A Report on Good Governance in Southeast Europe Released

The paper is based on the findings of the analysis of laws and law enforcement practices regarding public procurement and regulation of State-owned energy enterprises in Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, North Macedonia, Montenegro, Romania and Serbia.

Public procurement

The R2G4P experts highlight that the most widespread corruption offences in public procurement in the countries of Southeast Europe are the following:

Favouritism and clientelism that in most cases manifest themselves in the preferential treatment of companies where associates of officials are employed. For example, a former mayor of the City of Zagreb in Croatia abused his functions by authorizing to tender the allocation of public areas in the city for commercial use by business entities: in the period from 2016 to 2020, he had ordered members of the procurement commission to provide the companies of his friends with licenses to do business at the city’s most attractive locations. In exchange, the said businesses provided the mayor with undue advantages;
Overpricing of contracts. In Hungary, the report shows that 90% of public procurement projects are overpriced by 25% on average. In North Macedonia, large differences between market and contract prices of some products, including personal protective equipment for the police and communal workers, have been detected;
Tailored tender specifications. In Serbia for instance, the 2016 tender documentation for the New Year’s decoration in Belgrade included pictures of decoration elements copied from the catalogue of the company that won the bid;
High share of non-open procedures. In Albania, until 2017, a high share of procurements was done by direct negotiation without announcement in unjustified emergency situations; similar violations were registered in North Macedonia during the COVID-19 pandemic. In Bosnia and Herzegovina, ventilators for patients with symptoms of COVID-19 infection were procured in the framework of urgent procedures, but it was uncovered that the purchased ventilators were exceedingly expensive and were not suitable for use which resulted in hospitals’ refusing the devices. In Bulgaria, a specific abuse of non-open tendering, i.e. in-house contracting, which is designed for situations where a contracting authority performs certain activities internally, has become popular. In those cases, authorities directly contracted private companies for the execution of the procurement through subcontracting procedures without additional procurement;
Contract modification in the implementation phase. The report states that in Montenegro it is a common practice that after the award decision has been made the contract is supplemented by additional annexes incorporating extra costs and respectively payments for the contractor.

At the same time, many countries of Southeast Europe take steps to reinforce anti-corruption safeguards in public procurement. In particular, Albania, Montenegro, North Macedonia and Serbia adopted new laws on public procurement also with a view to aligning the relevant legislation with Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on public procurement and repealing Directive 2004/18/EC. Additionally, some countries have enhanced transparency of their e-procurement systems and independence of the bodies responsible for supervising and controlling public procurement and receiving and processing reports of violations in this area.

However, the authors of the report stress that countries of the region have to counter systemic corruption with these targeted measures being insufficient. The R2G4P believe that they should adopt a comprehensive approach and take more concerted steps to achieve tangible results in countering corruption also in public procurement.

Energy sector

As per the report, the regional energy sector is equally vulnerable to corruption, which can be explained by the following reasons:

The corporate governance regulatory framework is still under development in the region and is not compliant with the OECD Guidelines on Corporate Governance of State-Owned Enterprises, which implies total lack of transparency of these companies;
Financial vulnerability of State-owned energy companies which is due to the lack of strategic planning and consistent regulatory policy based on actual data on the performance of these enterprises, structural dependence on fossil fuel, considerable domestic and EU budgetary expenditures on large-scale and unsustainable projects because of the lack of prior analysis of expenses and benefits or obvious advantages for the public in the long run;
Lack of documented procedures for appointing CEOs and board members of State-owned energy companies in the countries of Southeast Europe. As a result such appointments are often politically motivated;
Widespread corrupt practices in public procurement, including in the energy sector etc.

Recommendations

The report puts forward a number of recommendations aimed at enhancing the effectiveness of anti-corruption efforts in Southeast Europe.

In particular, with regard to public procurement these recommendations include:

Refine legal regulation of public procurement also by clarifying the functions of different public bodies related to the holding and control of procurement, excluding duplication and ambiguity, adopting codes of conduct for procurement officers;
Reduce the number of non-open procurement procedures, promotion of open procedures at the regulatory level;
Repeal all amendments to procurement laws made throughout the COVID-19 pandemic, in particular, those that envisage simplified procurement procedures;
Improve monitoring of public procurement also by increasing the number of inspections and conducting thorough analysis of corruption risks associated with public procurement, establishing relevant open databases of public procurement, developing effective and dynamic models of corruption risks and regularly training officers of supervisory bodies with the support of civil society organisations;
Draft general recommendations for public procurement customers on how to formulate requirements for the subject of procurement which would ensure they are not targeted at certain contractors, as well as highly specialised recommendations on how to develop these requirements for procurement of specific goods, works and services;
Enhance transparency of public procurement by raising public awareness and improving access to data published in e-procurement portals, in particular, in cooperation with anti-corruption bodies and civil society organisations;
Promote fair competition by removing barriers to market, for example, by reserving contracts for small and medium enterprises only, facilitating administrative procedures etc.

As regards management of State-owned energy companies, the authors of the report make the following recommendations:

Put the relevant legal framework in line with the abovementioned OECD guidelines;
Enshrine the prohibition of any links between politically exposed persons and/or political parties and the management of State-owned energy companies in law;
Impose stricter requirements to professional competencies of the candidates applying for managerial positions in these enterprises;
Impose the obligation to conduct due diligence procedures in the framework of public procurement on State-owned energy enterprises;
Ensure independence of the bodies responsible for regulating the energy sector by expanding their administrative and financial autonomy;
Engage independent external experts in the drafting of annual reports on the effectiveness of performance of State-owned energy enterprises;
Allocate funds from domestic and EU budgets only to the projects that have a clear strategy with predetermined objectives and key effectiveness indicators, and ensure comprehensive accountability for the spending of these funds, assessment of projects, their implementation etc.

*The report is based on the findings of the R2G4P corruption risk assessment tools, namely Open Tender and State Capture Assessment Diagnostics.