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Corrupt Practices Thrive in North Macedonia’s Murky Contracting Landscape

Kukoc tunnel; Photo: Flickr / tpierce

Shocking allegations have emerged regarding the oversight of large-scale infrastructure projects in North Macedonia, with reports of exorbitant fees paid to engineers and suspicions of corruption. The revelations come as the Government continues to push forward with plans for multi-billion euro highway and energy projects, despite growing concerns over their financial viability and environmental impact.

After two years of negotiations, on March 7 the Government of North Macedonia signed the agreement for the construction of Corridors 9 and 10-d with the American-Turkish consortium Bechtel-Enka. The project costs 1.3 billion euro, and is for the construction of sections spanning almost 110 km.

A consortium of companies centered around the firm IRD Engineering is set to supervise the construction of the aforementioned project. IRD Engineering consortium is considered controversial due to concerns about the credibility of the companies involved. Three of the four companies in the consortium are being investigated for different corruption scandals, raising concerns about their ability to supervise the work carried out by Bechtel-Enka.

Eptisa, a company involved in the supervising consortium, has been banned by the Government of North Macedonia from participating in state institutions’ and municipalities’ tenders worth over one million euros due to illegal, unethical, and irresponsible behavior during the supervision of work on the Kumanovo-Beljakovce railway three years ago.

However, the First Vice-President of the Government of North Macedonia, Artan Grubi, claims that nothing was signed with Eptisa but with IRD and that the ownership of Eptisa has changed. Thus, just before the tender, Eptisa’s ban was revoked on the 9th of February 2021.

“Eptisa completely changed ownership last year, and it is not the ‘Eptisa’ of 2020,” said Grubi.

Furthermore, one of the domestic companies in the supervising consortium, Euro Consult, is under investigation since one of the owners, Branislav Dimitrijević, allegedly worked for Eptisa in Armenia and was charged with “large-scale fraud” by the Armenian Prosecutor’s Office for the development and implementation of the North-South highway corridor projects in the period from 2009 to 2018. Eptisa denied such allegations claiming that they were false, inaccurate, and offensive information and that Dimitrijević was never engaged in any position in Eptisa. Moreover, the former Director of Euro Consult, Marjan Ivanov, is one of the suspects in the investigation related to the Skopje 2014 project for the alleged abuse of office.

The third company, Elektra Solutions, won the majority of the supervision tender for the project. However, they are facing public allegations of having no previous experience in supervision,which arose because Elektra Solutions only obtained a supervision permit during the tender submission period.

In addition, the second largest part of the supervision tender went to Euro Consult, followed by IRD and Eptisa, even though the consortium is formed around IRD. Moreover, the price of the services of the experts involved in the supervision of the project is extremely high, amounting to more than 8.000 euros per month for supervising engineers and up to a whopping 20.000 euros per month for chief supervising engineers. It was decided that the Director of the project will get 1.3 million euros in total – a figure of 27.000 euros per month. These fees are significantly higher than industry standards and raise serious questions about the management and transparency of the country’s major infrastructure projects.

Seeking Answers: What led to this situation?

According to German Filkov, President of the Center for Civil Communications in North Macedonia, the Law on Public Procurement adopted in 2019 almost fully complies with EU Directives.

“The value threshold of spending above which each state institution must apply the Law on Public Procurement is low and amounts to only 1000 euros. However, the law provides exceptions to this rule, especially the situation when the procurement results from a legal instrument that creates international legal obligations, such as an international agreement concluded between North Macedonia and another country, for example,” explained Filkov.

He adds that in July 2021, the Assembly of North Macedonia adopted the Law on Determining the Public Interest Law and Nominating a Strategic Partner for the Implementation of the Project for the Construction of Infrastructure Corridor 8 proposed by only four MPs from the then-ruling parties. This lex specialis aims to determine public interest and nominate a strategic partner for the implementation of the project for the construction of part of corridors 8 and 10.

Filkov reiterates that in March 2021, the Government signed a Memorandum of Understanding for the construction of corridors 8 and 10 with the Bechtel-Enka consortium.

The aforementioned lex specialis applies only to this project and is adopted in an abbreviated procedure. Filkov points out the three main provisions that are questionable.

“Firstly, the Law itself names the strategic partner without an open call. Secondly, the Law decisively excludes the application of the Law on Public Procurement. Thirdly, the Law excludes the application of other laws concerning the issues determined in this lex specialis”.

“This sends a distorted message that in the future any government can pass a similar law because the laws passed so far are not a precedent anymore, but there is a danger that they will become practice”, says Filkov.

He also adds that protection mechanisms against corruption and abuse in the lex specialis – The Law on Determining the Public Interest Law and Nominating a Strategic Partner for the Implementation of the Project for the Construction of Infrastructure Corridor 8 in the country – exist.

When it comes to construction projects, it is expected that a supervision company should be hired by the investor, in this case – the state, that will protect and take care of the timely, quality, and complete implementation of the construction.

Despite that, two tenders were held for project supervision. The first one was unsuccessful since it was later exposed that one of the companies in the chosen consortium – Institut IGH, which is Croatia’s major construction company – had frozen capital in Russia, thus did not provide bank guarantees for winning the tender.

“In this case, the media and civil society organizations dealing with the monitoring of public procurements found omissions and doubts precisely in that tender for supervision carried out by the Public Enterprise for State Roads. Some of the more significant observations were that the conditions for the participation of bidders in the second tender have been changed after the first tender failed,” says Filkov.

Filkov also emphasizes that a similar thing happened 10 years ago when a direct contract was made with a Chinese company, also bypassing the Public Procurement Law, passing the special law for the construction of two so-called Chinese highways. This project has been fiercely criticized as one of the two highways is not even close to being completed even though all the deadlines have passed and much more money has been spent than originally planned.

“Passing a special law for building the corridors is a multi-stage failure of the system to prevent a process with serious corruption risks,” noted Misha Popovikj, Good Governance Program Coordinator at the Institute for Democracy ‘’Societas Civilis’’ in Skopje, explaining that he is not sure that the authorities have learned from the previous administration’s corruption scandals, or that they might repeat this mistake for their benefit.

On the other hand, Filkov notes that there is always a lack of logical and thorough reasoning for making decisions that fall within the domain of exceptions.

“When someone has the authority to make discretionary decisions, firstly, they should be made in extremely rare situations, and secondly, it must be well explained why such a decision was made and what was done to protect the public interest,” states Filkov.

Popovikj states that it is evident in this case that the authorities interpreted the rules formally rather than putting in place safeguards to ensure that the best bidder wins. An example of this is the recently highlighted fact that Elektra Solutions, the company with the largest number of engineers in the IRD consortium, has hired them part-time while they work in other companies at the same time.

“This raises suspicion since the proposed monthly fees are exorbitant and well above market salaries,” explains Popovikj, adding that there was no due diligence before awarding the tender.

“If there was, they would have found these gaps that took just one week for journalists to detect – that the company (Elektra Solutions) appears not to have prior engagements in supervision, that the proposed engineers have other engagements in the timeframe of the project, all of which indicate future problems,” says Popovikj.

He explains that the project is political, so if there are failures, the price must be political and even criminal if guilt is proven for the high-level politicians that set this project up.

“The controversies surrounding the tender are just one more case that signals North Macedonia’s economic climate is corrupt,” explained Popovikj.

Albania’s experience reflects the experience of the whole region

Construction consortium Bechtel-Enka, which also won the contract to build the highway connecting the capitals of Albania and Kosovo, has made hundreds of millions of euros in profit, thanks to a contract “heavily weighted” in its favour, high pricing, and tax rebates.

Mismanagement and increasing costs led to three investigations into alleged corruption, abuse of office, and other wrongdoing linked to the contract. Although the road aimed to create wealth from increased trade and tourism, its final price tags doubled in both countries, while trade between the countries has only modestly increased.

This case shows a distinct similarity to the one in North Macedonia and raises serious questions regarding the effects of such contracts and the influence of big companies in the region.

Zef Preci, Executive Director of the Albanian Center for Economic Research, clarified the methods of penetration used by big multinational companies in countries with weak institutions and high levels of corruption.

“The Albanian experience of the last three decades has shown that to enter the market of our region, foreign companies have used different methods. Some of them are previous cultural ties, mainly due to the proximity of the languages and long-term previous cooperative ties, furthermore, the experience of these companies in neighbouring countries and lobbying of highest governmental authorities of the country of origin,” says Preci.

He explains that the latest one is usually called “strategic decision making” – considering national interest as the highest priority, but without neglecting the competition criteria and standards foreseen in the national legislation and international treaties about the openness of the country toward foreign investment and trade.

In the meantime, Preci adds, big companies from other countries that are interested have tried to or successfully penetrated through their subsidiaries in the region, and that the same channels are used in other Western Balkan countries, too.

“In general, the presence of American companies in Albania, and the region, has been and remains limited, under potential, mainly due to the small size of the market, pending issues related to land ownership, low standards of governance and such. Meanwhile, an important voice of the business community in Albania and the region are AmChams, the business chambers, which do maintain a close relationship with the US embassies, and work hard to develop business advocacy and dialogue with the country governments,” explains Preci.

He highlighted that the involvement of the US embassies in enhancing American investments into the region is a declared priority of the mandate, at least for the current US ambassador in Albania. In this context, Bechtel and its joint-venture partner Enka completed construction on the Albanian Motorway in October, a 61-km, four-lane highway stretching from central Albania to the Kosovo border.

“Meanwhile, due to some regularities of Albanian authorities concerning the type of procurement since the Albanian Ministry of Transportation applied the payment for a cubic metre of excavations which is not foreseen in the Albanian procurement legislation of that time, the issue has been widely discussed in political circles pretending for the corruption of high officials dealing with the international tender for this public work”, says Preci.

Moreover, Preci emphasized that the investigations did not bring any evidence of abuse of duty, and later on, a new left majority led by Rama invited Bechtel-Enka into the country to engage it in the construction of a large hydroelectric power plant. In July 2021, Albania’s Power Corporation (KESH) and Bechtel signed an agreement to begin the early works for the 210 MW Skavica plant on the Drina River under a fast-track delivery approach, and just like that, suspicion of corruption regarding Bechtel-Enka was forgotten, concluded Preci.

These revelations are likely to raise serious questions about the approach to major infrastructure projects by the governments in the region, and whether enough is being done to ensure transparency and accountability. With concerns about corruption and financial viability mounting, many are calling for greater scrutiny of these projects and the companies involved.

It remains to be seen how these allegations will impact the future of North Macedonia’s infrastructure plans and whether the Government will take steps to address these concerns.

 

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