Ticket Deal May Leave Belgrade Short-Changed

Belgrade Mayor Dragan Djilas tests out the city's new BusPlus system. | Photo by Beoinfo

The City of Belgrade will never know if it had the chance to generate more profits from ticket fares had it not selected the consortium led by Apex Solution Technology to introduce a new ticketing system, BusPlus. 

The rules for the bidding process that the city drew up in June 2010 were not based on Serbia’s Public Procurement Law. As a result, the chances of genuine competition were seriously limited, documents, legal expert and other potential bidders maintain.

The joint venture between the City and Apex Solution Technology is a rare example in Serbia of public-private partnership.

The city has given the consortium the right to charge for tickets that previously belonged to a municipal-owned company, GSP.

All investment, meanwhile, must be secured by the private company. Equipment costs alone are planned to exceed €12 million minus VAT, as seen from the consortium’s bidding documents.

Still, the deal was a highly lucrative one for the company, as the consortium gets the right to keep 8.53 per cent of the total amount that travellers pay for tickets.

Lanus founded Apex Solution Technology in March 2009, which was called Apex Marketing at the time. When taking on the BusPlus project, Apex had one employee and 500 euro in capital assets. Four days before the signing of the contract with the Directorate for Public Transport, Kentkart of Turkey purchased a 10 per cent stake in Apex from Lanus. There is no mention of the price of the stake in this agreement. At the time of the signing of the agreement with the city, Apex was registered as a consultancy. Only in August 2011, almost a year after the city awarded it the public transport fare collection job, did it change its activity to “service work in land transport”. Apex and Lanus are located at the same Belgrade address at 2, Knjeginje Zorke Street. Lanus was set up in 2007 by the company Roaming Electronics. The Business Registers Agency shows that Lanus is now its own majority owner. The rest of the stake in the company belongs to the company WP TIM Sistem, owned by the company Procescom. Procescom is owned by Vojislav Krstic, Miroslav Petrovic and Aleksandar Djordjevic. Lanus’s main activity is collecting mobile telephony credit payments.

The deal was signed for ten years after which the system reverts to the City of Belgrade.

If the city wants to take over the system before then, it has the right to buy it from consortium after four years. The price after four years is set at €5.6 million.

Collecting ticket fares currently generates around €4.6 million a month, so the consortium can expect to earn just under €400,000 a month from ticket sales.

Given the scale of the potential profits, many international and local companies aimed to compete for the job, but the conditions pushed most of them from the game.

A competition of such significance was also expected to be published prominently in local and international media, to attract the best possible candidates.

Surprisingly, it was published only in the local media, Serbia’s Official Gazette and on the city’s website.

Although City’s Secretariat of Traffic, the body that ran the bidding procedure, called it “international”, the several hundred pages of forms and templates that applicants for the job had to complete were only in the Serbian language and in the Cyrillic alphabet.

Applicants also had to appear in person to get hold of bidding documentation, as it was not available in electronic form.

This additionally deterred many international companies who were initially eager to apply.

At least five international companies sought an extension of the deadline, so that they could translate back and forth the numerous pages and prepare their proposals. But the Secretariat of Traffic rejected their requests, sticking to the deadline of 60 days.

Finally, three offers were submitted, of which only one was complete.

This was a consortium of three Istanbul-based companies from the Kentkart group, Lanus from Belgrade and led by Apex Solution Technology, also from Belgrade.

Lanus owns 90 per cent of Apex, while one of companies from Kentkart group owns the rest of Apex.

At the time the deal was signed with the government in September 2010, Apex, notably, had only one employee and €500 in equity.

One of the two failed bidders, Novatronic from Novi Sad, whose application consisted of company’s PR material, meanwhile, was later engaged by Apex as a supplier.

A ‘not entirely regular’ process:

Belgrade Mayor Mayer discussing the pros of implementing the new Bus Plus System. | Photo by Beoinfo

Belgrade’s public transport network has long been a financial burden for the city.

The old-fashioned style of collecting fares was especially unsatisfactory and according to Mayor Dragan Djilas, the company required a subsidy of €100 million a year, eating up 15 per cent of the city’s budget.

This was the background to the Directorate for Public Transport’s decision five years ago to go for a new ticketing system.

It began compiling documentation and three years later, on June 4, 2010, the Directorate got a green light from the mayor’s office to issue a bidding process for a “System of fare collection and fleet management in public transport”.

A private-public partnership did not require any municipal investment and would increase revenue, it was felt. 

However, when the call for the process was announced, Serbia did not yet had in place the Law on Public-Private Partnership, which was only adopted in November 2012, a year after the partnership was made.   

The city could have opted for the closest legal solution, based on the Law on Public Procurement, adopted in 2008.

Instead, the procedure was carried out on the basis of a “Decision on the public transportation of passengers in the territory of the City of Belgrade”, dating back in 2009.

The Directorate for Public Transport had no strict legal obligation to organise bidding in line with the Law on Public Procurement.

But Rade Djuric, from the watchdog organisation Transparency Serbia, says it would have been best.

“The bidding process was not entirely regular,” he said.

“The problem is that the [2009] Decision on public transport lacks the elements required to implement this complex process and doesn’t stipulate the conditions governing the bidding process.”

According to him, when the procurement of such a service is envisaged, the legal requirements need be closely specified, especially on how bidding call is defined, the deadlines for implementation, the criteria and the applicants. 

“These rules are all contained in the Law on Public Procurement. But in this case the [2009] Decision was used, which is an inadequate and insufficient legal document, of lesser legal power than the [procurement] Law.

“The entire documentation was thus compiled without legal grounds, so there was room for improvisation of rules,” he added.

Potential bidder inquired as to why Belgrade had not followed the Public Procurement Law. | Photo by Jelena Vasic

“When there is a public procurement process, we have a Commission for the Protection of Rights in Public Procurement Procedures, which oversees the regularity of the process and can annul a procurement,” he went on to explain.

“But in this case the irregularities were not even subject to criticism because there was no one to turn to. A small city committee, appointed by the Mayor was not authorised to annul the process.”

The Directorate for Public Transport has insisted that the decision on bidding was grounded on several laws, namely the Law of Communal Affairs and the Law on Road Traffic as well as the Statute of Belgrade. 

However, none of those acts, according to Djuric, specifies how bidding procedures should be conducted.

Asked why the bidding process was conducted in this manner, the Directorate answered that “there is no systemic law governing the procedure of a public bidding process for awarding jobs under this project.”

The Public Procurement Office has declined to comment on this case, noting that the bidding process was based on the city’s own decision, not on Public Procurement Law.

Djuric believes that the city authorities should either have awaited parliament’s adoption of the Law of Public-Private Partnership, or used the only legal act that prescribes such rules, namely the Public Procurement Law.

“Clearly established rules attract bidders and affect bids, which could have resulted in bigger profits for the city,” he says.

Knowledge of Cyrillic essential:

At least five international companies sought an extension of the deadline. | Photo by Jelena Vasic

The Law on Public Procurement envisages that in jobs worth over 150 million dinars (€1.3 million), which fits the case of BusPlus, the bidding documentation must be translated into a language used in international trade.

In the BusPlus case, the public invitation to submit bids was released in Serbian, in Cyrillic letters, and in English.

However, all the extra documentation and bidding requirements were only in Serbian and written in Cyrillic.

Equally surprisingly, applicants were obliged to submit their bids in Serbian and Cyrillic.

The deadline to submit applications, set at 60 days, was also extremely brief, some companies felt. 

While the application process was ongoing, ten companies from Serbia and other European countries asked the Directorate to clarify the documentation and extend the deadline to submit applications. 

These companies included Siemens, Asecco SEE, IXXI, Pay Up, ACS Solutions, Telefonija and MapSoft.

Foreign companies said the fact that the extensive documentation was only available in Serbian was their main problem.

They said two months was too brief for them first to translate the bidding requirements into English, so they could understand them, then formulate their bids and translate them back into Serbian.

The companies asked for the deadline to be extended for another 60 days, explaining that their bids would add to the competitiveness and quality of the overall selection process because of their experience in the field of public transport.

They also explained that it would be possible to make up for any lost time in the project implementation phase, so the City of Belgrade would not suffer because of this delay. 

The city’s committee in charge of bidding process gave a brief reply: “The proposal for the extension of the deadline has not been accepted,” it said.

“The Committee assessed that a 60-day deadline was sufficient for the submission of applications.

In line with the provisions of the Constitution of the Republic of Serbia, the official language is Serbian and Cyrillic is the official script, thus the bidding documentation was produced in Cyrillic,” the Committee explained, asked why they had insisted on those conditions. 

Some bidders requested documentation in electronic form. | Photo by Jelena Vasic

The bidding procedure documentation was not even available in Latin letters or in electronic form. A bidder had to personally show up at the Directorate and ask for a hard copy.

Interested companies also asked the Directorate why the bidding procedure was launched during the international summer holidays and why it wasn’t published in widely-read reputable newspapers such as the Herald Tribune and the Financial Times, this being the usual procedure.

The Directorate still maintains that the job was meant for an international market.

“The mere fact of publication in the republic’s Official Gazette and on the internet, which implies a flow of information at the international level, means everyone had access to the information,” it said. 

A representative of one of the European companies, who wished to remain anonymous and who complained about the deadline, told the investigative team that they only learnt about the bidding by accident.

His company then prepared a bid but decided against submission after receiving an “unclear answer” from Belgrade to its questions regarding the application procedure.

The same company also asked the Directorate for an extension of the deadline, which, as mentioned earlier, was rejected.

The same source is convinced that the City of Belgrade missed a key opportunity to attract more bids, making the bid more competitive.

Only one faultless bid:

Consortium, led by Apex Solution Technology, was the only company to submit an exemplary bid. | Photo by Jelena Vasic

Of the 51 companies from Serbia and other countries that initially expressed interest in the competition by purchasing the bidding documentation, by the opening of bids, the Committee established that only three remained.

These were Dialog d.o.o. from Belgrade, Novatronic d.o.o. from Novi Sad and Apex Solution Technology from Belgrade.

But two of the bids were flagrantly faulty. Dialog, which also sought an extension to the deadline, failed to submit a single form, but instead handed in just a few company documents.

Dialog’s owner and director, Milan Crvenkov, later said by phone that he did not remember details of the company’s participation in the bidding because his then employee, Milan Bjelanovic, had been in charge of it – but now lives in Canada and cannot be reached.

Mystery lingers also over Novatronic’s application, which consisted of an unsealed envelope containing only company promotional material. 

Novatronic’s majority owner and director, Novak Krstic, gave a statement saying that “a dispatch error” was made and that the bid ended up “at a different address”, in a response to queries from the investigative team.

“When we saw just how big a job it was and how much documentation there was, just before the bidding we quit,” he recalled.

“But if you purchase the bidding documentation then the proper thing to do is to offer what you can,” he added.

As a result, the Committee could not be said to have chosen the “best” offer, as only one came without obvious, glaring faults and omissions.

In spite of that Mayor Dragan Djilas told the weekly TV Show, Utisak nedelje, on February 5th, that the City had indeed picked the best offer.

Former rivals now united:

Novatronic is the exclusive supplier of static displays for Belgrade bus stops to Apex. | Photo by Jelena Vasic

About 18 months since the contract with the city authorities was signed, two former rivals in the bidding process, the Apex-led consortium and Novatronic, have since become business partners.

The latter now supplies static displays for Belgrade bus stops to Apex.

This has raised questions over the transparency of the original bidding process, and over whether some bidders were always in league with each other - but covered this up while the bidding process was ongoing.

Serbia’s State Commission for the protection of competition says that bidders for a tender, which then decide not to proceed, or which apply with bids that are not accepted, may later be offered sub-contracts or supply deals by the winner.

Novak Krstic, when asked whether he submitted only PR material by accident instead of a proper bid, denied having reached any prior deal with Apex.

“If you are implying that we had given some support to Lanus, or to Apex, we didn’t even know about any of them,” he said. “I only knew of the existence of Kentkart, the Turkish producer.”

Apex Solution Technology was contacted numerous times in the last four months to arrange an interview with its director, Veljko Vlahovic. 

But media inquiries were pointed to the New Media Team agency, which is responsible for presenting and promoting the BusPlus system in the media.

The agency replied that private companies have no obligation to respond to interview requests and that they do not want to comment.

This article has been jointly produced by the Centre for Investigative Journalism in Serbia, CINS and BIRN. Journalists Vladimir Kostic and Slobodan Georgijev also contributed to this article.