Public Procurement Integrity
in Southeast Europe

CSD would like to thank the R2G4P members and contributors from the public and from the civil society sector in South East Europe for the valuable inputs and comments to the draft texts of the report during platform meetings. The Public Procurement Agency, Albania, the National Integrity Agency (ANI), Romania and the Agency for Prevention of Corruption, Montenegro provided written comments to earlier drafts. We would like to note in particular the thorough work of CSD’s editing and background research team, including Galina Sapundzhieva, Communications Officer, and CSD’s interns Stefano D’Angelo, Ela Rautner, and Szymon Jeżewski.

R2G4P national contributors:

Dr. Zef Preci and Bylyre Serjanaj, Albanian Center for Economic Research, Albania
Darko Brkan and Haris Karabegović, Zasto Ne, BiH 
Petar Terziev and Kristina Tsabala, Center for the Study of Democracy, Bulgaria
Dr. Branko Stanic, Dr. Predrag Bejaković, and Dr. Martina Pezer, Institute of Public Finance, Croatia
Biljana Papovic, Center for Democratic Transition, Montenegro
Misha Popovikj, Institute for Democracy Societas Civilis, North Macedonia
Simona Ernu, Andrei Macsut, and Mădălina Doroftei, Academică din România, Romania
Andrija Mladenovic, Katarina Grga, Milos Pavkovic, and Ana Milinkovic, European Policy Center, Serbia

R2G4P knowledge partners:

Chr. Michelsen Institute / U4 Anti-Corruption Resource Centre, Norway
Regional Anti-Corruption Initiative, BiH
State Commission for Prevention of Corruption, North Macedonia

EXECUTIVE SUMMARY

INTRODUCTION

PUBLIC PROCUREMENT IRREGULARITIES – HIDDEN RISKS FOR THE POST-COVID ECONOMIC RECOVERY

— Irregularities in the procurement market

— COVID-19 induced changes in public procurement

Timeline and description of policy changes

Procurement risks arising from the pandemic

Regional trends in public procurement during the pandemic

IMPROVING THE GOVERNANCE OF STATE-OWNED ENTERPRISES IN THE ENERGY SECTOR

— Why analyse the governance of the energy sector in SEE-9?

— Public accountability and transparency of energy SOEs’ management

Key uncovered risks

Financial transparency

Appointment of CEOs and board members

Legal setup and inconsistency with the OECD Guidelines on Corporate Governance of SOEs

— Regulation, financial state and investment decisions

The unhealthy financial state of energy SOEs

Common path dependencies

SOE investment activities: state capture vulnerabilities

— Countering governance deficits in the energy sector public procurement

Understanding public procurement corruption risks

Country specifics and practical cases

THE WAY FORWARD: CONCLUSIONS AND POLICY RECOMMENDATIONS

ANNEX: COMMON PROCUREMENT VOCABULARY AND CONTRACT VALUE GROWTH

Figure 1. Total quarterly contract value of COVID-19 related goods procured between 2017Q1 and 2021Q2

Figure 2. Corruption risk by sector between 2017 and 2021Q2

Figure 3. Average buyer dependence and contract value change during the pandemic in the healthcare sector (2020Q1-2021Q2 compared to 2017Q1-2019Q4)

Figure 4. Distribution of additional funds received by companies in the healthcare sector by quantile (2020Q1-2021Q2 compared to 2018Q3-2019Q4)

Figure 5. EU programme funding as a share of 2020 GDP

Figure 6. Modernisation Fund country budgets for 2021-2027

Figure 7. WBIF investment value (2009-) in energy as a share of 2020 GDP and government expenditure

Figure 8. Key uncovered governance risks for the management of the energy sector SOEs

Figure 9. Management risks in energy SOEs

Figure 10. Financial transparency and political appointment risks in SOEs management

Figure 11. Key financial indicators for selected Albanian energy SOEs

Figure 12. Debt ratios for selected SEE-9 SOEs

Figure 13. Current ratios for selected SEE-9 SOEs

Figure 14. Common path dependencies affecting the operation of SEE-9 SOEs

Figure 15. Key financial indicators for Srbijagas

Figure 16. Public procurement irregularities observed in the energy sector in SEE-9

Figure 17. Types of procedures used in the energy sector in SEE-9 EU countries (2011 – 2021)

Table 1. Potential integrity indicators

Table 2. Challenges to the application of the OECD Guidelines on Corporate Governance of SOEs

Table 3. Policy recommendations

Table 4. CPV code description

Table 5. Top 5 companies with the largest absolute contract value growth between 2020 – June 2021 compared to their winnings between July 2018 – 2020

Box 1. Croatia: Corruption in the allocation of Advent houses (2016-2021)

Box 2. North Macedonia: Purchase of overpriced protective gear for police and communal workers (2020)

Box 3. Serbia: Procurement for New Year decoration by Keep Light d.o.o. (2016-2020)

Box 4. Bulgaria: Repair and restoration works on water dam walls and related facilities (2021-)

Box 5. Bosnia and Herzegovina: Respirator Affair (2020-)

Box 6. Albania: Tender for the purchase of medical devices (2020)

Box 7. Monitoring public procurement irregularities: Available datasets and methodology description

Box 8. Examples of political appointments in energy SOEs in SEE‑9

Box 9. Non-compliance with disclosure and transparency guidelines in Romania and Croatia

Box 10. Underperformance of fossil-fuel companies

Box 11. Reversing the market liberalization process in Hungary and Bulgaria

Box 12. Political meddling in the financial management of Srbijagas

Box 13. Trading with posts in energy SOEs in Bosna and Herzegovina

Box 14. Examples of abuse of office within energy regulatory bodies in SEE‑9

Box 15. Kremlin backed projects in SEE‑9: state capture risks

Box 16. Integrity plans in Montenegro used to assess procurement in the energy sector

Box 17. Selected examples of restrictive tendering procedures in the Western Balkans

Box 18. Public procurement corruption risks: the case of ESO in Bulgaria (2017-2021)

Box 19. Hungary: the Elios case (2009-2014)

Box 20. Croatia: Waste water collection and treatment system of Velika Gorica (2020 – ongoing)

Box 21. Use of bribery in public procurement tenders in energy SOEs in Romania

Box 22. Examples of ghost companies and their procurement success in Albania