Half of State-Owned Enterprises Sold

A Railway Worth Five Million DM

The Association of Self-Managers of B&H is going to become a shareholding company. Until now, some 386 thousand citizens of FB&H have become shareholders in hope that it would bring them a better future. However, the majority is watching from the sidelines as first steps into the magic world of capitalism, shares and dividends are being made.

AIM Sarajevo, June 5, 2001

On the territory of the Federation of B&H the state has been relieved of the task of running over one half of until recent state-owned enterprises. After the second round of large-scale privatisation was concluded, the offered state capital in 461 enterprises has been transferred into private hands. The good news is - on paper, the state has made a good deal. As far as the accounting value is concerned, its capital in these enterprises was assessed at DM 2.2 billion, while it earned only DM 4.7 billion by their sale. The bad news is that the buyers, citizens and privatisation investment funds (PIFs), paid for the purchased goods with "papers" (privatisation certificates). Consequently, of all these billions of German Marks, only DM 500 has been paid in hard cash!

No one is surprised by such an epilogue because immediately after the war the state "settled" its debts to citizens in privatisation certificates (including four-year salary arrears to soldiers that took part in the war, pension arrears, missing household foreign exchange savings and "past labour contributions" for participating in the creation of one-time socially-owned property.

Consequently, the soldiers got about DM 20 thousand for four years in the war, pensioners several hundred DM in pension arrears for the period of war and after, and all citizens of age, depending on their past labour, something over DM 2 thousand, so that they could participate in privatisation. Citizens were given about DM 17 billion in privatisation certificates that could be used only for the purchase of flats and shares of state-owned enterprises during the privatisation process.

Citizens were not enthusiastic about such generosity of the state, because they could not make any use of tens of thousands of German Marks at their privatisation accounts. "Paper richmen" were most frequently in a situation to choose whether they would use their regular income for food or for paying recurrent costs, because there was not enough money for both. As a consequence and with the enormous supply and minimum demand, these certificates reached the price of only 3 percent of their nominal value on the free market, i.e. in the street. That means that DM 10 thousand in certificates could easily, and still can be bought for DM 300 in cash. It clearly follows that the state has not made a good deal when it sold its capital in 461 privatised enterprises.

The paid in DM 4.7 billion in privatisation certificates could be bought on the street for DM 140 million, which is not much money since that money can buy almost 500 enterprises. For the sake of comparison, let's say that had he been interested, "poor" Bill Gates would have to give "as much as" 0.1 percent of his wealth (worth a "modest" sum of USD 50 billion) for certificates needed for the purchase of state capital that has been offered for sale till now in F B&H. Since Gates is not interested in privatisation in the Balkans, it will suffice to say that the German company "Heidelberg Zement" paid almost DM 50 million in cash for one half of the capital of the Kakanj cement works.

However, the benefit of using certificates was there only for nationals and PIFs to which they entrusted their certificates. This did not stop foreign businessmen of dubious reputation who found a way of circumventing this restriction. They would simply find a "good soul" among local citizens who would, against adequate compensation, buy heaps of certificates on he street with foreign partner's cash, which he would later on use for buying the state enterprise he was interested in.

Many citizens will be surprised when the results of the sale of state capital in 461 enterprises are released. In contrast to the first round of public subscription of shares - when the condition for a successful sale was for 80 to 120 percent of the initial price to be paid in certificates or cash - such condition no longer applies in this round. Simply, the enterprise is sold no matter how much has been paid. Thus, a lucky buyer of the enterprise "Aladza" from Gorazde (which has the accounting value of DM 190 thousand) has paid only DM 100 and thus became the owner of 100 percent of its capital.

Similar thing happened with the "B&H Railways". The state capital, with the accounting value assessed at DM 126 million, was sold for DM 4.9 million in certificates, which can be obtained for DM 150 thousand in cash. The rules of the game are such that no one has the right to be angry, because every FB&H citizen of age and each PIF could have also subscribed its certificates in this enterprise. In that case, the total paid-in sum would have been larger and the share in ownership would have been determined according to the share in the overall paid-in value of certificates. At the same time, opposite cases happened when the amount of paid certificates was several times higher than the accounting value of the offered state capital. The absolute record-holder in this regard is the utilities company "Cisto" (Clean) in the Canton of Tuzla whose overall state capital was assessed at DM 178, while the remainder ended up in the hands of individuals earlier.

It seems that a large number of certificate owners believed that investing in this firm was wise so that it turned out in the end that almost DM 500 thousand was paid for this symbolic amount of state capital, i.e. the unbelievable 475 times more than its nominal value.

The companies whose shares were in the greatest demand included "Energopetrol" from Sarajevo, for which 18 times more certificates were paid-in than its initial value. That means that all those who used their certificates to pay for this firm will get shares in the nominal value of DM 100 for DM 1,800 paid in certificates.

At the top of the list of most attractive enterprises is "Sarajevo Insurance" whose state capital reached DM 20 million and for which almost DM 400 million was subscribed, naturally in certificates. Dividends to be paid at the end of the year will show who has made a good and who a bad choice in investing his certificates. Only those who remain outside the privatisation gambling room will lose. Very soon, all who those have not yet used their certificates, i.e. have not sold them to street "peddlers" for 3 percent of their nominal value, will get a new opportunity to do so. Privatisation of the remaining half of enterprises with state capital by public subscription of shares will start on July 15 when as much as 15 percent of the capital of the Sarajevo and Mostar PTT and Power Utilities will be offered for sale.

In the meantime, the new shareholders still do not know how to make ends meet over a month without wages, without work or with only minimum pensions. With sluggish economy, the co-ownership over until-yesterday state enterprises will not resolve subsistence problems of mere mortals, at least not in the foreseeable future.

Drazen SIMIC

(AIM Sarajevo)