By Martin Santa

BRATISLAVA (Reuters) - Corruption in public tenders and diversion of European Union funds damaged Slovakia's economy last year, the Slovak counter-intelligence service (SIS) said on Thursday.

Many of the euro zone member's 5.4 million people view corruption as a necessary evil. Its efforts to root out crooked political and business practices since the end of communist rule over what was then Czechoslovakia in 1989 have had only limited success.

In its 2011 report, the SIS identified manipulation of public infrastructure tenders, mainly in the utilities sector.

"Data collected by the SIS over the monitoring period highlighted continuing damage to Slovakia's economic interests in companies with state or regional government participation," the SIS said in its annual report, the first one to be made public since the 2005 report.

SIS gave no details of individual cases or any estimate of the economic damage caused. The Finance Ministry said in March that, in 2010, fraud and tax evasion had cost Slovakia around 2.3 billion euros or 3.5 percent of GDP.

The SIS also said it had "gathered information about non-transparent allocation of European Union and state budget funds, (which were) subsequently used in conflict with their declared purpose".

And it said private equity groups, whom it did not name, had used corruption and illicit lobbying to try to establish a monopoly in the health sector.

Czech-Slovak Penta Investments is the main private equity group with activities in the sector, running a private health insurer, private hospitals and a chain of drug stores.

Penta could not be reached for comment, but its spokesman Martin Danko told the Slovak daily Sme that Penta did not engage in illicit practices and that suggestions that it engaged in corruption were nothing but rumors.

Many of the countries of eastern and central Europe have failed to build up independent police and judicial systems strong enough to tackle the political and business corruption that have flourished since the end of totalitarian rule.

The European Commission said on Thursday it intended to withhold EU funds from Romania because it had identified serious problems in its anti-corruption procedures.

Tens of thousands of Slovaks took to the streets in February over leaked transcripts of meetings of senior state officials with Penta representatives in which they allegedly discussed kickbacks in return for the sale of public companies.

No criminal charges have been filed in that case and Danko denied at the time that Penta had had the alleged contacts with politicians, adding that it had not received preferential treatment during any transactions.

In the neighboring Czech Republic, police brought fraud charges two weeks ago against a close associate of a former prime minister in connection with over a deal to buy armored personnel carriers from Austria.

The Slovak SIS monitors wasteful or fraudulent use of state and local government property, corruption and cronyism in central and regional administrations, major tax and customs fraud as well as threats to energy security.

(Reporting by Martin Santa; Editing by Kevin Liffey)