Controversies Over Commercialisation and Privatisation

AIM Pristina, November 24, 2000

Under Security Council Resolution 1244, UNMIK and OUN have committed themselves to undertake all measures so as to bring life in Kosovo back to normal and create conditions for the development based on the principles of modern market economy, as well as for building democratic institutions in Kosovo. Nevertheless, there is an impression that the international structures here pursue the policy of roundabout or easier ways, rather than of confronting the true problems in Kosovo. It is from this point of view that UNMIK's falling behind the schedule in creating legal and economic foundations for opening the development prospects in Kosovo can be explained. The adoption of some important laws in the fields of judiciary and economy is being postponed, without which there can be no sound development of the judicial system and no prospects for social, political and economic development of Kosovo. It's no big secret that the main reason for such practical approach lies in the provisional status of Kosovo and, as it is pointed out here, disputable sovereignty of Kosovo. That is why UNMIK has given up exercising basic functions of authorities in transition: to establish order regarding property as a precondition for launching true initiatives in the field of development. More specifically, obstacles that Serbia and some other claimants to a share of Kosovo riches may put up, have forced UNMIK to choose commercialisation instead of privatisation as a road for possible revival of some 300 to 400 facilities, the ownership of which is still disputable (social, public, state, private). Commercialisation is nothing else but leasing of production facilities. It is very clear that this is not base on economic logic, but rather on political and diplomatic ones.

Until now the most comprehensive study of this model was offered by Tim O'Neill, Provisional Co-Chairman of the Trade and Industry Department. He did it in an article entitled "Commercialisation and not a Court Ruling for the Rehabilitation of the Kosovo Industry" published in UNMIK's supplement in local papers on November 10. Since it was published it can be considered to represent UNMIK's official stand. Regarding the importance of resolving ownership problems he says: "The clarification of these "non-residential" property rights is essential if Kosovo wants to develop into a functional market economy", as well as that "Kosovo most urgently needs a mechanism for the clarification of property rights" and that "thousands of jobs depend on the determination of the fate of state, republican or quasi-social industrial enterprises in Kosovo. Thousands of other job openings would be created indirectly if such enterprises would start working". However, in his opinion, there are no conditions for the resolution of ownership problems in Kosovo. Mr. O'Neill says that there are only three ways for resolving the property issue. As first he mentions "properly constituted economic courts". In his opinion, the second option is "the conclusion of a multi-state agreement on the regulation of property rights of former Yugoslavia".

According to him both ways would take much time. And the third way could be "all other approaches, such as the creation of a commission for the determination of owners which would be able to start working as soon as possible. However, decision of such illegal systems will always be contested outside Kosovo", in other words, by Belgrade or other claimants to specific property in Kosovo. Some time ago Belgrade has set up a board for the protection of its ownership interests in Kosovo.

UNMIK's official does not take into account the experience of other countries in transition. He considers illegal all agencies or commissions which were the only form through which the authorities in those countries carried out privatisation. Also, although he declaratively supports the clarification of this issue, already in this article Mr.O'Neill claims that, depending on their legal legislative background they (production facilities) can be not only state (eg. of the former Yugoslavia), social (of workers) or private property, but also the property of the Republic (eg. Serbia). This is how he reasons proceeding from the 1997 Serbian Law on Ownership Transformation which, according to him represents one of laws applicable to Kosovo. Assessing this Law he says: "This Law was applied in Kosovo and it did not seem discriminatory nor was it applied in a discriminatory fashion". However, it is clear that no one who knew the first thing about the situation in Kosovo during that entire decade would make such an assessment. No law was respected in Kosovo and the Albanians were thrown out not only of work, but also society. The 1997 Law did not have any practical effect, since during 1991-1993 period Belgrade carried out the transformation of social property in Kosovo under other laws, which were extremely discriminatory in their application.

The procedure applied with the leasing of Djeneral Jankovic Cement Works for ten-year period is taken as a model for the commercialisation. Practically speaking, similar facilities are offered for ten-year lease. This automatically means that the resolution of the problem of privatisation is postponed for ten years. During their lease these facilities should become capable of functioning according to market principles and after the expiry of that period would be handed over to their real owner ready to continue the production. The owner would also get a share of realised profit he is entitled to on the basis of ownership during the exploitation of the plant, while one part would go to the Kosovo budget.

It is interesting to point out that the experience of other countries in transition was disregarded. Not in a single country had leasing been adopted as the main direction for the resolution of ownership problems. True, there were cases when an enterprise was offered for lease and eventually leased, but such experience was mostly negative. Therefore, according to local economists commercialisation was chosen as an easier and not the best way for addressing political and economic problems of privatisation. Actually, the selected road was the one of postponing the solution of key problems of any society in transition.

Commercialisation is far from being a substitute for privatisation or a good way for attracting private foreign capital. Mr. O'Neill himself states that confusion regarding property relations in business sector in Kosovo makes it impossible to include foreign investments, both in production as well as in technology. Mr. O'Neill announces that the same procedure would be applied to "Trepca". That is why the so much mentioned Consortium and its USD 16 million will do nothing else but prepare "Trepca" or some of its parts to become attractive for leasing. On the other hand, there was much talk and promises here about preparing "Trepca" for the re-start of production under public management which would employ several thousand workers.

It should not be expected for commercialisation to bring any significant short-term or long-term benefits for the Kosovo economy and society, or at least not to the extent advertised. Mr. O'Neill estimates that many production facilities will not find parties interested in leasing them which is why they will be destroyed in time because of "the lack of development prospects under new conditions". However, the logic of leasing and that of investing with a view to becoming an owner, are not the same. Therefore, interest expressed in leasing a production facility cannot be a criterion for assessing its prospects or potentials.

That is why thousands of jobs can be lost without a reason. Also, this blocks the road for possible investing of private foreign capital in such facilities and their potentials. There is no owner of financial capital who would be willing to invest in production facilities with unresolved property rights. Also, what might be the sense of postponing privatisation for ten years and what ownership problems might occur after this period could be unimportant for international representatives, but for Kosovo and the Albanians is of first-rate interest. In the mentioned article, Mr.O'Neill very clearly states whose property this type of Kosovo business might be.

Ever since the first ideas were presented, the Albanian experts reacted to leasing with much criticism and doubts. At that time, some of them said that commercialisation could not be a substitute for privatisation, that it was not based on economic logic, that the postponement of the key problem of privatisation would have numerous and serious consequences and that this would close some important roads for the inflow of private foreign capital. They proposed that UNMIK should immediately start preparations and then carry out privatisation and leave unresolved issues to be settled in regular court proceedings. Approximately those were and still are the stands of the President of Riinvest Institute in Pristina, Muhamet Mustafa and some other experts of this reputed institution. In one of his more recent addresses Mr.Mustafa said that there was economic logic in leasing only if it was done for one to three year period, and only as a preparation for privatisation. There were experts who were in favour of leasing, but who did not advocate it.

Generally speaking, there are no active supporters of this idea among Albanian experts. At a meeting held several days ago in the Chamber of Commerce and Industry of Kosovo, the estimate that commercialisation was a salvation for the Kosovo economy had the most powerful reverberations. During this meeting a participant presented a stand that commercialisation was a kind of necessary evil. According to this view, it is impossible to carry out privatisation for the lack of legislative infrastructure, while it is better to carry out commercialisation of facilities than let them go to ruin because commercialisation prepares them for privatisation.

AIM Pristina

Fehim REXHEPI