Operation Clean Shovel

A series of high profile arrests rattled Slovenia yesterday. In what appears to be the an almost year-long investigation, the anti-crime unit and a specialized team of prosecutors gathered enough evidence to detain Ivan Zidar, Dušan Črnigoj and Hilda Tovšak, CEOs of construction companies SCT, Primorje and Vegrad respectively.

Ivan Zidar (SCT), Dušan Črnigoj (Primorje) and Hilda Tovšak (Vegrad)

To cover the intricacies of the Slovenian construction sector would require a whole series of posts, but suffice it to say that the past 15 years have been good for business in the sector. As the good doctor would have us know, real-estate prices in Slovenia have reached utterly pocket-crippling prices, but the demand outpaces supply by far, enabling contruction companies to practically sell whole blocks of appartments before even construction begins.

But this is just end-user market. The real money is in the infrastructure, namely in the Slovenian highway system, which was at the time it was commenced a) 30 years behind schedule and b) naivelly under-priced. This had two immediate effects: Slovenian construction companies, suffering the loss of the Yugoslav market and finding it increasingly hard to do business internationally (it is said that SCT built bunkers for Saddam Hussein in Iraq), were suddenly looking at a very bright future at home but at the same time the project kept getting more and more expensive until it became clear that someone wasn’t looking at the right column when adding up the total costs of Slovene highways.

There was more than enough work for entire Slovenian construction sector (and an occasional foreign contractor as well), but the most contracts by far went to Ivan Zidar’s SCT – some commentators estimate that his company earned €3,5 billion just by building highways.

Now, anyone who ever build a house (or even just redid the bathroom) knows that in the end it is always more expensive than initially thought, because “we had to change them pipes that were leaking all over the place” and that once you go with the project you don’t really change the contractor, because finding a new one again costs time and money while you can’t use the loo. And so Slovene construction companies followed the culture of underpricing and then, when a particular section of the highway was half-built, went “Errr… you know, about the price….”. And the government coughed up another tonne of money, because a) it didn’t want to come off as naive, b) this way it kept employment and GDP up and c) the deal was probably political anyway.

And this is the gist of it: it is more or less a matter of public record that companies, supposedly competing for winning contracts, formed a sort of a trust, fixing their bids and pre-aranging who would win which contract, hiring the remaining companied as subcontractors afterwards. Just that noone was able to prove it, because…. well… the government didn’t really feel like it, mostly due to the a,b,c cited above, plus the fact that some wealth was probably spread the government way as well (I won’t use the word bribe, but feel free to think it). But even if there was no direct bribery involved, the fact remains that people from construction companies would often find themselves in government or para-government posts (such as board of the Slovene Highway Company – DARS) or vice-versa. Nearly everybody is connected to nearly everybody else and in this game nobody tops Ivan Zidar, who is probably the single most-connected person in this coutnry. His connections span from old communist aparatchiks to the highest levels of the Catholic Church (SCT being its main contractor as well).

Yesterday’s arrests strike at the very heart of Slovene economy, especially since last year’s high GDP growth was riding solely on a government-funded construction boom. But rattling the economy cage, arrests are also political. If one had to name a party which had overwhelming influnece (especially in the highway business), it would be Slovene People’s Party (SLS), whose economic influence far exceeds its political might. Indeed, Finance minister Andrej Bajuk (NSi) allegedly ran a pet project of breaking this party’s grip on the construction sector, although both parties belong to the political right. Or maybe that was precisely the reason.

The stakes are high for PM Janez Janša. Although he (as he should) claims that he had no prior knowledge of the operation, noone really believes him. This is just to big for him not to be in the know. Moreover, he publicly declared a war against “tycoons” (i.e.: so called winners of transition) who ammased relatively huge ammounts of wealth in the past 15-20 years. So the police and the prosecutors better have an air-tight and waterproof case which they will close fast. Because if they don’t – and if the whole thing turns out to be just a political and PR stunt – the wrath the detained trio will bring down on the PM will be tantamount to Samuel L. Jackson’sgreat vengence and furious anger“.

And remember – the burden of proof lies with the government. This is not a traffic violation we are talking about here. Being convinced that the three are guilty of corruption and bribery and proving it beyond a shadow of the doubt are two very different things. If the government wants to avoid allegations of setting up a pre-election show-trial aimed at boosting its dwindling popularity, the prosecution needs to produce a smoking gun. And it doesn’t really matter they do it on a deal of building a new control tower at Ljubljana International, worth just € 30 million. Elliot Ness got Al Capone for tax evasion.

P.S.: If your comment doesn’t show up immediately, please be patient. Akismet is acting up…

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Agent provocateur and an occasional scribe.

28 thoughts on “Operation Clean Shovel”

  1. Excellent post, P! It summarizes the situation comprehensively.

    Political and economic implications of these events will be of great interest to follow.

  2. Primorje was also one of companies doing business in Iraq. I’ve been told that Brnik once had a regular line with Bagdad.

    BTW… Elliot Ness and the Untouchables are a myth, started by a fictitious book and spread around by the Hollywood industry. The case against Al Capone was put together by an “anonymous” public prosecutor.

  3. The plot thickens… It turned out Črnigoj is a member of the National Council (the less known chamber of the parliament)

    @abaris: According to Wikipedia, Elliot Ness was very much a real person.

  4. “Yesterday’s arrests strike at the very heart of Slovene economy, especially since last year’s high GDP growth was riding solely on a government-funded construction boom.”

    I would be very interested indeed in the detailed break-down of last year’s GDP growth. I am sure, however, that the above estimate is completely wrong.

  5. Truthiness alert!

    Saying that “Eliot Ness got Al Capone” is the same as saying that “Rosa Parks ended racial segregation”. Everyone forgets that she was a member of the NAACP.

    If you want to know the learn the real story, go read this text.

    The History Channel program debunks the myth that Ness and his team produced the criminal evidence that sent Capone to jail. Ness did have an overwhelming case of Prohibition law violations against Capone and his associates. However, the true heroes were those Treasury Department and Justice Department officials who, with financial support from the Chicago business community, documented countless violations of income tax law violations. Capone was sent to prison, where his health declined as a result of syphilis and he spent his final years in the Miami, Fla., area, far removed from the Chicago crime scene.

  6. @abaris: Based on your other comments, I would have expected you to be one to distinguish between the essential and non-essential… However – if that’s the only bit you found worth arguing, I’ll repeat my assessment here… this is a good post, P.

  7. @dr. filomena
    Forgive me for being picky, but I had to respond to a direct challenge by Mr. Pengovsky, the briliant political analyst.

    BTW… My first post DID include a “BTW” marker!

  8. @abaris: Actually, it was not meant as a challenge. I understood your comment as if you claimed that Elliot Ness didn’t exist 😀 The Wikipedia article does say that he was on the prohibition end of the case, wheras Al C. was brought down on tax evasion charges. But the Ness/Capone comparison was only a way of putting things graphically.

  9. You guys, I could be completely wrong, but I thought the point was not in *who* got Al Capone, but the grounds on which he was successfully prosecuted.

    Can’t wait to see how the plot at hand develops!

  10. They couldn’t even bust the “burek cartel” in Ljubljana – and you expect them to successfully prosecute some of the richest people in Slovenia? 🙂

  11. I went and checked your PDF link, thanks for that. I presume it’s the table on page 8 (page 9 of the file) that is relevant?

  12. @crni: I think so, yes

    @abaris: well, that’s why Plahutnik was replaced by Jani Soršak. But he’s busy busting Laško, Istrabenz and Mercator right now 🙂

  13. Sounds exactly like Slovak highway construction with the little exception that no one got arrested as yet (I doubt anyone ever will).

    BTW, great to read from you pengovsky. And yes, expect my e-mail soon.

  14. Hey!

    They’ve all been released, but the charges are still being summed up. I’m not familiar with the intricacies of the criminal law, but I think the prosecution has a couple of months to file charges.

    If any of them will actually get charged is anyone’s guess right now, but I think the prosecution cannot afford not to charge them. It would be tantamount to suicide.

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