The Montenegrin Privatisation Haze

ONE SCANDAL AFTER ANOTHER

The recent Parliament session coincided with the breaking of the scandal regarding the selection of financial advisors for two currently most attractive firms - Power Generation Enterprise and Telekom which had unpleasant repercussions for the ruling coalition.

AIM Podgorica, February 8, 2000

Last week in Washington, the Montenegrin delegation headed by Prime Minister Vujanovic, had to answer some rather embarrassing questions. In addition to worries shared by both Montenegro and Washington that Montenegro could become Milosevic's next victim and questions relating to Montenegrin budget deficit, representatives of the American administration inquired about the corruption, smuggling and non-transparency of privatisation process.

Questions asked at the "interrogation" before the American Senate, to which Professor Veselin Vukotic, economist in charge of Montenegrin privatisation process, remained unanswered. "I know nothing about it", said Vukotic to journalists of the "Voice of America" who asked him again and again about the corruption.

On his return home Vukotic once again encountered problems. Already at the first parliamentary session, the opposition Liberal Alliance raised the question of the violation of procedure for the selection of financial advisor in the privatisation of several major Montenegrin enterprises, including Power Generation Enterprise "Elektroprivreda" and Telekom. The other opposition party - SNP, loyal to Milosevic, also pressured him. At its request, an extraordinary parliamentary session was called for examining the constitutionality of the dual-currency system and privatisation - sale of shares of the "Simo Milosevic" Institute to ICN "Galenika", whose owner is Milan Panic, the American businessman of Serbian descent.

One third of the shares of this famous coastal health resort, was sold to Panic in a direct deal already in 1998, on the eve of the parliamentary elections. This contract met with the opposition's hostility, which considered it harmful for Montenegro. The SNP deputies now claim that they have got hold of documents "by which they will prove who benefited from and who suffered loss because of this contract".

The recently held session of Parliament coincided with the breaking of the scandal regarding the selection of financial advisors for two currently most attractive firms - Power Generation Enterprise and Telekom, with unpleasant repercussions for the ruling coalition. Two Austrian banks were appointed financial advisors for the privatisation of these companies, for which the Government should pay a fee of several million dollars.

However, even before the election of financial advisors, a shadow was cast over the whole deal. The Liberal Alliance attacked the ruling coalition for not soliciting tenders for the selection of financial advisors, although envisaged by the law. This aroused suspicions that the tender was not announced because the favourites were known in advance. The whole story became even more complicated when two members of the Commission for Tenders, from the SDP ranks, also distanced themselves from the violation of procedure stating that "a mistake has been made".

The British "Hong Kong Shanghai Bank" (HSBC), which is interested in the privatisation of Telekom, added fuel to the flames by submitting the offer and losing out to a less known Austrian "Kreditanstalt" bank.

In his interview to the weekly "Monitor", John Sleeman, one of the HSBC's Managers, openly stated his suspicions that it was highly unlikely that the Austrian Bank, in consortium with "Deloitte & Tousche", could give a better offer than the one submitted to the Montenegrin Government by the British bank and "Price Water House". "I do not deny that "Kreditanstalt" is an important bank, but its power does not go beyond local, Central-European borders. We are one of the largest world firms with branch offices in 79 countries all over the world and with huge experience in privatisation. We expected to win and we are very disappointed", said John Sleeman for the Montenegrin weekly.

He further pointed out that HSBC would withdraw from Montenegro if it is determined that fair-play rules were not observed in the selection of the financial advisor for the Montenegrin Telekom.

The withdrawal of one of the largest world banks, which has been present in Montenegro since 1995, would undoubtedly be very harmful for the Montenegrin Government which is trying to attract foreign capital. HSBC is one of Montenegro's strategic partners. It successfully carried out the privatisation of the Niksic Brewery which was sold to the famous Belgian company "Interbru". HSBC is currently engaged in the privatisation of "Jugopetrol", a firm which could sell well on the world market.

The withdrawal of the renown British banking giant could bring additional, political problems to Montenegro. A letter by which the HSBC representatives protested because of their treatment at the bid for the privatisation of Telekom, was sent to the address of Montenegrin President Djukanovic, but also to British Foreign Office.

The Montenegrin Government is counting on the support of official London, both in its forthcoming hard battles with Belgrade, as well as financial assistance for the empty republican budget. If there is something President Djukanovic does not need at this moment then it is the interference of the British giant, whose shares are now valued at over hundred billion USD at world markets and whose name and reputation are not to be trifled with.

The coalition government could easily lose support at home as a result of scandals with the privatisation process. The Government of Prime Minister Vujanovic has not yet embarked on serious economic reforms. The introduction of the dual-currency system and legalisation of German mark are the greatest achievements of the Government which won the elections with promises of fundamental changes in the economy and democratisation of society. Still pressured by the outer wall of sanctions and expelled from international monetary institutions together with Serbia, Montenegro did not manage to bring any significant foreign investors and halt the deterioration of the economy. Those few foreign firms which it managed to attract are threatening with withdrawal because of the breach of rules.

Privatisation process by itself implies a risk of social upheavals. When this process, which the Montenegrin Government has just launched, is also accompanied by illegalities and disrespect of procedure the bill might be too high for Montenegrin authorities. The opposition SNP, loyal to Milosevic, could benefit most from stories about underhand dealings in the privatisation of large Montenegrin firms. And that would mean the end of reforms and democratisation of Montenegro.

Milka Tadic (AIM)