Montenegro exclusive report: A2A/EPCG accused of avoiding procurement law for consultancy service payments to Milan firm

14. May 2014. / SEE Energy News

The Ministry of Finance and the Public Procurements Office stated that they did not have any information referring to the procurements of consulting services by the Electric Power Industry from the company Bein from Milan in the total value of 2.075.100 euros. „EPCG is subject to the implementation of this Law, and it must observe its procedures and rules without exceptions“, the Ministry has announced. Small shareholders A2A from Italy and small shareholders of EPCG say that the company from Nikšić has paid „fat fees“ for consulting services to the company BEIN from Milan, without a tender and contrary to the provisions of the current Law on Public Procurements.

However, a Member of Parliament from the Democratic Front, Nebojša Medojević, warned that „conclusion of consulting contracts and contracts from the field of marketing, market research and other beyond the company’s main activity, with related legal entities, [were] known mechanisms for creating fictitious costs and covering up and taking out untaxed profit from the country through transfer prices“.

The department headed by the Minister Radoje Žugić failed to give a specific answer to the question whether EPCG could buy consulting services from the company Bein from Milan beyond the provisions of the Law on Public Procurements.

In the Article 2 (Clause 2) of the Law on Public Procurements, it is written that this Law is to be applied to: companies and legal entities performing the activities of public interest, in which the state owns more than 50 percent of shares.

The state owns around 54 percent of shares in EPCG. The management of the Electric Power Industry is governed by a minority shareholder, the Italian company A2A, which entered the ownership structure in the second half of 2009.

The Ministry of Finance has announced that „EPCG is subject to the implementation of this Law, and it must observe its procedures and rules without exceptions“.

„In addition to the general obligation for the Purchasers that they must implement the public procurement procedures defined by the Law Article 2 during procurements, the legislator has also envisaged certain exceptions stated in the Article 3 of the Law on Public Procurements. Moreover, the Article 20 of the Law on Public Procurements governs the issues defining kinds of public procurement procedures, the manner in which they are conducted and other issues related to the management of procedures, also the issues of consulting services, among the rest“, the Ministry added.

The Member of Parliament Medojević, who has written one of the first books on public procurements, says that „from the very beginning of implementation of the Agreement of Sale of EPCG shares, very important dilemmas and ambiguities have appeared, bringing along big problems and costs to the Montenegrin citizens“.

„From the very beginning, I have expressed my professional reserve about the effects of the implementation of this Agreement, resulting from the unclear role of the state as the majority shareholder, without the right to manage“, Medojević stated.

He believes that „concluding consulting contracts without public procurements is a clear breach of law, but the state does not have its representatives in the management of EPCG who would react to this“.

Medojević adds that the transfer of management in EPCG should have been defined by a separate Management Agreement, and the entire procedure by a specific Law on the Privatization of EPCG.

„This law would have defined the role of the Government and the Parliament in the issues related to the strategic state interests, but also the consumer rights and prevention of management abuses through the controversial extraction of untaxed profit from EPCG, either through transfer prices, fictitious contracts or in another known way“, Medojević explained.

He mentions that „the role of the Government representatives in the EPCG Board should also be, among the rest, to protect the state interests and prevent the conclusion of business arrangements harmful to Montenegro“.

„Unfortunately, in the case of EPCG, the controlling role of the Government representatives is not efficient and the so-called “problem of representation“ appears when the state representatives forget their main role and, over time, they start to support the interests of those whom they should control“, Medojević pointed out.

The management of EPCG, headed by Stefano Pastori since the end of last year, also failed to provide an explanation, as well as a response to the seriously stated allegations of small shareholders.

Several years before Pastori, this position was held by Enriko Malerba, who left Montenegro few months before the expiry of his term of office, having been paid a severance compensation of 30.000 euros.

The Ministry will control whether and how procurements are announced

Being asked whether the Ministry planned to take any action against the companies in which the state was the majority shareholder and which did not observe the Law on Public Procurements, the department replied that inspection monitoring was an important part of the Law implementation, due to which the field of activity of the public procurements inspector had been specified, and the deadlines in which the inspection monitoring may be performed with respect to particular actions of the Purchaser had also been prescribed.

„In this sense, the Ministry of Finance will act towards every subject to the Law not implementing the prescribed rules, as well as towards those implementing them „incorrectly“. We would like to mention that the Draft of the new Law brings an innovation in this segment, related to the increase in inspection monitoring through the monitoring of the implementation of Contracts, which has not been the case so far“, they said in their response.

Medojević: A specific law on state companies should be passed

The president of the Movement for Changes, Nebojša Medojević, believes that, because of such and similar problems, it is necessary to pass a specific law on managing state-owned companies immediately, which would precisely define the mechanisms for protecting the interests of the state, small shareholders, workers and consumers from the abuse of management rights of owners.

„Long ago, the Movement for Changes introduced into parliamentary procedure draft amendments to the Corporate Profit Tax Law which specifically defined the mechanisms for non-recognition of the costs related to personal costs of owner representatives, transfer prices, fictitious contracts and the like. Unfortunately, the governing majority has never even allowed a discussion about this law at the plenary session“, Medojević concluded.

At least three bids should be required

The Ministry of Finance explained that, in order to implement and announce a consulting service, a Purchaser must submit directly to the bidders the invitation for the submission of bids for providing the services, if the consulting service can be provided by a limited number of bidders or if the time and the costs necessary for evaluating a large number of bids would not be proportionate to the value of the service which is the subject of the public procurement.

All this is possible provided that the invitation has been submitted to a sufficient number of bidders (at least three) so as to ensure competition.

The criteria for selecting the most favourable bid for providing consulting services are based particularly on the qualifications, experience, professional and management skills, offered price, possibly also including extraordinary and related costs, the effects of technology transfer, the knowledge and development of management and professional skills, but also on other circumstances, depending on the nature of the consulting service.

Source; Serbia Energy See Desk

Download as PDF :

Download PDF