European Western Balkans

Western Balkan institutions continue to lack resilience to corruptive business contracts

Montenegrin highway under construction; Photo: jbdodane / Flickr

Recently, the Government of Montenegro requested the EU’s assistance in repaying the debt taken from the Chinese Export-Import Bank for the construction of the section of the Bar-Boralje highway. This episode has been one of the most prominent examples of the problems that these kinds of deals made by Western Balkan governments can cause, but also a reminder that their institutions, despite all the warnings, remain vulnerable to the lack of transparency and potential corruption.

Following the adoption of the European Parliament Resolution on Montenegro, Rapporteur for the country Tonino Picula touched upon the issue of debt in an interview for our portal.

“Personally, I think we should help Montenegro in negotiations with international financial institutions on loans, so the country can be able to rearrange its external debt to China, which seriously jeopardizes the sustainability of public finances… However, additional assistance from the EU will be of full significance only if it refers to legislative reforms that are in line with European standards and recommendations”, he said.

Precisely the respect for European standards has proven to be a particular challenge for the Western Balkan countries when it came to large projects in areas such as infrastructure and energy in recent years. Despite all the efforts of civil society, the ruling parties seem to be adamant not to let the contracts for these projects become fully transparent and subjected to control of independent institutions.

The primary reason behind the disrespect for standards is not hard to guess – ruling parties can arrange for the money to end up in the pockets of their associates, which often leads to inflated prices.

In the case of Bar-Boljare highway, a construction company that was allegedly close to the ruling party has won a major share of the contracts awarded to subcontractors, securing deals worth 240 million euros, which was a quarter of the total value of the project.

In an equally prominent case, that of Ohrid-Kičevo and Miladinovci-Štip highways in North Macedonia, the wiretapped materials unveiled in 2015 by the then opposition SDSM party revealed negotiations on commissions for the top governmental officials for providing the contracts to the Chinese companies.

In this case, as well, it has also been suggested that the procurement for the project favoured politically connected local subcontractors.

The deal was made behind closed doors in a completely non-transparent manner by avoiding the applicable public procurement procedures, thus seriously undermining the good governance standards and even the EU integration process, says Marko Pankovski, Researcher at Institute for Democracy “Societas Civilis” – Skopje.

The examples of Chinese companies have been prominent due to their scale and the rising role of Beijing in the Western Balkans. It does not mean, however, that China is the primary source of corruption in the region.

“Chinese banks and companies don’t import corruption from China – it is endemic and indigenous to the Western Balkans, where kickback rates are anecdotally much higher than in China. The problems… are fundamentally local”, underlined a recent policy brief by Bertelsmann Foundation.

Nor are these cases exclusively related to China.

As Alba Çela, Executive Director of the Albanian Institute for International Studies says for EWB, there have been some suspicions regarding the strategic investment in the Durrës port area that shall be carried out by a company from the United Arab Emirates.

“Nothing illegal so far, but the entire thing was rushed so much, no consultation with local stakeholders seems to have taken place”, she says.

And, as Çela points out, where there are no large-scale contracts with foreign companies, the corruptive practices in the areas of public procurement occur with local companies friendly to the ruling parties. Every country in the Western Balkans is experiencing these problems, even the ones without large suspicious foreign projects and investments, such as Kosovo.

And the problems do not end with a “mere” corruption. The public interest is being hurt in various other ways, including the damage done to the environment.

The already mentioned Bar-Boljare highway in Montenegro is one of the examples. The analysis of the highway’s environmental impact assessment showed several irregularities, concluding that the construction has not been done in accordance with either domestic or EU legislation.

Consequently, the Tara river has been especially under attack. The release of tons of gravel, soil and waste into the water devastated the riverbed and decimated the fauna.

Another example comes from Serbia, where the government was expected to negotiate adequate environmental standards when selling the state-owned copper mine in Bor to the Chinese Zijin company. As a subsequent analysis has shown, the provisions of the agreement had turned out to be toothless, which has led to a significant increase of sulfur dioxide in the air around Bor, causing several protests of the citizens due to excessive air pollution.

Zijin mine, Serbia; Photo: N1

In addition to the environmental impact, there have also been doubts about whether the Government of Serbia could have made an economically better deal with Zijin company, making more money from the sale of valuable resources, as some experts had claimed, and demanding stronger protection of around 5000 jobs provided by the mining company. A competing Russian company U Gold claimed that it had offered better deal to the Government of Serbia, but was bypassed for a deal with Zijin.

Similarly, Marko Pankovski points out that the construction of highways in North Macedonia has been detrimental to the public interests beyond the cases of corruption, and that the effects of these highways built with Chinese loans awarded to the Chinese Sinohydro are still felt even today.

“While the first highway is now finished, the timeframe of the Kicevo-Ohrid highway is breached by several years, with the current progress being only 65%. The expected costs of this project went way past the previously envisaged costs by more than 150 million euros of additional”, says Pankovski.

Given all the negative impacts of such contracts, it is no wonder that they are usually made behind closed doors and without proper control of either the parliaments or the civil society. Even where there are formal rules installed to ensure fair competition and transparency are circumvented through a special law, emphasise Wouter Zweers and Frans-Paul van der Putten, Research Fellows at Clingendael – the Netherlands Institute of International Relations, and the co-authors of a report on this topic.

“This creates a lack of accountability which government officials can use for private gains. In the case of the highways in North Macedonia, leaked wiretaps suggest such corruptive practices, with officials discussing direct illicit payments from the Chinese company implementing the project. Without fair public tenders, subcontractors can be selected not on the basis of the quality and price of their offers, but on the basis of political affinity of these companies or their owners”, they say, adding that contracting companies from “clean” countries are not necessarily refraining from engaging in bribes in corrupt countries, which makes this problem go beyond countries with their own corruption problems, such as China.

Asked to what extent the EU standards are successful in preventing similar risks of corruption and another adverse effect in the Member States, Zweers and van der Putten stress that, overall, EU regulations on public procurement are well implemented within the EU and checks and balances to eliminate corruption are in place.

“Still, there are examples, as in the case of the Hungarian section of the Budapest-Belgrade railway, financed for 85% by China, which show similar corruptive dynamics. Only after an EU infringement procedure for not complying with EU procurement laws in 2016 did the Hungarian government announce a tender for the project. The tender was won by contractors who are close allies of the political leadership. Financial details of the projects have been classified by the Hungarian government. Such problematic symptoms do not only exist with Chinese funding but also with EU structural funds, as has been reported in the annual reports of the EU’s anti-fraud body OLAF. As such, EU public procurement and anti-corruption regulations are important, but not always decisive”, they conclude.

China-CEE Summit Bucharest 2013; Foto: Wikimedia Commons/Partidul Social Demokrat

Unfortunately, as Marko Pankovski from IDSC Skopje points out, despite the fact the procurement framework in North Macedonia is according to European standards to a large extent, the government finds ways to bypass this by adopting special laws that override the procurement legislations while citing the strategic importance of these projects.

The case is not much different to Serbia, which was also stressed by the Vice President of the European Movement in Serbia Vladimir Međak in his recent appearance in EWB Screening.

“Transparency International increased our ranking a bit between 2014 and 2016, because the Law on Public Procurement had been passed, which was good. However, then we started to exclude one thing at a time from the application of the Law. So, you now have the Law on Linear Infrastructure Projects, where all major infrastructure projects will be built without a tender. This is specifically mentioned in the European Commission Report as a future source of possible corruption. In the end, the state will only hold a tender when it wants to buy water and toilet paper. Everything else will be more or less excluded”, Međak warned.

The situation in other countries of the region also remains worrying. According to Alba Çela, domestic resilience is very low in the case when all institutions belong to one party.

“Local investigative media should be strengthened too to have the resources to expose the corruption cases as they have done successfully. Perhaps resilience will increase in Albania when the justice reform and its new institutions consolidate”, she says.

Marko Pankovski has similar proposals.

“The EU and the governments in the Western Balkans need to invest in a transparent and inclusive policymaking framework and closely monitor its implementation. Investment in practical and already established policymaking tools such as Regulatory Impact Assessment, Anticorruption proofing of legislation, and Corruption risk assessment could increase the transparency and inclusiveness and serve as an early warning mechanism. Investment in these policies now could mean that the institutions have more integrity in the future, are resilient to malign pressure, and can flag unlawful practices”, he says.

He adds that civil society can play an essential role in enhancing the pressure. Early involvement of civil society in the policymaking process could allow for increased oversight and alarm on unlawful practices.

“Finally, we should not forget the Parliament. The MPs can play a crucial role in exercising effective oversight and be more critical towards legislation to bypass the regular procedures. The MPs should work closely with the affected institutions and the civil society to establish a structure that will closely monitor unfavorable agreements”, Pankovski concludes.

The Parliaments indeed should take over this role but, as many of the cases in recent years have shown, are not willing to do so, and some have since even been left without a viable opposition. Few professional media and civil society organisations seem to be the only ones to shoulder the burden, and that has so far proven to be insufficient.

This article was published as part of the project “Civil society for good governance and anti-corruption in southeast Europe: Capacity building for monitoring, advocacy and awareness-raising (SELDI)” funded by the European Union.

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