Saving to pay for money pits?

As a rule, public enterprises’ losses are excused by declining economic activity or the crisis in the country, but in fact constitute an admission by state agencies that public enterprises, founded by the Republic, are unable to cover their own liabilities from their own business.

The issue is best illustrated by a decision of the Serbian parliament to add the Srbijagas gas utility’s debt of roughly EUR 200 million to the national debt. The same happened in mid-2013, when the JP Putevi Srbije road utility was due to pay back what they owed to road companies. Around EUR 11 million was merged with the public debt and is now being paid by all Serbian citizens. These debts have been accumulated under multiple Serbian cabinets.

Branko Drcelic: Only dedicated spending of government guarantee-covered funds

Public Debt Administration director Branko Drcelic said in a talk with Insider.net that non-dedicated spending by public enterprises does not migrate into the public debt because there is oversight of how guaranteed funds are spent.

“Every public enterprise has its own management. That management has a business plan, passed by the government,  and they have to follow it. Whether the management follows the business plan fully is a matter that belongs to certain other state agencies and they will, of course, establish the facts if non-dedicated spending of funds is believed to have happened. There is the appropriate financial and criminal culpability for things like that. The Ministry of Finance knows clearly that, what Republic of Serbia guarantees have been provided for, those funds are used dedicatedly and the citizens don’t need to worry about that,” Drcelic said.

Petrovic: State pays equivalent to annual savings from salary and pension cuts footing Srbijagas bill

Fiscal Council chairman Pavle Petrovic told Insider.net that the debts of public enterprises and companies under restructuring have been spilling over to the state for years.

“One big example is Srbijagas and it illustrates the broader issue. It has accumulated a billion, now maybe even a billion and two hundred (thousand) euros in debt that has been shifted to the citizens. Now the state is paying EUR 200 million toward those old debts each year. That’s about how much the  pension and salary cuts amount to annually.”

Asked whether it was responsible toward the citizens for the state to take on that debt, without anyone really being held accountable for it being that large, Petrovic says businesses could not incur debt without a cabinet decision.

“They had that in common, but what it was like was - okay, let’s just push the problem back a year or two, so the debt is assumed, you give the guarantee, and there’s no money there.“

Petrovic says plans were made to prevent the outfits from generating further losses, an issue that is being monitored by the IMF as well.

State as public enterprises’ co-signer

Just like people taking out a loan are required by banks to provide guarantees for the money they are getting -- a mortgage or a co-signer who can pay back the loan instead of them, so the state guarantees on behalf of public enterprises that the banks’ money will be repaid.

For years, the state has used the budget to back the business moves of public enterprises, but they mostly operate irresponsibly.

According to the official figures we asked the Ministry of Finance for, the state currently owes EUR 1.7 billion in guarantees provided to public enterprises.

When the Democratic Party’s Mirko Cvetkovic spearheaded the government, over the four years of his term, the total sum of guarantees grew by one billion euros – from 860 million late in 2008 to 1.87 billion in 2012. Next year, 2013, the volume of guarantees rose by some EUR 60 million, hitting a record 1.93 billion. Ivica Dacic was then at the head of the cabinet, formed by the Socialist Party of Serbia and Serbian Progressive Party. Since 2013, the amount of guarantees provided by the state to public enterprises has been falling off gradually, but still accounts for one fifth of Serbia’s annual budget today.

All of those funds are reserved in the budget and become part of the national debt, and the citizens start to pay off the liabilities of public enterprises the moment those enterprises are no longer able to cover them themselves.

According to the records of the Finance Ministry, the state has provided the heftiest guarantees  to the biggest “money pits” to date – JP Srbijagas, JP Putevi Srbije and Serbian Railways.

The Finance Ministry’s response to Insider reads that “the 2015 amendments to the Law on the public debt state that guarantees can only be issued for capital investments, not for financing liquidity, as before.”

That means that the state can now only be public enterprises’ guarantor for investments, not for covering losses in those businesses’ planned budgets.

However, while the guarantees given to public enterprises shrink, the overall national debt is rising, among other reasons due to the inclusion of liabilities arising as part of day-to-day business, not only through loans. One example is the EUR 200 million JP Srbijagas owes NIS to pay for gas procurement, incurred from 2011 to 2013.