Direct and without competition – Procurement in public enterprises

State-owned enterprises are violating the Public Procurement Law by exceeding the limits on the use of less transparent procedures for the same procurement subject, as shown by the research of the Institute Alternative on the use of direct agreements during 2022. The Public Procurement Law does not limit the use of the direct negotiation mechanism, so some public enterprises in 2022 directly contracted in total more than half a million euros.

Simple procurement up to 5,000 euros without VAT are conducted through direct agreement with the supplier, without competition and the obligation to conduct procurement through the Montenegrin Electronic Public Procurement System (CEJN). This type of procurement is conducted through a direct agreement accepting a proforma invoice, fiscal receipt, or contract. In December 2022, Amendments to the Law on Public Procurement were adopted, increasing the upper limit for this type of simple procurement from 5,000 to 8,000 euros.

In this manner, 20 state-owned enterprises spent over 25% of their total procurement budget in 2022. This is why those 20 enterprises were selected as a research sample. Six out of these 20 public enterprises spent their entire procurement budget through direct agreements, that is, choosing suppliers for goods and services themselves.

This was revealed by research conducted by the Institute Alternative, based on the report provided by the Ministry of Finance on simple procurement below 5,000 euros for the year 2022 and invoices obtained from state-owned enterprises through the free access to information (SPI).

Table 1: List of enterprises whose share of spending for direct procurement is greater than 25% of total spending for public procurement

State-owned enterprise Total direct procurement value Percentage share of direct procurement in the total PP expenditure
PROCON 29.293 € 100.00%
Business Montenegro 14.423 € 100.00%
Eko fond 25.602 € 100.00%
Naučno tehnološki park 14.877 € 100.00%
Tehnopolis 59.886 € 100.00%
TC Durmitor 33.125 € 100.00%
Regionalni ronilački centar 47.119 € 85,6 %
Univerzitetski sportsko-kulturni centar 19.044 € 70,5 %
Fond za inovacije 13.856 € 67,6 %
Montenegro bonus 76.710 € 60,5 %
Zeta energy 50.669 € 60,55 %
Radio-difuzni centar 315.106 € 54,7 %
Skijališta CG 220.652 € 53,6 %
COTEE 44.670 € 51,37%
OŽVS 39.650 € 38,1 %
CETI 304.920 € 37,4 %
Regionalni vodovod 140.929 € 33,8 %
Nacionalni parkovi CG 88.641 € 31,96 %
Zaštita prostora CG 29.179 € 30,98 %
EPCG Solar 104.319 € 26,2 %

Out of the 20 public enterprises covered by the research, irregularities were observed in five of them. The identified irregularities relate to exceeding the estimated value of the procurement subject annually. Irregularities were recorded at Ski Resorts of Montenegro, Radio Broadcast Center, Zeta Energy, University Sports and Cultural Center, and Regional Diving Center.

As a positive example, the Regional Water Supply is highlighted, which, for certain procurement up to 5,000 euros, specifically nine of them, collected bids from multiple suppliers, thus ensuring competitiveness even though the Law allows these procurements to be made through the direct selection of suppliers.

Enterprises do take into account the annual estimation of public procurement subject

Although the legal framework is clear and implies that direct procurement can only be conducted if the estimated annual procurement value is up to 5,000 euros, public enterprises had the most irregularities in that regard. The same procurement subject was procured multiple times throughout the year, through several invoices, thus exceeding the threshold for this type of procurement on an annual basis.”

The Regional Diving Center reported six fuel procurement from the same company, totaling 12,500 euros, but these procurements are not among the submitted invoices. Three procurements were described as “fuel procurement” and amounted to nearly 9,200 euros, while the other three were labeled as “fuel procurement for official vehicles,” totaling around 3,500 euros. Two out of the six procurement were executed on the same day, totaling 6,870 euros including VAT.

We have not received invoices from Zeta Energy, the Radio Broadcast Center, and the Ski Resorts of Montenegro. However, based on the report submitted to the Ministry of Finance, it is evident that they had procurement that were not compliant with the Law.

Zeta Energy paid a total of 6,218 euros including VAT for “car maintenance” through 11 invoices, from two companies, exceeding the allowed limit for direct procurement. “We assumed that these costs would remain within the 5,000 euros limit, but it is very difficult to predict breakdowns on such old vehicles,” explained Zeta Energy.

Ski Resorts paid 14,342 euros to the Red Cross Kolašin for lifeguard services through nine invoices, while they paid 8,400 euros for marketing services. They paid for marketing services to two companies on the same day.

The Radio Broadcast Center paid 8,893 euros for the transportation of oil to Zekova Glava through four invoices. In their statement, they acknowledged non-compliance with the Law on Public Procurement but stated they had a justified reason for it.

During the construction of the ski slope at the 1600 ski resort, in December 2021, there was a power outage at the Radio Broadcast Center facility located at Zekova Glava (2,117 meters above sea level). Due to a serious damage to the power line, the teams from CEDIS only managed to restore regular electricity supply at the beginning of March. Consequently, the Radio Broadcast Center was forced to use generators to supply power to the facility where permanent staff members were stationed, ensuring the transmission and broadcast of public service programs and uninterrupted operation of mobile operator equipment. To achieve this goal, the same company was engaged multiple times to transport oil to the generators at Zekova Glava, in order to prevent interruptions and ensure alternative power supply. Given these circumstances, the procurement in question could not have been planned or conducted through an open public procurement procedure. Additionally, we emphasize that due to the importance of our facility at Zekova Glava, which serves as the main telecommunications hub, repair announcements indicated a significantly shorter period without regular electricity supply to our facility,” stated the Radio Broadcast Center.”

“The University Sports and Cultural Center paid 7,689 euros for physical security services in 2022. The Ministry of Finance report did not list the physical security services, while the invoices stated that the services were paid based on contracts for the procurement of low-value physical security for the USKC facilities from April 2021 and May 2022.

A smaller percentage, but higher expenditure

The Public Procurement Law does not limit the use of the direct negotiation mechanism concerning the total contracted value of public procurement, although previous legal provisions imposed certain restrictions. As a consequence, we have a situation where some public enterprises in 2022 directly contracted in total more than half a million euros.

We attempted to expand the research to larger state-owned enterprises that did not have a large percentage share of direct procurement in total public procurement but allocated significant sums of money for simple procurement below 5,000 euros. For the sample, we selected Port of Bar, the Electric Power Company (EPCG), and Airports of Montenegro (ACG).

Table 2: Table 2: The share of direct procurement in the total spending for public procurement in the three big enterprises

State-owned enterprise Total direct procurement value Percentage share of direct procurement in the total PP expenditure
Luka Bar 835.593 € 16,88 %
Aerodromi Crne Gore 606.818 € 19,38 %
Elektroprivreda 301.858 € 2.00%

Port of Bar spent 835.6 thousand euros for simple procurement below 5,000 euros in 2022, which accounted for 16.88 percent of the total expenditure for public procurement. Airports of Montenegro allocated 606.8 thousand euros for direct procurement, constituting 19.4 percent of the total expenditure for public procurement in the previous year, while EPCG allocated 301.9 thousand euros for the same purpose last year, which is two percent of the total expenditure for public procurement.

Of these three enterprises, only Port of Bar provided invoices. Through an analysis of data from the Ministry of Finance reports and invoices obtained via SPI, we determined that the state enterprise had three direct procurements whose value exceeded 5,000 euros excluding VAT.

In the past year, Port of Bar had 14 instances of battery procurement from six suppliers, amounting to nearly 9,000 euros including VAT, which is close to three thousand euros beyond the permitted limit for direct agreements. Additionally, for repair works on the grab crane, it paid a total of 9,770 euros through two invoices to the same supplier, while the procurement item “filter element” appeared seven times with an annual value of 9,097 euros. These procurements were made from the same company.

Phones, wallets, chairs…

State enterprises conducted direct procurement to purchase phones, wallets, chairs, trout, paid for lunches, celebrations, and sometimes just a few drinks. The Regional Diving Center spent the most money on a phone, 1,413 euros for a Samsung Galaxy S22 Ultra. Montenegro Bonus bought an iPhone 12 for 839 euros.

Several enterprises procured the development of the “Europe Now” program for payroll calculation, paying from 968 to 1,270 euros.

Almost all enterprises held New Year’s celebrations, and there were other celebrations where enterprises paid for alcohol. At the CETI celebration, 25 bottles of wine were consumed, and at the COTEE celebration, 14 bottles. COTEE explained that it was a retirement farewell, where employees covered the costs of gifts and dinner, while the company paid for the alcohol.

Entertainment expenses ranged from a few euros to several thousand euros. National parks had a bill of two euros, and there were several bills after working hours consisting only of brandies. JPNPCG stated that these bills were related to entertainment expenses, which were solely under the authority of the executive director as the authorised person, and during the specified period, the director of the company was Aleksandar Bulatović.

Many enterprises paid for audit services through direct simple procurement. Audit services ranged from a thousand to 2,500 euros, while Montenegro Bonus spent nearly 5,000 euros, the highest amount among the mentioned enterprises.

Different data from the Ministry of Finance reports and the invoices provided

Through our research, in several instances, it is mentioned that the Ministry of Finance report does not include invoices that we received from enterprises through SPI. The reason for this is that in the Montenegrin Electronic Public Procurement System (CEJN), there is a functional possibility to enter realised procurement up to 5,000 euros and compile reports on them, but there is no obligation or control regarding this. This means that it is possible that some contracting authorities have not fully entered data on direct agreements.

This is evident in the case of state-owned enterprises we analysed, as shown by the comparison of data from reports and invoices from 11 out of 16 enterprises whose invoices and data from reports we obtained. The most drastic difference in data was recorded in the Eco Fund, where the amount of procurement in the invoices was almost four times higher than in the Ministry of Finance report. The reason for this discrepancy is the invoices for leasing office space, which amounted to over 50,000 euros annually, and legal services that cost over 13,000 euros, for which the Law on Public Procurement does not apply.

Table 3: Comparison of data on direct procurement from MoF reports and invoices received through FoI

State-owned enterprise No. of invoices (report) Value (report) No. of invoices (IA received) Value (IA received)
CETI 118 304.920 € 103 280.220 €
COTEE 122 44.607 € 135 48.662 €
Eko fond 187 25.602 € 227 93.574 €
EPCG Solar 30 104.319 € 24 98.484 €
Fond za inovacije 113 13.856 € 128 26.826 €
Nacionalni parkovi 227 88.641 € 236 85.264 €
OŽVS 37 39.650 € 31 41.324 €
Montenegro bonus 229 76.710 € 257 104.915 €
NTC 84 14.877 € 96 15.186 €
Regionalni ronilački centar 190 47.119 € 267 37.979 €
Regionalni vodovod 101 140.929 € 360 145.994 €

This investigative article was produced within the Project “Procurement under spotlight – Making Watchdogs Work!”, with the support of the Embassy of the Kingdom of the Netherlands in Serbia and Montenegro within the MATRA Rule of Law program. Project aims to empower and motivate watchdogs to combat corruption and undue influence in public procurement.

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