and it is a complex system based on several modules. Each authority will use the ARS to enter, modify, and sign the assets and at each moment they will be able to extract from it the reports on the state of play of their property, and the Property Administration will have a real-time insight into all the assets of all authorities and it will be able to produce reports on all assets – the Property Administration has explained.

The Administration expect the web application to be loaded with information and operational for those bodies that submitted data, no later than 30 April 2017.

Someone needs to be held to account

President of the Management Board of Institute Alternative Stevo Muk told daily newspaper Dan that after the years without the register we now have a database with no data. He said that someone needs to be held to account for such slow progress on the establishment of the register, and noted that the delay is now more than seven years. He also wondered whether any progress would have been made at all were it not for the pressure from the DRI and civil society.

– How much longer will the process of filling the database and checking the correctness of the data take is anyone’s guess, but certainly we are talking years and not months. The key issue is that a lot more time will pass until we can have a comprehensive and functional property register. Even at the central level the response of authorities is below 50%, and we can suppose that the data collection from other public bodies, especially local self-governments, will be even slower – Mr Muk has said.

He thinks that it is high time for the Government to direct its attention to this issue and to make all the institutions report the property in order to complete the register. It also needs to demand responsibility of the Property Administration people in charge for what will likely be a decade of delays in performing duties.

– This is not just some software we demand because it is a formal legal requirement – it is an instrument that will allow savings and more rational use and property management. It is degrading that in the 21st century the state of Montenegro does not know what it possesses – Mr Muk has concluded.

State of play in the re­gi­o­n

And as we may expect the first data on state-owned property in Montenegro to be published soon, the state of play in public property management in neighbouring Croatia and Serbia is at a higher level.

When it comes to the property records and its transparent management, Croatia is the frontrunner with its Ministry for State Property. Croatia’s public property register is publicly available. It contains a list of shares in trade companies and real estate and property. Their tables list full names of the shareholders’ companies or legal entities in which the state of Croatia has ownership, their seat, starting capital, and the like. The type of property is specified in detail – e.g. living quarters, office space, construction area, as well as size, address, …

In their register, Croatia has also offered an overview of the bulk and the type of property it owns, it provides timely updates of legal, physical, economic, and financial data on the property it owns, as well as control of the properties’ condition.

In Serbia, this area is covered by the Law on public property and the Decree on the record of publicly owned real estate. The Property Directorate is in charge of keeping a single record on real estate and summary records of property owned by the state.

 

Ana Ostojić
Journalist, daily newspaper Dan

This article was drafted in cooperation with Institute Alternative, with the support of the UK Embassy Podgorica. The author holds the sole responsibility for the content of the article.  

Public policy researcher at Institute Alternative (IA), Ana Đurnić held a meeting today with Assistant Director of Public Procurement Administration (PPA) Mara Bogavac and presented recommendations for improving transparency of public procurement and better reporting in this area.

The meeting was held at the initiative of PPA, regarding our findings from numerous publications and research activities in this area. The aim of the meeting was to improve Annual Report on Public Procurement in Montenegro in 2016, which PPA should prepare and submit to the Government until 31st May this year.

Ana pointed to mistakes both in annual report which PPA prepares and individual reports of contracting authorities, identified through several years of researching and monitoring this area, and presented set of recommendations for improvement.
She once again reminded of a need for submitting individual reports on public procurement in machine readable form and publishing data base excerpts by the PPA, that would enable automatic processing and grouping of data.
In order to provide wider scope of data that could be processed and analysed that way, we also recommended changes of content of forms for annual reporting on conducted public procurement of contracted authorities. These changes should be considered in the context and procedure of harmonisation of by-laws with the new Public Procurement Law which is currently being prepared.

So, among amounts and lists of conducted procurement, forms for annual reportingshould also include the following:

• Information on concluded annexes and explanation for changing conditions of the original contract;
• Amount of planed and spent budget for public procurement;
• Number of adopted amendments on public procurement plan;
• Reasons for amending the public procurement plan;
  Information on extending the deadline for submitting offers for each procurement;
• Amount of planed and spent budget for public procurement;
• Number of adopted amendments on public procurement plan;
• Reasons for amending the public procurement plan;
• Information on extending the deadline for submitting offers for each procurement;
• Reasons for shortening the deadline for submitting offers for each procurement;
• Information on changing tender documentation.

We also recommended to the PPA to publish on their website all the request for concluding Contracts for amending the original contracts on public procurement (annexes), as well as their decisions upon submitted requests, bearing in mind that conclusion of such contracts requires consent of the PPA.

Regarding existing content, the Annual Report on Public Procurement should also contain following information:

• Number of annexes concluded annually, for which the PPA gave its consent, contracting authorities and amounts of concluded amendments of the original contract (in spreadsheet)
• Total number and list of all contracting authorities that failed to submit annual report on public procurement within legally prescribed deadline – until the end of February;
• Total number and list of all contracting authorities that violated allowed percentage of use of direct agreement and the percentage of use of direct agreement;
• List of all contracting authorities which did not correctly presented data on conducted procurement;
• List of all contracting authorities that are not submitting reports on public procurementcontinuously;
• Total number of contracting authorities with discrepancies in the amounts of planned and spent budget for public procurement, with the amount of planned and spent budget, as well as difference between those two, for each contracting authority with discrepancies;
• Total number of contracting authorities which amended public procurement plans and contracting authorities with the highest number of adopted amendments along with the number of adopted amendments;
• Data on misdemeanour liability for violations of the Law noted in PPA’s reports;
• Total number of tenders when only one bid is submitted, list of contracting authorities and subject of the contract;
• Total number of tenders with more than one bid submitted, but all than one were excluded as irregular;