UNDER PRESSURE, GOM ADDRESSES ABUSE OF STATE COMPANY BOARDS

UNCLAS SECTION 01 OF 02 PODGORICA 000105 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PGOV ECON KCOR MW SUBJECT: UNDER PRESSURE, GOM ADDRESSES ABUSE OF STATE COMPANY BOARDS PODGORICA 00000105 001.2 OF 002 ¶1. (SBU) SUMMARY: The payment of one million euros in severances to 12 former board members of Montenegro's financially troubled National Railroad Company has put the spotlight on GoM perks for party cronies hired as executives in state-owned companies. Faced with a public outcry prior to the recent elections, the Transport Minister announced that the GoM would force the departing board members to return the money. In addition, the GoM capped directors' and board members' salaries and announced it would require state entities to disclose their compensation and severance packages. The GoM's actions represent a victory for investigative journalists and public opinion. END SUMMARY. Railway Case Provokes Outrage -------------- ¶2. (U) Montenegro's National Railway Company is in dire financial straits. It lost ten million euros in 2007 and likely lost even more in 2008 (figures are not yet available). The state electricity company even recently threatened to cut off the Railways power unless it settled its debts. ¶3. (SBU) Many Montenegrins therefore were outraged when the press broke the story that in late 2008 the Railway had authorized severance packages of between 25,000 and 180,000 euros to 12 outgoing Board members. In the most prominent case, Savo Paraca, the Board's then-President, received 180,000 euros for only six months work. The fact that almost all of the individuals involved were members of the ruling Democratic Party of Socialists (DPS) and Social Democratic Party (SDP) - (Paraca is a member of the DPS presidency, for example) - only heightened the outcry. Party Cadres On Company Boards -------------- ¶4. (SBU) The Railway case highlighted the GoM's practice of placing DPS and SDP member in state and public companies. (Note: A state company is a company in which the GoM has a majority stake; a public company is a company which is wholly owned by the government.) Frequently these individuals have no expertise in the company's business and play no active role in their management, but receive substantial salaries, credits, benefits, and severance packages. In fact, their nebulous responsibility - to represent the GoM's interests - lends itself to abuse. Press, Public Pressure Builds -------------- ¶5. (SBU) By mid-January 2009, the daily papers "Dan" and "Vijesti," as well as the weekly "Monitor" magazine, had run a number of articles on the Railway scandal. Opposition politicians, looking for a cause cilhbre before the parliamentary election, raised the matter in Parliament, and at least one NGO (MANS) also issued a scathing public criticism. While newspapers do not normally publish letters to the editor, our local interlocutors tell us that the issue was widely, and angrily, discussed among Montenegrins. Lompar, Lazovic Vow Action -------------- ¶6. (U) On January 22, Transportation Minister Lompar announced that the GoM would force the departing board members to return the money. (Note: It is not clear whether this actually happened.) Lompar also promised to prevent similar cases from occurring in the future. PODGORICA 00000105 002.2 OF 002 ¶7. (U) On February 5, the GoM established a working group, chaired by DPM Lazovic, to review the compensation packages of government representatives in state-owned companies and regulatory agencies. On February 12, Lazovic told the press that he had found that most compensation packages were "unreasonably high," were determined arbitrarily (in many cases the board members decided on their own salaries and severances), and had no relation to the financial situation of the companies in question. Therefore, he said, the GoM would cap overall compensation. And GoM Follows Up -------------- ¶8. (U) On February 19, Lazovic's working group issued a report on executive salaries (most receive payments of 3,000 to 5,000 euros per month),and announced several measures to address the overall compensation issue for government representatives to state/public companies and regulatory agencies: --Part-time government representatives will not be entitled to receive more than the average salary of the company; --Full-time executives will receive no more than two to four "average salaries" (an "average salary" is typically around 450 euros per month),depending on the financial status of the company; and --Neither part-time nor full-time board members or other representatives will be entitled to severance pay. ¶9. (U) The Labor Inspection of the Ministry of Health, Labor, and Social Welfare was tasked with implementing the new regulations. On March 21, it announced that 34 state and public companies had complied with the instructions, while another 35 companies and four regulatory agencies were given another seven days to comply (the Ministry has not announced whether these entities in fact did so). Comment -------------- ¶10. (SBU) The GoM's measures do not address per diems, representational funds, vehicles, travel, business credit cards, and other benefits that GoM representatives frequently receive, nor do they address the fundamental problem of placing political cronies in state and public companies. In addition, it is not clear whether Minister Lompar forced the Railway company board members to return their payments (as he promised to do),and indeed, whether the GoM will aggressively enforce its new regulations now that elections have passed. That said, this is the most notable case in recent memory of the media breaking a story which led to such public indignation that it forced the GoM to act. We also note that Mico Babovic of the daily newspaper "Vijesti," the reporter who wrote the most comprehensive story on the Railway scandal (published on January 17),received an Investigative Journalism Award for his article. MOORE