VZCZCXRO8342
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHPOD #0105/01 1141320
ZNR UUUUU ZZH
P 241320Z APR 09
FM AMEMBASSY PODGORICA
TO RUEHC/SECSTATE WASHDC PRIORITY 1287
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHPOD/AMEMBASSY PODGORICA 1376

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