In the crucial year of saving Prva banka from collapse, the bank account of the Regional Water Supply Company with that bank was used for no purpose, and payments for the construction of the water supply system were delayed in 2009 due to insolvency and the state-owned company fell into contractual  arrears towards certain contractors.

At the same time, the controversial method of repaying the first installment of the state loan of 11 million euros was accompanied by the signing of two protocols on payments from the Treasury for the construction of the water supply system, and everything was carried out in a few days, reveals part of the research of the Action for Social Justice (ASJ).

As the financial crisis raged in 2009, there were huge interests behind the scenes to save the bank majority-owned by Aco Đukanović, brother of longtime Montenegrin Prime Minister and President Milo Đukanović, who himself had a stake in it. The repayment of 44 million of the money borrowed from the state during that year, especially the first installment of 11 million, has intrigued the Montenegrin public for years, but the role of the Regional Water Supply Company, one of the two key players for the rescue of the bank (along with the state-owned Elektroprivreda), is insufficiently illuminated.

In 2008, the Regional Water Supply Company started a large project of building a water supply system for the Montenegrin coast and that year it concluded a number of contracts with contractors (mostly companies from the region). The original plan was for the water supply to be built by mid-2009. The construction was financed partly from international loans, and partly from the Government and the company itself (to a lesser extent).

In 2008, for financing from the Government, the Regional Water Supply Company opened the so-called “domestic participation” account in Crnogorska komercijalna banka, to which payments are made from the State Treasury.  However, at the end of that year, and at a time when a state loan of 44 million euros was being negotiated to help Prva Banka, Regional Water Supply Company opened a new dedicated account in Đukanović's bank.

In the last two months of 2008, about 5.1 million were paid into that account in Prva Banka, and less than 3.4 million were spent, so at the beginning of 2009 the balance on it was 3.3 million.

With the capital budget for 2009, the Government allocated slightly more than 22.5 million euros to the Directorate of Public Works for the construction of the water supply system. The procedure is such that the money upon the orders of the Directorate from the State Treasury, which is managed by the Ministry of Finance, should be transferred to the bank account of the Regional Water Supply Company during the year in order to pay the companies that built it.

In March 2009, a payment of 11 million from the Treasury was shown in this account in the Prva Banka, in June another 6 million, while for the period from January to mid-September, 8.2 million was spent.

The balance on this special account in mid-March 2009 was 12.2 million, in mid-June of that year 15.4 million, in mid-September 15.5 million euros. However, in August, the then director of the Regional Water Supply Company “sharpened a pencil fig” and wrote to the Minister of Finance, Igor Lukšić, about serious problems with payments from the Prva Banka.

“Out of the EUR 22,543,641 planned by the Budget, as of August 7, 2009, EUR 17 million has been transferred from the Treasury account to our domestic participation account at the payer's bank. Of our issued payment orders, the balance of outstanding orders to contractors is very high and amounts to 2,084,000 euros. It should be borne in mind that the situation would be even more difficult if we did not direct a significant part of payments from an account that is not with the payer's bank,” he wrote to Minister Lukšić on August 10.

“In recent months, the problem of significant delays in the dynamics of the execution of our orders has begun to arise. The problem has escalated to the level that we have already entered into a contractual delay with three contractors (Strabag, Jedinstvo and Gintaš) in terms of payment… Contractors also have the right to terminate the contract in the event that they do not receive the amount payable under the interim payment. There is a need for urgent and full transferability of deposits in the domestic participation account,” the director said in the letter.

There were other problems with Strabag in the implementation of the contract and at the end of November 2009. the Regional Water Supply Company decided to unilaterally terminate the contract with them, and then on December 15, it concluded a deposit agreement with Prva banka in the amount of eight million for one month. The deposit was shown by the bank as an outflow from a dedicated account. The contract was then annexed several times, and in the following 2010, the Prva Banka presented the return of the deposit in several tranches.

In 2009, a total outflow of money of 23 million was shown from the dedicated account for the construction of the water supply system in Prva banka, but 8 million was related to this deposit.

Former Minister of Finance Igor Lukšić told ASJ that he was not aware that the Regional Water Supply Company had deposited a deposit from a dedicated account for construction and assessed that it was possible that the management's assessment was to generate interest income from the money, which will not be spent.

Responding to the statement that this was an obvious abuse, because the dedicated account could only be used for the project of building a water supply system, Lukšić shrugged his shoulders and said that the Ministry of Finance did not have control over that account, because the account was managed by a company.

Lukšić pointed out that Prva banka had a serious problem with liquidity in the first part of 2009, which was solved only by the recapitalization of Elektroprivreda at the end of that year, but that he did not believe that the problem of payment was the main reason for the termination of the contract with Strabag.

The construction of the water supply system for the Montenegrin coast was officially completed in mid-2010, i.e. a year later than originally planned. In the period 2008 – 2012, over 30 million euros were paid out from a dedicated account in Prva banka (not including the outflow for a deposit of eight million). In the reports to the Ministry of Finance on domestic participation, the Regional Water Supply Company for the period 2008-2010 showed payments of 54.7 million. In 2010, it took out seven million loans from Erste Bank, and the Investment and Development Fund paid two million (a separate part of the research).

The price of Strabag's termination of the contract came to be paid a decade later, when Regional Water Supply Company lost a multimillion-dollar international arbitration. Arbitrator Časlav Pejović, who singled out his opinion and believed that the Regional Water Supply Company should not have lost the dispute, told the ASJ that there was fault on both sides. “But that's what happens when companies (Strabag) are powerful, and states (Montenegro) are weak,” he said.

Introduction to the book worthy “gymnastics discipline” named “1 million equals 11 million”

The discovery of the Action for Social Justice shows that in just a few days, the “operation” of repaying the first installment of the state loan of 11 million from the Prva Banka was carried out, which has had a note of controversy in the public for years, and that it was accompanied by the signing of two protocols on the disbursement of money from the Treasury for the project of building a water supply system.

According to the loan support agreement, Prva Banka was obliged to repay the 44 million borrowed to the state by March 17, 2009, but 15 days before that deadline it could request an extension of repayment. Five days earlier, on March 12, the Ministry of Finance signed a protocol with the Regional Water Supply Company on the withdrawal and dynamics of disbursement of funds from the Treasury account.

“The funds provided by the Government for 2009 as part of the domestic participation shall be disbursed from the main account of the Treasury to the account of the domestic participation project opened by the public company with the Prva Banka according to the dynamics established by this Protocol,” it is stated in the document, and further specifies that the first installment will be paid by March 15 (Sunday) in the amount of 11 million.

A day later, i.e. on March 13 (Friday), the protocol of the same content was signed by the Regional Water Supply Company with the Directorate of Public Works, and on that last working day of the week, the Ministry of Finance had “their hands full”.

While Minister of Finance Lukšić wrote to the Governor of the Central Bank, Ljubiša Krgović, that the day before Prva Banka had addressed a request for an extension of the deadline for repayment of the loan and that it intends to repay 11 million, at the same time asking for his opinion on the bank's liquidity and position on the extension of the contract, the operation of “swiping” one million 11 times began in the Treasury.

Lukšić says that he cannot remember how the dynamics of payments to the Regional Water Supply Company from the Treasury was determined, which coincided with the first installment of the Prva Banka, emphasizing that the execution of the Budget is a matter of a technical nature and that the minister does not deal with operational matters.

Explaining the payment of the first installment, Lukšić said that the Directorate of Public Works instructed the Treasury to transfer one million to the account of the Regional Water Supply Company in Prva Banka. After that, Prva Banka immediately booked that million as a demand deposit of the Regional Water Supply Company, and then used that million (which is a deposit of a state-owned company) to return the million to the Treasury as part of its loan installment. The Treasury then transferred the same million again to the bank account of the Regional Water Supply Company… The action was repeated 11 times.

When asked if this means that one million was really paid, and not 11 million, Lukšić said that there were 11 accounting operations and that 11 million were paid, i.e. that the state paid 11 million of its obligations, and that the cash flows are another matter.

When asked why Prva banka did not pay its liabilities, if 11 million was transferred to it, and not 1 million, Lukšić replied that the bank was not liquid at that time.

Former Central Bank Governor Ljubiša Krgović has been calling this way of repaying the loan installment “from state money” for years. “The bank did not have its own money and repaid the loan from the state. Without state money, the bank would fail. At that time, it was not the bank that was saved, but the shares of Đukanovićs,” Krgović said in an interview with ASJ.

In March 2009, Krgović wrote to Lukšić that the bank did not have the money, stating that “there is no need to extend the contract with Prva Banka” and advocating for a solution for the state to take over the bank.

“The situation in the bank has deteriorated significantly compared to three months ago. The Bank does not comply with the measures ordered by the Central Bank. Liquidity is deteriorating day by day (half a million a day), now there are 23 million issued and unexecuted orders”, is part of the quote from Krgović's letter to Lukšić from March 2009, which is in the possession of the Action for Social Justice.

Asked whether Prva banka returned 11 million or 1 million on March 13, that is, whether 10 million was fictitious on that day, and only 1 million was real, Krgović said that “a good auditor can determine that” and reiterated that it was not the bank that was saved that year, but the shareholders, i.e. the Đukanovićs.

Who was the “brain” behind the devising of the book worthy “gymnastics discipline” about one million worthy of 11 million has not been revealed to this day.

Lukšić says that at that time it was a “lesser evil” to save Prva Banka, than to jeopardize the financial system of the country, which in 2009 faced a recession, a drop in tax revenues and was without mechanisms for reacting. “The Prva Banka is built unrealistically. It was an artificial growth. The Central Bank is to blame for allowing this,” he said, estimating that the Minister of Finance was the last in a series to whom the account was supposed to come, and that is exactly what happened.

However, Krgović, on the other hand, cites his earlier data that Prva banka refused to implement the measures of the Central Bank, that they prevented access to control, that they did not submit data, that the bank manipulated the information system…

As an illustrative example, he points out that the Central Bank had software that displayed payments from all banks worth over ten thousand euros. “They turn off the system when they get through larger payments and turn it on when they finish it,” Krgović explains, explaining the extent to which the bank was out of control.

Krgović: The situation in the bank has not changed significantly

The former governor believes that from that time until today, the situation in Prva banka has not changed significantly and that it should have been closed a long time ago, and that it was saved only because of the shareholders.

Krgović lost his governorship in mid-2010 with a change in the law, and Lukšić became prime minister at the end of that year, a position he held for about two years.

Lukšić was asked to confirm the “evil tongues” or the truthful nature of the claims that he became prime minister because of his merits for the rescue of the Prva Banka and the annex to the Aluminum Plant and that he enjoyed the full trust of Milo Đukanović, until the moment when Lukšić asked Đukanović to allow him to take over a Democratic Party of Socialists (DPS) and then went to Washington, where he met with the director of the CIA, and upon his return worked on strengthening his influence. Then Đukanović changed his opinion, decided to go to the early elections and very soon Lukšić was sidelined.

“Some part of it is true,” Lukšić replied, adding that his position as prime minister was discussed before 2010, but that Đukanović was the first to mention to him that he should first become prime minister, and then take over the party at some point. “It was not immediately acceptable to me because of my obligations, but I subsequently told him that I was ready to take over the party if he still stood by it,” said Lukšić and confirmed that he met in Washington with the director of the CIA, but claims that the topic was the unblocking of Montenegro's path to NATO.

“Due to the opening of negotiations with the European Union, we have assessed that the timing is right for early elections in the autumn of 2012. But, already in 2013, I became aware that the atmosphere was being prepared for me to be removed. It was a dilemma to stay or not, and later I announced that I would retire before the expiry of the mandate of the government, where I was the minister of foreign affairs,” he said.

Asked if he was in contact with Đukanović today, he said that they rarely drink coffee. “Maybe we meet once in half a year,” he specifies and states that he believes that it is a mistake that Đukanović accepted the position of honorary president of DPS, but should have completely withdrawn.

To the assessment that the option in which the DPS would be in power again would undoubtedly mean Đukanović's return to office, he replied: “I cannot claim that it would not happen, and I hope it will not.”

What did Krgović say in the Prosecutor's Office

The Supreme State Prosecutor's Office and the Special State Prosecutor's Office ignored ASJ's inquiries, sent electronically, whether the method of repaying the state loan from Prva banka had been investigated in previous years or was being investigated.

Former minister Lukšić says that he has never been questioned about this issue, stating that he thinks that an expert witness was hired before, who did not find anything disputable, while information from the ASJ says that Krgović gave statements to the prosecutor's office in 2014, based on earlier information from the Central Bank about irregularities in the operations of the Prva Banka.

At that time, he said, among other things, that the Ministry of Finance and the Government provided liquidity to Prva banka to repay the loan, that the conditions were met for the state to take over the bank and cancel the shares of the shareholders, but that this was not done and they were provided with illegal property gain.

“The Government paid the funds to the beneficiaries of the Budget – the Regional Water Supply Company, the Pension and Disability Insurance Fund, the Railways – to the account in the Prva Banka, and then these funds were used to repay the loan,” Krgović said at the time, according to the minutes on the provision of the necessary information.

Action for Social Justice

Ines Mrdovic