Loss-making enterprises do not reduce salaries while state tolerates violations of laws

Despite the fact that work of public enterprises is among key elements for development of Montenegrin economy, due to their sheer number of employees and property – the state has been doing nothing to establish an adequate control over their work, for years.

This particularly applies to the control of salary policy in enterprises that need de-politicisation and employment of professional management in order to work successfully.

The most recent measure of the Government, that is, of the Ministry of Finance, whose aim was transparency and fair public spending, obliged public enterprises making losses in current year to reduce salaries by 10 percent in the following year and by additional 5 percent in the year after.

This provision of the Law on salaries of public sector employees came into force in March 2016. The data obtained by “Vijesti”, however, demonstrate that most companies did not comply with it.

In addition, the Ministry of Finance acknowledged for “Vijesti” that it had no information about reduction of salaries because it had not been controlling the companies in that aspect.

The list of loss-making enterprises includes 14 public companies that recorded a loss in 2016, 2017, or in both years. In accordance with the law, these companies had to reduce salaries in 2017 and in 2018, and some would have to do so in the next year as well. The list includes Railway Transport of
Montenegro, Railway Infrastructure of Montenegro, Maintenance of railway rolling stock, Elektroprivreda (EPCG), Montenegro airlines, Black metallurgy Institute, Crnogorska plovidba, National Parks, Barska plovidba, Montepranzo Bokaprodukt, New Tobacco Combine, Castello Montenegro, Project Consulting.

The list of enterprises that operated with loss in 2016 and in 2017. (Foto: Ministry of Finance)

“Vijesti” analysed financial reports available at the website of Tax Administration, after which we traced whether those enterprises, which operated with loss, had complied with the Article of the Law on Salaries of Public Sector Employees, which defines the policy of salary reductions.

Most of them refused to respond to our questions. Some companies do not even have a website with basic information, such as Montepranzo Bokaprodukt from Tivat.

Companies, which answered and claimed they had reduced the salaries, usually did not specify whether the reduction has occurred in the period since the beginning of the implementation of the Law. In addition, their responses confirm the lack of control by the Ministry of Finance.

No budget inspector

The Ministry of Finance stated to “Vijesti” that it did not obtain any acts on reduction of wages from loss-making enterprises with the purpose of issuing official opinions regarding these acts.

“Consequently, the Ministry does not have any information on whether the earnings in these companies are reduced in accordance with the law,” they pointed out in the Ministry headed by Minister Darko Radunović.

They clarify that the oversight of the implementation of the Law on salaries of public sector employees is under the competence of the budget inspector but since this work place remained vacant, they did not control the reduction of earnings in public enterprises.

“Previously, a call for the budget inspector has been announced several times, but no candidates applied. On 26 July 2017, the Human Resources Management Authority announced an internal call within the state authority to fill that workplace for a period of seven years, to which no candidates applied. An internal call among the state authorities for that workplace was announced on 8 September 2017 and no candidates applied, after which a public call was announced on 19 October 2017. No candidates applied again. In order to overcome the situation, the Ministry’s new internal act on organization and systematization, which is being prepared, will define the position and role of the budget inspector and it will pave the way for resolution of this issue from human resource management perspective.”

The absence of an inspector should not be an excuse

Milena Muk, Public Policy Researcher at NGO Institute Alternative, said that poor formulation of legal provision and, in the first place, the lack of oversight of implementation contributes to the failure to comply with the policy of salary reduction. She pointed out that the budget inspectorate has not been functional for three years, but this should not be an excuse for the absence of any control over the implementation of the law.

“The Law defines the obligation of the Ministry of Finance to keep central records of public sector employees’ earnings, based on data that all taxpayers are obliged to submit on a monthly basis. Hence, clumsy formulations and failure to fill in workplace in the budget inspectorate are not obstacles to the more proactive attitude of the Ministry in exercising its competences, which is necessary in order for this and any other solution to be implemented in practice. ”

This NGO reminded that the Law has been prepared for two years, but since it came into force in March 2016 – everyone has forgotten about it. They add that the Law has been changed even six times, which additionally hampers monitoring of its implementation.

“At public debates, the IA advocated an equitable system of public sector salaries, which was the initial intention of the Ministry of Finance. Eventually, the biggest debate was about earnings in agencies and public companies that defended their independence with autonomy to regulate their own salary policies. The final solution in the Law is thus a bad compromise. It is defined at the level of vague principle and it introduces legal obligations for the category of enterprises and organizations, which lack precise definition in our legal system. The precondition for successful implementation is the compilation and regular update of the list of loss-making enterprises and organizations with public authority. There is a lack of the most basic information about public enterprises as well, which is why, concerning the financial transparency, this is one of the most endangered fields”, Muk said.

Aleksandar Damjanović, Independent MP and former President of the Parliamentary Committee on Economy, said for “Vijesti” that the strict provisions of the Law on public sector salaries testify to the continuation of the long-standing practice of treating public enterprises as political prey for recruitment of political loyalists or for making “deals” with politically loyal enterprises in exchange for “winning” tenders with, very often, exaggerated invoices.

“A superficial, comparative analysis of the overall expenditures of most of these enterprises demonstrate permanent increase of operational and other costs, which affects the reduction of real profits or loss in several cases. Average salary of managerial staff in most state-owned enterprises is above the country’s average. Therefore, this category of staff should be sanctioned first by reduction of salaries with an aim of a more rational and accountable management. Obviously, neither this measure nor any other can be realized in politically subordinated enterprises. The damage is tremendous, because instead of transferring the part of profit to the state budget, the produced losses are “socialized” and covered through accounting techniques, including the reduction of state capital/ assets, or through various subsidies, guarantees and other types of state support, which originates from people’s money or enterprises striving to make profit.”

Public procurement, consulting services, capital reduction are among the problems as well…

Damjanović believes that the failure to respect the Law is the key reason for the lack of accountability of top management (to date, there are no resignations due to poor working results) and of board directors, which are namely comprised from representatives of Government or state and should be accountable to the Government.

Aleksandar Damjanović, Foto: Boris Pejović

“The ministry in charge of monitoring this Law neither wants nor intends to establish mechanisms for comprehensive and continuous monitoring of operations in small number of public enterprises. Why this mechanism cannot be established in public sector, where approximately 50 thousand people are employed – this is an issue for, by all criteria, the most unsuccessful Government in the last two decades. People heading the Government and competent institutions should explain what is happening with the internal audit system; where is budget inspectorate; why State Audit Institution, which has completely fallen under the control of the executive power over the past two years, does not perform its legal duties in auditing these enterprises. With persistent tolerance of devastation of important public enterprises, it is illusory to expect political shifts, resignations, political accountability or criminal liability, and especially respect of the law and of policy of salary reduction. Moreover, salaries are not the only problem of the losers, in the view of the fact that capital is being relentlessly spent through procurement, consulting and other services, often with an aim of compensating for “reduced earnings.”

Damjanović brought to mind that the Parliament, with a minimum of staff, managed to rationalize earnings in regulatory agencies and transfer some of their profits to the budget.

On 27 May 2013 the Government adopted Conclusions that, inter alia, obliged Government-owned enterprises to reduce salaries of executive directors to the amount of maximum two average salaries in the country. Salaries of the assistant directors, sector directors and advisors should have been reduced to the amount of one and a half average in the country.

Conclusions also planned alignment of coefficient for calculating the salary of non-managerial staff in public enterprises with pay levels of their counterparts in state administration. Ministry of Finance was supposed to inform Government and Parliament on the realization of these Conclusions by 15 July 2013, but to date it has not done so.

Government’s Conclusions followed the Ministry’s analysis of wage policy and expenditure in 30 enterprises. The analysis showed that enterprises failed to comply with the previously introduced obligation (as of 25 April 2012) – that the highest level of salaries for managers should not exceed the amount of three average salaries in the country, while salaries of rest of employees should approximate the amount of two and a half of the average salary in the country.

No comment from Barska plovida

Tihomir Mirković, acting executive director of Barska plovidba, said to “Vijesti” that he would not comment on whether something should have been done last year due to the loss made in 2016, as this refers to the period when he did not occupy the position of executive director, to which he has been appointed in December 2017.

He said that the number of employees in 2018 was lower than in 2017.

“As Barska plovidba operated with profit in 2017 and it has regularly met its obligations, the exemption rights provided by Article 41 of the Law have been exercised. The average salary is above the Montenegrin average. I believe that certain positions in the enterprise deserve higher income due to the workload and the level of responsibility that employees in those positions have.”

Article 41 specifies that the provisions of the Law do not apply to enterprises that operate with profit and regularly meet their obligations. This exception is not time-bound, and enterprises that operate with loss in one year, and positively in the second year, tend to choose those solutions that are more favorable for them. This is illustrated by the example of Barska plovidba.

Ratko Nikolić, director of the Black metallurgy Institute JSC Nikšić, said that the Ministry did not control that enterprise in terms of salary reduction.

He explained that the average salary before the reduction was 538,28 euro, and after the reduction it has been 469,01 euro, which is a 15 percent decrease. He added that they had 56 employees, which is one less compared to the beginning of 2017.

They claim that Railway reduced salaries a few years ago

Two state-owned railway enterprises Railway Transport (ŽPCG) and Railway Infrastructure (ŽI), described salary reduction in the recent years, instead of providing precise responses to “Vijesti” on whether they reduced salaries due to the losses made in 2016 and in 2017.

Safet Kalač, President of the Board of Directors of Railway Infrastructure, said that, since the beginning of 2013, total cost of salaries has been decreased by 14 percent, from 7,943 million at the end of 2012 to 6,802 million at the end of 2017.

He said that the average net salary was approximately 405 euros last year and it is lower than the average in the country by 20,56 percent, as well as that they currently have 781 employees, three less than last year.

“In ŽPCG we reduced our salaries by 20 percent in 2011 due to the economic crisis (Ministry has asked for 20 percent reduction.) Alignment of existing earnings with the Law on salaries of public sector employees is still ongoing due to the complexity of different laws applying to certain segments of the railway system. We have the lowest salaries compared to other railway enterprises.”

They increased the number of employees from 359 at the end of last year to 367 at the end of August this year.

At the Maintenance of Railway rolling stocks, the number of employees has been decreasing continuously since 2011. They used to have 211 employees in 2011, and 175 in 2018. They claim that in the past two years they have reduced their salaries by 40 percent. Last year, the fund for salaries amounted to about 1,7 million. In 2018, it amounts to approx. 830.000 euro. They claim that the salaries fund was reduced by 18 percent in 2017, and by almost 20 percent this year.

Castello Montenegro also did not specify whether they complied with the Law. Dušan Milović, director, said that during this year the salaries paid off in the first six months are going to be reduced by 11% compared to the same period last year. He added that they have nine employees and three members of the board of directors. He explained that they were operating with loss due to the high amortization rate of capital assets in which they invested 30.000 euro last year, because the enterprise’s headquarters are 35 years old.

Elektroprivreda says the law does not apply to them

Although Elektroprivreda (EPCG) operated with loss in 2016 and 2017, they claimed that they did not have to reduce their salaries.

EPCG operates as a group comprised of EPCG, CEDIS, ZETA Energy and EPCG Belgrade, while the officially presented 2017 group’s consolidated financial statement, adopted by the company’s shareholders, was positive and it amounted to 1,51 million.”

As they pointed out, management and trade union have good cooperation in ensuring regular payment of salaries, and the new 2017 Collective Agreement corrected the pay calculation coefficient.

“It was downgraded by 5,8 percent, therefore there was a decrease in earnings. This act is still in force so the calculation of salaries in 2018 is done along the same lines”, reads the statement of company, which has maintained the same number of employees as in 2017 – 944.

However, EPCG’s response implies that earnings have not been reduced by 10 percent, in accordance with the Law on salaries of public sector employees. In addition, the Law does not prescribe exemptions for loss-making enterprises operating within the group, so EPCG should not be excluded from the obligation to reduce earnings.

Authors: Danijela Lasica, Marija Mirjačić

This report was prepared within the project “Money Watch: Civil Society, Guarding the Budget”, implemented by the Institute Alternative in cooperation with NGO New Horizon and the Institute for Public Finances, with the support of the European Union. The content of this report is the sole responsibility of the author and in no way reflects the views of the European Union.

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