Eurasia Press & News
Two independent experts say a German company hired to fix the sewage issues of the Montenegrin tourist town of Budva overcharged by millions of euros. More than a decade after the contract was signed, much of the sewage still flows into the sea.
In 2009, local authorities in the Montenegrin tourist town of Budva struck a deal with the German company WTE Wassertechnik GmbH, for the construction of three wastewater treatment plants as well as a sewage system for the iconic fortified island village of Sveti Stefan.
The municipality took a loan of 58 million euros to pay for it.
Five years later, cutting the ribbon on the first completed treatment plant, then Montenegrin prime minister, now president, Milo Djukanovic declared it would make Budva, and the country as a whole, “cleaner, better and richer”.
A little over a decade since the deal, Budva is neither cleaner nor richer. Only one of the three treatment plants has been built, and untreated sewage continues to flow into the Adriatic Sea from the settlements of Jaz, Petrovac and Buljarica. Sveti Stefan, the crown jewel of Montenegro’s tourist offering, is still dogged by sewage problems.
And that’s not all.
The sum of evidence collected by two independent experts, sources involved in the project and via documents reviewed by the Centre for Investigative Journalism in Montenegro, CIN-CG, Balkan Investigative Reporting Network, BIRN, and the weekly Monitor, indicate that WTE overcharged by millions of euros for the construction of the one completed treatment plant.
“WTE obviously took us for fools,” said Djordjije Vujovic, a member of the Budva city assembly.
WTE has denied any wrongdoing, telling CIN-CG/BIRN/Monitor it has “done a good job”. The company has already been paid between 12.5 million and 13.8 million euros by Budva – the exact figure is disputed – and called in a payment guarantee issued by the government in 2010 to the tune of 29.3 million euros. It is pursuing the cash-strapped municipality for a further 35 million euros in arbitration proceedings due to begin early this year.
Indebted ex-president
The chaotic and often unregulated development of Montenegro’s rugged Adriatic coastline has long been dogged by problems with water supply and sewage.
The WTE deal was seen as vital if the country was to continue servicing the annual influx of some one million tourists at the time. Yet something was up even before construction of the one completed treatment plant – in Becici – began.
Under a 2016 plea deal, Svetozar Marovic, the former deputy leader of Djukanovic’s Democratic Party of Socialists, DPS, which left office late this year after three decades of uninterrupted rule, admitted defrauding the Municipality of Budva of three million euros via a fake invoice issued by the then head of WTE’s Budva venture, Guenter Faust, and used to pay off a private debt.
To avoid charges, Faust turned witness for the prosecution. Marovic, the first and only president of the short-lived State Union of Serbia and Montenegro between 2003 and 2006, was sentenced in September 2016 to three years and 10 months in prison after signing plea agreements on a number of counts of organised crime and corruption.
One of the counts concerned WTE, for which he was effectively sentenced to just three months and not required to return the money. Marovic, now 65, fled for Serbia where he now lives in the capital, Belgrade, as a free man.
Marovic, via an intermediary, declined to comment for this story. WTE has consistently denied any wrongdoing and dismissed any suggestion it had overcharged.
‘The pipelines were already cracking’
When the opposition to the DPS took power in Budva following local elections in October 2016, they began to dig further into the WTE project but ran into difficulty.
“We couldn’t find even the basic DBFO [Design-Build-Finance-Operate] contract as the SPO [Special Prosecution Office] prosecutors carried away the documentation without receipt and they wouldn’t return it,” said the town’s new mayor, Dragan Krapovic. “The archive was in disarray.”
Upon tracing some of the paperwork, the municipality launched a review in 2018 headed by Slovenian engineering consultant Joze Duhovnik.
Duhovnik would conclude that the 41.4 million euros invoiced by WTE was 12.9 million too much.
It started with the land clearance for the project, charged at 56,195 euros or 2.5 euros per square metres – at least 20 times the going market rate, according to estimates offered by land clearance companies contacted by CIN-CG/BIRN/Monitor.
Earthwork and the levelling of the terrain was overcharged by some 700,000 euros, Duhovnik told CIN-CG/BIRN/Monitor, while invoices for the equipment used in the facility were inflated by just over five million euros.
“The technical book defines the quality of the equipment and the building materials,” Duhovnik said in an interview.
“However, on the ground we found low quality, poorer properties of the equipment and of the material itself. The pipelines were already cracking. They installed armature for cheaper pumps (25-30%) as they require less material. However, the supervision approved the price as though the stuff was of the best quality.”
Duhovnik’s team concluded that the construction work had been overcharged by 2.92 million euros, the project documentation by 1.6 million euros and the building permits by more than 922,000 euros.
It also flagged 1.89 million euros paid for project supervision, carried out by WTE in-house supervisors.
“By law, the project supervision should be paid by the municipality,” Duhovnik said.
“In this case, WTE paid its internal supervision, which confirmed figures that WTE wanted. In the end, the invoice was sent to the Municipality to pay it, which is unheard of and against the law.”
In response, Stefan Zach, communications manager of Austrian EVN, which owns WTE, told CIN-CG/BIRN/Monitor: “We will present our objections to Duhovnik’s report before the arbitration court in Geneva.”
“Prosecutors checked the company and the plant several times and didn’t find anything against WTE despite numerous public accusations,” he said. The Becici facility, he said, “does work” and “WTE has done a good job.”
Alleged conflict of interest
Financial expert Ilinka Vukovic, who was also hired by the municipality in 2018 and later by the SPO, also questioned some of the invoices issued by WTE Wastewater Budva, the local venture headed at the time by Faust.
On page 99 of her report, Vukovic cited an invoice for 3,145,000 euros and dated October 2009 to September 2010. It covered a string of meetings and negotiation services with generic descriptions and conspicuously large, round figures such as 350,000 euros for an ‘organisational concept draft’ and 200,000 euros for ‘negotiations with the municipality of Budva’.
Vujovic, the Budva city assembly member, told CIN-CG/BIRN/Monitor: “You can instantly see that something is wrong with that invoice. Corruption stinks.”
Another problematic WTE invoice of €535,095.99 was sent to the municipality for talks held with German KfW IPEX-Bank between October 2014 and October 2015. According to Vukovic’s report, the talks did not yield a loan for the project and WTE was simply doing “market research without consent from the Municipality of Budva”. So WTE should have footed the bill, she said.
Vukovic said 3.5 million euros were suspicious.
The fact the municipality hired its own outside supervisor for the project did not appear to help.
Serbia-based Pro-Ing LLC signed the 687,600-euro contract in October 2011; its founder and director, Goran Vukobratovic, defended the company’s performance, telling CIN-CG/BIRN/Monitor that Pro-Ing “only supervised the construction works” and had no responsibility for management costs or monitoring of financial costs. “Furthermore, we are not responsible for the invoices sent before” the contract was agreed.
Vukovic, however, noted in her report that Vukobratovic is also registered as sole founder of Pro-Ing Trade LLC Budva, which has worked with WTE Wastewaters Budva for years. “This is an obvious conflict of interests,” she wrote.
Indeed, five months before Pro-Ing LLC in Serbia signed the contract with Budva municipality to monitor the work of WTE, Pro-Ing Trade LLC Budva billed WTE for services in obtaining a construction permit worth 100,800 euros, according to the invoice seen by CIN-CG/BIRN/Monitor. A second invoice for 39,312 euros was issued on December 27, 2011, four months after Pro-Ing LLC in Serbia won the deal with Budva.
In response, Vukobratovic said: “There was no conflict of interests in those two separate jobs.”
“Feel free to check with MORT [The Ministry of Sustainable Development and Tourism] if a company can work for another company and at the same time supervise the work of that company on behalf of another entity.”
Claim and counter-claim
The SPO told CIN-CG/BIRN/Monitor it is conducting “ongoing inquiries” into the allegations against WTE.
Meanwhile, arbitration proceedings are set to begin on February 9, 2021 in Frankfurt, Germany. A second arbitration will be heard in Geneva.
At issue in Frankfurt is a payment guarantee issued in 2010 by then DPS mayor Rajko Kuljaca for up to 66 million euros. Authorities say Kuljaca had neither the formal consent of the government nor a decision of the local city council required under the law to issue such a guarantee.
A separate payment guarantee issued by the state government in October 2010 for 29.2 million euros covered 50 per cent of the overall basic investment and was payable on first call and with no right to protest. WTE activated this guarantee on December 18, 2019.
Asked about the two treatment plants WTE did not build, EVN’s Zach cited the fact “municipal authorities sold the land for the construction of hotels.”
This is disputed by former Budva mayor Krapovic. “It is very easy to check and find the opposite,” he said.
Since Djukanovic cut the ribbon on the Becici plant in October 2014, WTE has charged 1.7 million euros per year in management costs, the price originally set for management of all three waste treatment plants, two of which were never built. Budva’s Secretariat for Investments told CIN-CG/BIRN/Monitor its own estimate of management costs amounted to 993,000 euros per year.
Explaining WTE-EVN’s total claim for 77 million euros, Zach said that was how much the Becici project cost the company. “Our principle is to charge for what we have built and not for what might have been,” he said, in reference to the plants that were not built in Jaz and Buljarica.
Meanwhile, Budva faces legal fees of half a million dollars even before the arbitration hearing in February, according to the municipality’s lawyer, Vladan Bojic. The proceedings could end up costing two million dollars, he told CIN-CG/BIRN/Monitor.
Asked whether Djukanovic, as then prime minister, had taken any steps to ensure the completion of the contract with WTE, the president’s press service said: “Since the payment of the said guarantee, the government has not followed developments regarding the WTE project in Budva municipality.”
Prosecutors: Inquiries still under way
Asked about the wastewater treatment affair, the Special Prosecution Office said that plea agreements had been concluded with Marovic and a man called Dragoljub Milanovic which, once confirmed by the High Court in Podgorica, resulted in the return to Budva municipality of just over one million euros in illegal gains. Inquiries were continuing, it said.
The municipality, however, says none of the money in the WTE case was returned.
Former mayor Krapovic says the sum cited by the SPO in its response to CIN-CG/BIRN/Monitor has nothing to do with the WTE plant but with the so-called ‘Copyright’ case of 2010 in which the municipality was defrauded of 3.86 million euros. This was the case in which Marovic undertook to return the one million euros, under Point C of his plea agreement. The WTE case was Point D.
Milanovic, then the executive director of Gugi Komerc, was involved in another affair concerning the paving of the plateau on Jaz Beach where the Rolling Stones and Madonna held concerts in 2007 and 2008 respectively.
Marovic was sentenced to three years and ten months in prison on a string of charges. The WTE case effectively accounted for three months of the total sentence.
The SPO, according to the agreement with Marovic of June 9, 2016, did not request that he return the sum of three million euros. Nor did the High Court, which adopted the agreement without amendment.
“If you hold up a kiosk and steal a few small items you will get at least six months in jail, while Marovic stole millions,” said Bojic, the Budva municipality’s lawyer. “Many people would agree to serve three months in prison, not for three million, but for 300,000 or even for 30,000 euros.”
