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Effects of the New Law on Public Enterprises–Politicization Or Effects of the new Law on Public Enterprises – politicization or professionalization www. transparentnost.org.rs Publisher: Transparency Serbia ©2014 Transparency Serbia, all rights reserved. This document has been produced with the financial assistance of the Netherlands Ministry of Foreign Affairs. The contents of this document are the sole responsibility of Transparency Serbia and can under no circumstances be regarded as reflecting the position of the Netherlands Ministry of Foreign Affairs. Contents Summary of main findings and conclusions 4 1. About the Project 10 1.1 The Environment and Reasons 10 1.2 Methodology 12 2. Obstacles at the first step 14 2.1 Compliance with the law 14 2.2 Compliance with founding acts and the Statute 16 3. The Selection of Supervisory Boards 20 3.1. What does the Law say? 20 3.2 What is the situation in practice? 21 3.3. The election of employee representatives in the supervisory boards in PE founded by the Government of Serbia 23 4. The Election of PE Directors 32 4.1. Public competitions 32 4.2 The election procedure 34 4.3 Initiative to amend the Law on Public Enterprises and removal of corruption risks 36 4.4 Competitions and acting positions 36 4.5 Criteria for the appointment and their application 41 4.5.1 Criteria at the republic level 41 4.5.2 Criteria at the provincial and local level 42 4.6 The election of directors and explanation 51 5 Business results, marketing and sponsorships 59 5.1 Business results before and after the adoption of the new Law 59 5.2 Marketing and Sponsorships 62 6. Annual business programs 67 6.1 The adoption of annual business programs 67 6.2. Quarterly reports on the implementation of business programs 68 6.3. Annual business plans – back to the future 70 7. Reward and punishment 72 8. Transparency in the work of PE 75 9. Recommendations 80 Annex I 83 - 3 - Summary of main findings and conclusions About 700 public enterprises in Serbia employ more than 100,000 people. Public companies in Serbia pose a problem on several levels. Due to poor organization or political influence on business conditions, these companies record some of the biggest losses 1. Due to poor supervision and control, there is a widespread conviction on the abuse of companies' funds, and those doubts were partially confirmed by the findings of the Supreme Audit Institution. Public enterprises have been used for parties' purposes for years - for indirect funding of parties 2, through employment by party affiliation, by placement of party officials or its personnel in PEs' management bodies or for buying influence in the media. Party division of public companies is a standard part of negotiations when forming a coalition. Until recently, this division included the possibility of arbitrary election of directors and appointment of members of the supervisory and managing boards. The membership in these bodies brings 'appanages' (of which one part was given back to the parties), as well as personal influence with vague accountability. The Law on PE 3 was adopted in December 2012 as a regulation whose application was supposed to break a long-standing practice of using public enterprises for party purposes. This law passed a number of innovations that were presented as the key to increasing transparency, professionalism and accountability of public enterprises. Among them are those relating to the election of the officials (director and supervisory board members) in public enterprises, reporting on the election of officials, publication of the explanations, publication of annual business programs and periodical reporting on the implementation of annual programs. The Law passed the obligation of announcing the competition for the election of directors, the obligation of the dismissal of any directors found responsible for failing to meet the annual work program, and the election of the supervisory board with professional qualifications in accordance with the PE field of work. One of the anti- corruption provisions is the ban in advertisement of products and services for which PE has no competition in the market, without the consent of the founder. However, such restrictions have not been introduced for sponsorships, which left room for abuse and favoritism of party interests. These are big improvements in comparison to the previous Law (2000), but it was clear from the beginning that there are certain provisions in the new Law on PE that leave room for non- transparent behavior, and thus for corruption, as indicated in the National Strategy for the fight against corruption for the period from 2013 to 2018.4 1 Data of the Ministry of Finance, http://www.naslovi.net/2014-04-16/rts/gubitak-u-javnim-preduzecima-51-milijardu- dinara/9622092 2 'NIS' 2011 Serbia – section 10, Political Parties http://www.transparentnost.org.rs/images/stories/materijali/publikacije/PROCENA%20SISTEMA%20DRUSTVENOG%20INT EGRITETA%20U%20SRBIJI%20-%20Izvestaj%202011%20strana%20po%20strana.pdf 3 http://www.parlament.gov.rs/upload/archive/files/lat/pdf/zakoni/2012/3845-12Lat.pdf 4 Although the requirements for the election of directors were established, there were no clear criteria on which the relevant ministry proposes candidates to the Committee and on the basis of which the Committee makes the final selection of candidates who met all requirements. Therefore, the selection, dismissal and evaluation of the directors still present a risky process from the point of abuse and the emergence of corruption. - 4 - In order to look at the effects of the new Law, Transparency Serbia conducted a survey that followed the implementation of the Law in the following areas: 1) The election of directors in public competitions (with special focus on meeting deadlines, criteria for election, and the transparency of the process); 2) The preparation of annual work plans of public enterprises; 3) The reporting on the implementation of the work plans and rewarding or sanctioning management depending on the implementation of the annual plans; 4) The comparison of operating results of PE in the period before and after the election of supervisory boards and directors and comparison of costs for PE sponsorships and marketing before and after the implementation of the new Law 5) The compliance with the provisions on work transparency Monitoring included 25 public companies founded by the Serbian Government, Provincial Government and Local Governments (Assemblies of Cities and Municipalities). The sample5 was constructed to include all levels of government, all regions of Serbia, PE from different areas of activity, as well as various political options that make the majority in the municipalities and cities of the observed PE. At the level of Serbia and Vojvodina the sample is representative (34% and 50%). The research has shown that many of the Law provisions were not applied at all, that the deficiencies of legislation led to the expected adverse effects, and that the application of legal innovations did not lead to termination of the long-standing bad practices. Thus, although the Law clearly stipulates that vacancies for directors in all public enterprises will be announced no later than 30 June 2013, the Serbian government decided not to announce a competition for the election of the Director of PE in which the directors were appointed before the new Law came into force. Among the observed PE, that was the case with PE 'Srbijagas', PE 'Srbijasume', Public water company 'Srbijavode', PE 'Elektromreza Srbije' and PE 'PTT Srbija'. Among these companies are also those headed by senior party officials6 . Until the legal deadline of 30 June 2013, the Serbian government announced competitions for the directors of only two out of the 13 observed public enterprises - 'Elektroprivreda Srbije' and 'Skijalista Srbije'. After the deadline, competitions were announced in six more companies: 'PEU Resavica' (3 July 2013), 'Putevi Srbije' (5 July 2013), 'NP Fruska Gora' 5 The sample of surveyed public enterprises is available under the Section 1.2 of this report. 6 PE 'Srbijagas' - Public competition was not announced, the PE is led by director Dusan Bajatovic whom the government appointed after it adopted the draft Law on PE and sent it to the Assembly for approval on 28 November 2012. Bajatovic is an official of SPS. PE 'Srbijasume' - Public competition was not announced, the PE is led by Igor Braunovic, deputy director general. Director Dusko Polic submitted his resignation in 2010 and since then deputy Braunovic has been serving as director. Braunovic is an official of PUPS. As a deputy director, he is not subject to the obligations that the Law on the Anti-Corruption Agency imposes on public officials (declaration of assets, transfer of management rights, etc.). PE 'Srbijavode Beograd' - Public competition was not announced, the PE is led by director Goran Puzovic, who was appointed to this position on 2 November 2012, before the adoption of the new Law on PE. Previously, he was a member of the 'Srbijavode' board, and was resolved only on 28 November, nearly one month after he was appointed director. PE 'Elektromreza Srbija' - Public competition was not announced, the PE is led by Nikola Petrovic, an official of 'Srpska Napredna Stranka'. On 26 September 2012 he was appointed acting director, and on 21 December 2012, four days before the entry into force of the new Law on PE, the Government appointed him the director general. PE 'Posta Srbije' - Public competition was not announced, the PE is led by Milan Krkobabic, the president of PUPS (at the time of the appointment he was deputy president). On the 26 September 2012, he was appointed director general. - 5 - (10 July 2013), 'Zavod za udzbenike' (15 July 2013), 'Sluzbeni glasnik' (2 August 2013) and 'Nuklearni Objekti Srbije' (7 August 2013). The competitions in public enterprises that were scheduled for the period June-August 2013 were not completed until the preparation of this report (October 2014), with the exception of the competition for the director of 'EPS', which ended on 2 October by the appointment of the former acting director.
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