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Bos/Hrv/SrpShqip 08 Jun 15

Veselinovic-linked Consortium Bags 75m Dollar Contract in Secret Deal

A company controlled by the Serbian state has quietly given a multi-million-dollar road construction contract to a consortium linked to Zvonko Veselinovic that has little highway-building experience, BIRN can reveal.

Ivan Angelovski, Petrit Collaku, Kreshnik Gashi and Jelena Cosic BIRN Belgrade, Pristina

Zvonko Veselinovic (left). | Photo by: Marina Lopicic, Newsweek Serbia

A company controlled by the Serbian state has secretly handed a 75m dollar construction contract to a consortium that has little road-building experience and is linked to senior coalition government partners, including the Serbia Progressive Party (SNS).

In May last year, Serbian construction giant Energoprojekt Niskogradnja and its holding company quietly awarded the contract to build a section of the Chinese-funded Corridor 11 highway connecting Belgrade to Montenegro to a consortium of three firms – Nukleus, C&LC and Inkop – according to official documents leaked to the Balkan Investigative Reporting Network (BIRN).

Inkop is managed by the controversial Serbian businessman and former bridge-watcher from Mitrovica, Zvonko Veselinovic, who is currently on trial in Serbia on unrelated charges of aiding and inciting the abuse of office. There is also an arrest warrant for him in Kosovo related to a list of offences including aggravated murder and smuggling.

The company is officially owned by his sister Dusica Maksimovic.

Veselinovic has close links to the ruling SNS party, as well as the previous government, and has publically admitted on several occasions to organising the erection of barricades in northern Kosovo in 2011.

Nukleus owner Vladimir Jevtic was formerly an official with the Nova Srbija party – also part of the current coalition government.

The construction of this part of the Corridor 11 highway has been funded via a 301m USD loan from the Export-Import Bank of China and is being built by the Chinese firm Shandong International Economic and Technical Cooperation Group Ltd.

In May 2013, Shandong subcontracted around half the work to Niskogradnja, part of Energoprojekt Holding, in which the Serbian government holds a 33 per cent stake. In turn, Niskogradnja appointed the Nukleus, C&LC and Inkop consortium to take part in building the 24km stretch of highway from Lajkovac to Ljig.

BIRN also obtained a copy of the main construction contract between Serbia and China after it submitted a freedom of information request.

No public tender required

Shandong was appointed to construct the highway without public tender because the deal was the result of an inter-state agreement between Serbia and China, signed in 2009 by the Serbian government then led by the now opposition Democratic Party. Inter-state agreements are not subject to usual, domestic public procurement regulations and procedures.

As a result, Shandong was able to subcontract to Niskogradnja, also without public oversight.

In turn, Niskogradnja could sub-contract work to the Serbian consortium in secret without following usual public tender procedures.

The leaked documents reveal the contract is worth 75m USD and amounts to, road worker unions say, the state budget for one year’s maintenance of Serbia’s entire road network.

While awarding the contract to the consortium without holding a public tender does not breach Serbian regulations in itself, it has certainly raised questions as to the probity of the deal given that only one of the three companies in the consortium has previous experience in these kind of works. Neither Nukleus, the leading company in the consortium, nor Inkop have any substantial experience in highway building.

Transparency campaigners and opposition politicians claim these types of agreements open the door to corrupt practices precisely because of the lack of oversight of public spending on large infrastructure projects.

The decision to award the contract to a consortium that includes a company managed by Veselinovic is highly questionable, says former Prime Minister Zoran Zivkovic.

“Zvonko Veselinovic is a darling of the current regime. Not only the current but the previous [regime] as well,” he said.  

“Every intergovernmental agreement creates the perfect conditions for corruption because they derogate all rules of the open market.”

Zivkovic goes as far as to allege it is an “open secret” that foreign companies engaged to construct major infrastructure projects are “forced to employ select sub-contractors”.

“This results in overpriced construction which often lasts [so long the projects are of] biblical proportions…the same thing is happening now, when foreign companies are forced to work with people close to the authorities, and which were sometimes used for dirty jobs and raising barricades,” he claimed.

Shandong declined to comment on the way the contract was granted to the consortium, or on the group’s political ties to ruling parties.

Zvonko Veselinovic agreed to meet BIRN but didn't want to be quoted because, he says, the ongoing trial in Serbia on charges of aiding and inciting the abuse of office – which is not related to the Corridor 11 contract - prohibit him from commenting.

Little construction experience

Corridor 11. | Photo: www.koridorisrbije.rs

Inkop, managed by Veselinovic according to a 2014 statement he himself gave to a Belgrade court, was officially listed as specialising in ‘road freight transport’. The company changed this to ‘building roads and highways’ – a full four months after it was awarded the Corridor 11 contract as part of the consortium.

His sister acquired Inkop for free from one Katarina Milanovic from Lazarevac on February 26, 2013.

Nukleus, owned by former Nova Srbija party official Jevtic, registered as specialising in ‘building roads and highways’ in September 2014, also four months after the consortium won the Corridor 11 deal. Previously, it was listed as a company specialising in ‘wholesale trade’.

Shandong asked for approval of Niskogradnja’s decision to give the deal to the consortium from Koridori Srbije – the Serbian state firm responsible for the Serbian road network. Koridori Srbije approved Shandong’s request on the grounds that one of the consortium companies, C&LC, was officially listed as specialising in road construction.

In fact, C&LC previously listed its official main business activity as ‘freight transport’, only officially registering as road builders in October 2013 – seven months before signing the 75m-dollar contract with Niskogradnja.

According to their website, the only previous highway-building experience C&LC has is limited to the Subotica-Belgrade road built in 2010 and a section of the Pirot-Dimitrovgrad highway built in 2012.

C&LC director Mirko Jevtovic declined to answer BIRN's calls for comment on the exact nature of the highway contracts listed by his company as previous experience in road building.

The specification of works outlined in the contract state the consortium will be responsible for ‘preliminary works, earthworks, drainage, slope protection, sub-base layers, structure, bridges and overpasses (crossings, intersections) and [complying with] water regulations.”

Niskogradnja is, however, listed as having overall responsibility for engineering.

Dmitar Djurovic, head of the state road operator Koridori Srbije that approved Shandong’s request to endorse Niskogradnja’s decision to subcontract to the Nukleus/Inkop/C&LC consortium, told BIRN there was a limited list of criteria to consider when deciding whether to approve a sub-contractor.  

“For us it's important that at least one of the companies is registered for road-building,” he said. “We do not need to know who owns which company. By law, we are only obliged to check if the subcontractors fulfil all the requirements.”

Jevtic’s political connections

Vladimir Jevtic, the owner of Nukleus, previously served until 2013 as a member of the municipal council in Lazarevac after being elected to office as an official Nova Srbija party candidate.

The construction contract between the Serbian government and the Chinese was signed a few months later by Nova Srbija party leader and then minister of construction Velimir Ilic.

Shortly before signing this contract, Jevtic bought 28 parcels of land near the site of the proposed Corridor 11 highway route, from which he is excavating road construction material.

The purchase enabled him to cut costs and put him in a favourable position in terms of netting the deal.

Jetvic strongly denies benefiting from his political connections or advance, insider information about the highway contract. He insists he bought the site as a result of his “business nous”.

“It was my independent assessment that the land is going to be needed for constructing the highway,” he told BIRN. “That’s how we could give the best offer [to Niskogradnja], because we have this gravel pit and we could offer a low price.”

Jetvic told BIRN that Inkop was brought into the consortium because “Zvonko is my buddy”.

In response to concerns that his company has no experience in highway-construction, Jevtic said: “You should come to the construction site. We’re working day and night and the works are progressing as agreed. We’re doing an excellent job here.”

In answer to BIRN’s request for comment, the office of Nova Srbija party member and minister without portfolio Velimir Ilic insists that while he was minister for construction in the previous government, he did not provide “insider information” to Jevtic on the proposed highway construction.

Ilic’s spokesperson said in a written statement: “Vladimir Jevtic is a former member of Nova Srbija and Minister Ilic doesn't maintain any contact with the gentleman in question.”

The chair of Niskogradnja’s holding company is Dragan Veljic, an official from the governing SNS party who is also listed as legal director at the state-owned electricity company EPS.

Given the award of the contract remains shrouded in secrecy as it was an inter-governmental agreement, it is not clear whether other companies submitted, or were invited to submit, sub-contractor bids to Niskogradnja.

Niskogradnja declined BIRN’s request for an interview or comment on how the contract was awarded, the consortium companies’ links to political parties or its own links to the SNS.

Charges against Veselinovic

Zvonko Veselinovic

Photo: Kosovo police

Veselinovic has been the subject of criminal charges on many occasions in both Serbia and Kosovo.

He is currently on trial in the Serbian town of Pirot for aiding and inciting the abuse of office in the supply of allegedly illegally excavated gravel worth 340.000 USD to the Austrian construction firm contracted to build the Corridor 10 highway - Alpine Bau.

Veselinovic is accused of providing money, trucks and equipment to another company, Mak 037 owned by one of his business associates, Goran Makragic, that were allegedly used in 2011 to quarry and transport unlawfully excavated gravel, according to the indictment obtained by BIRN.

The gravel was used in the construction of Corridor 10 – the European highway connecting Nis to the Bulgarian border – and was allegedly illegally excavated by Mak 037.

Inkop also rented trucks to Mak 037 to transport materials but is not suspected of any wrongdoing.

Inkop director Milan Miletic is listed only as a witness in the case and as one of the people whose assets were searched by police looking for evidence against the accused. Veselinovic denies any wrongdoing.

Mak 037 had no previous experience in road construction, was not registered as being active in quarrying or highway building and is accused of failing to obtain government permits necessary to excavate the gravel.

Makragic is also standing trial in Pirot. He is charged with abuse of office but denies the charges.

In a separate case, Veselinovic was ordered to appear before the Special Court in Belgrade in 2012 in relation to allegations raised by Serbia’s special prosecutor that he received stolen trucks that had originally been leased to the Euro-kop company by Hypo Alpe Adria Leasing.

Euro-kop is based in Raska and is owned by Veselinovic associate Dragan curcic.

In 2010, curcic stopped making payments for 32 vehicles leased from Hypo and the contract was terminated. However, instead of returning the trucks prosecutors claimed curcic owed Veselinovic money and decided to hand them over to him as a means of repaying the debt.

Veselinovic is alleged to have received the trucks in northern Kosovo and used them for construction work, including to transport material to the Pristina-Tirana highway. While Veselinovic was later cleared of all charges curcic was found guilty of abuse of office and jailed for two years.

BIRN understands that the prosecutor intends to appeal Veselinovic’s not guilty verdict as soon as the judge issues a written justification for his acquittal.

There is also an active arrest warrant for Veselinovic in Kosovo, according to the
Mitrovica prosecutor.

“The case of Zvonko Veselinovic is under the exclusive competence of EULEX prosecutors. That arrest warrant is still in power,” Shyqeri Syla, Mitrovica chief prosecutor, told BIRN.

The prosecution office in Mitrovica said EULEX is investigating whether Veselinovic and his brother Zarko had anything to do with a series of criminal offences ranging from endangering United Nations personnel, to smuggling of goods to aggravated murder.

Despite the arrest warrant, Zvonko Veselinovic is often in Kosovo, freely crossing the border posts controlled by EULEX and by Serbian and Kosovo police.

Veselinovic, political ties

Both opposition politicians and two high-ranking SNS officials, who wish to remain anonymous, told BIRN that Zvonko Veselinovic is closely connected to their party.

The close links between Veselinovic and the SNS were confirmed, according to opposition politicians in the municipality of Mionica, when in December 2014 Inkop carried out construction works that they claim helped the SNS local election campaign.

“He was in Mionica a few times during the campaign. With some of his guys and SUV's. He was here on the day of the elections,” Milan Gavrilovic, head of local branch of Democratic Party, claims.

“Just before the elections, Inkop trucks backfilled some roads in agreement with the SNS which ruled the municipality at that time. They used that in the campaign. Their activists in the field agreed where to backfill roads and after them would come Inkop trucks.”

A civil servant in Mionica, who spoke on condition of anonymity, also confirmed that Inkop trucks were working on municipality roads during the campaign.

SNS politician Boban Jakovljevic, who was head of the Mionica municipality during campaign, says he has no knowledge that Inkop trucks were in Mionica.

“People will say anything. Don't take any notice of them,” Jakovljevic told BIRN.

The SNS won over 60 per cent of the votes in the local elections.

Vice-president of the SNS and the Serbian Government, Zorana Mihajlovic, told BIRN that she doesn't know if Veselinovic is in any way connected to her party.

“Considering Zvonko Veselinovic, I really don't know who he is. I don’t know if he has any connection to the SNS, whether he's a member or not. The SNS is an open party and anyone has the right to become a member,” she said.

Regardless, the Veselinovic family has certainly received high-level SNS support.

Veselinovic’s brother Zarko, who was involved in the family petrol business at the time, was arrested on charges of attempted murder and carrying an illegal weapon in July 2013 and placed in EULEX custody.  

A few months later, the Serbian government – also led by members of the current ruling coalition – arranged for his release on bail, along with three Serbian officials who had been arrested in Kosovo on unrelated charges, after issuing state guarantees they would not abscond.

The state guarantee was signed by Aleksandar Vucic, current SNS party president and then deputy prime minister.

Zarko was released from EULEX custody in February 2014 and placed under house arrest for another six months. He was later sentenced to 12 months in prison after the EULEX judge dropped the attempted murder accusation, finding him guilty instead of obstructing a special police investigation into fuel smuggling in northern Kosovo.

Zarko was not sent to prison after a judge ruled he had already served his entire sentence while in EULEX custody and during the period he was held under house arrest.

The Veselinovic brothers are routinely mentioned in public as not only being close to the current and previous Serbian governments, but as also being capable of ordering the erection and removal of barricades and inciting unrest in northern Kosovo.

However, after the violence of July 2011 in Jarinje, a border crossing between Serbia and north Kosovo, the international community increased the pressure on the Serbian government to arrest Zvonko Veselinovic. As a result, the Serbian government then led by the Democratic Party distanced themselves from Veselinovic

Aleksandar Vucic, then vice president of the SNS, publicly supported Veselinovic by stating in October 2011 that if he was arrested Borislav Stefanovic, then the Democratic Party’s main negotiator with Kosovo, and Goran Bogdanovic, then minister for Kosovo, should also be arrested.

According to Vucic, criminalising Veselinovic amounted to criminalising all Serbs from Kosovo. Belgrade media outlets quoted Vucic as stating on October 8, 2011 that Veselinovic was not only being chased by the international community but was also a target of domestic security structures and Stefanovic.

“If Serbian authorities try to arrest Veselinovic, they'll have a serious problem, because I have got certain information that we'll communicate to the public. If they arrest Veselinovic, Borislav Stefanovic and Goran Bogdanovic will also have to go to jail,” Vucic said at the time.

Transparency concerns

Corridor 11

Corridor 11 is one of Serbia’s biggest infrastructure projects, eventually connecting Belgrade to the Adriatic port of Bar, Montenegro.

Although not officially an EU-designated international route, the highway has been given the grand title reflecting its importance to Belgrade.

The scheme is split into two sections with loans from China and Azerbaijan, agreed as part of separate inter-state agreements.

The Chinese section is funded via a 301m USD loan from the Export – Import Bank of China. Under the terms of the intergovernmental agreement underpinning the loan, China’s Shandong International Economic and Technical Cooperation Group Ltd is carrying out the construction work.

The 12.5 kilometre section from Ub to Lajkovac was built by a consortium of Serbian companies Putevi Uzice and Planum at a cost of around 6.4m USD per kilometre. The section was financed directly from Serbian budget.

The 50.2km sections between Obrenovac and Ub and Lajkovac and Ljig are being built by Shandong with domestic sub-contractors. These sections are being financed by the Chinese loan – referred to as the ‘Chinese credit’ at a cost of around 6.2m USD per kilometre. .
The final 40.4km section from Ljig to Preljina is being financed via a loan from the Republic of Azerbaijan with the main contractor being Azvirt, a construction company from Azerbaijan. It's the most expensive part of Corridor 11, costing around 8.4m USD per kilometre.

Government representatives and the NGO sector have taken opposite views on the probity and value of contracts made via inter-state agreements.

Campaign group Transparency Serbia strongly criticised subcontracting the deal to the consortium without public scrutiny.

“This situation with Corridor 11 is just another example of why it’s important to apply domestic laws on public procurement that establish strict conditions for choosing sub-contractors. This raises some serious questions,” said Nemanja Nenadic, the group’s director.

However, SNS Vice-President and Minister for Construction, Transport and Infrastructure Zorana Mihajlovic insists that vetting subcontractors is the responsibility of the state road company Koridori Srbije and stresses the purpose of inter-state agreements is simply to find the best deal possible.

“Those questions are not for my ministry”, she said. “The ministry has no responsibility in the choice of sub-contractors. Koridori Srbije have the obligation to control that”.

“Corridor 11 is not the only example of inter-state agreements. We have Corridor 10 as well. It is simple – where we could find the most favourable option, we did that [through inter-state agreement]. Just bear in mind that Corridor 11 was partly agreed by previous governments,” Mihajlovic added.

Velimir Ilic, Mihajlovic's predecessor, underlined that the whole government decides on whether contracts will be done through inter-state agreements.

His office issued a statement saying: “Such contracts are in the best interest of Serbia and its citizens, having in mind the favourable conditions offered by the Chinese Export-Import bank for building highways in Serbia. Not only is such an agreement between two states not susceptible to corruption, it has a very positive effect on bilateral relations between Serbia and China.”

Other groups remain concerned that the lack of public oversight allows firms with little experience to win lucrative contracts.

Sonja Vukanovic, leader of the Union of Road Workers, said her members were angered by the fact that companies with no experience were winning contracts ahead of long-established firms.

She pointed out that this one contract was the equivalent of the entire annual road maintenance budget for Serbia, which would be divided between 24 road companies with 8,000 employees.

“Those 8000 people have to live and survive the whole year with that kind of money. In this one job, that money has been given to companies with little or no employees that only recently changed their main activity to road building.

“Something's not right there.”

Click to visit BIRN's online libray and view all documents related to this investigation.

This investigation is produced by BIRN as a part of Paper Trail to Better Governance project.

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