Government's Privatisation Campaign

Beograd Oct 13, 2001

Who Will Buy the Best Enterprises?

According to Privatisation Ministry privatisation of some 40 social firms, for which tenders will be invited by the end of September and which will be partially financed by the World Bank (WB), might secure at least DM 1.2 billion.

AIM, Beograd, September 22, 2001

In mid July, only fifteen days after the adoption of the Law on Privatisation, "The Financial Times" published an international competition for the selection of financial advisors for the privatisation of 16 social firms in Serbia. Even before that, foreign experts spoke highly of the Law, pointing out, like Oliver Dechemps, Regional Director of the European Bank for Reconstruction and Development, that this was "the best law any country in transition had". That was the reason it was logistically aided by many international organisations, such as the World Bank, European Agency for Reconstruction, Development Agencies of Great Britain, Germany and the USA. It was, therefore, not surprising that the World Bank (for the first time in case of a country in transition) decided to participate with USD 5 million in the financing of the tender for the sale of Serbian firms. At the same time, the Privatisation Agency invited tenders for the privatisation of Cements Works in Beocin, Novi Popovac and Kosijeric and, looking for financial and legal advisers, sent invitations to 13 potential financial and 7 legal advisers. A month and a half later they were chosen publicly in front of TV cameras.

The Israeli "NSBC" will prepare the financial and business plan, while the legal work will be done by "CMS Strom Reich-Rohrwing Karsen Neinz". In return for its services it will get 0.695 percent of the price at which the Cement Works will be sold, although the usual fee is between 1 and 3 percent. Judging by appearances, the first to go will be the Cement Works in Novi Popovac, which could easily get a strategic partner by the end of the year. All other tender sales should be completed by March 2002. According to estimates of the Ministry for Privatisation and Economy privatisation of these 16 and another 24 social firms, for which tenders will be invited by the end of September (again to be partially financed by the WB), could bring at least DM 1.2 billion.

Although privatisation initiatives had been originally launched by these same firms, the start of the process in the first 16 social firms in chemical and metallurgical industry was not received in the same way everywhere. Although the Economic Research Institute of the Faculty of Economics in Nis evaluated the capital of 200 firms in Serbia which will be included in the privatisation process and the Agency for Capital Evaluation already verified some of these assessments, trade unions of the enterprises which should be first privatised as the most successful ones refused to sell their firms "for nothing".

Three trade unions of "Zdravlje"(Health) factory from Leskovac were all of the opinion that the firm's capital was under-valued. The majority of workers of "Nisal" from Nis claimed that they would never give their enterprise to others. "We want privatisation, but not under these conditions. We want workers to be majority owners because they built it from nothing". Trade Unions in Kragujevac factory "Gibnjara" are not hiding that they are not too eager to join 'Government's programme' because "the Government did not invest a penny into this enterprise and now wants to sell it, and if workers knew how to run it till now, they will know how to do it in future too". In all these cases the workers warned that "they would not allow anyone to fire them and throw them in the street". Certain politicians, like Velja Ilic, President of the party of New Serbia (Nova Srbija) supported them with stories that "it is not good to offer foreigners all the best we have, when we, the Serbs, know how to run our factories". They were also encouraged by some economists who disagreed with the concept of the selected model of tenders and bidding and, naturally, by representatives and followers of the former regime who, from the very start, thought that everything the new authorities did was not worth a straw. Naturally, the same support was rendered by the always-alert corruption and crime fighters who did not consider the new law to be sufficient protection against possible fraudulent activities.

There are also firms included in privatisation which thought differently. For example, workers of "PKS-Lasteks" from Cacak considered the fact that their firm was ranked among 16 enterprises for which "The Financial Times" published a bid as a kind of acknowledgement of their business results, whereas "Hipol" from Odzak saw privatisation as its chance for further development and establishment of an efficient management system, "FRAD" from Aleksinac expected from its strategic partner to secure its further technological development, expansion of its existing production capacities, as well opening of foreign markets for its products. All of them realised that the main element in inviting tenders was not the price at which a firm would be sold to a majority owner, but rather what that owner had to offer - investments, expansion of product mix, new markets and, naturally, increased employment. Those who have studied carefully all provisions of the Law on Privatisation have noticed that it implies the obligation of potential buyers to offer investment and welfare programmes.

Naturally, this doesn't mean that there would be no lay-offs, especially in the third group of enterprises, whose privatisation implies their restructuring or decomposing, as was the case with "Zastava". However, according to Privatisation Minister Aleksandar Vlahovic "there is a mistaken conviction that this privatisation will leave an army of nemployed behind it. Actually, these people are now only formally employed and do not get normal wages, their firms are making only losses and are not paying their social security contributions. In other words, new unemployment will not be created nor should be expected, because it already exists, whereas both the Government and the Ministry are ready to bear the welfare burden, which is why a part of resources from privatisation will be channelled for welfare purposes".

For two whole months people from the Privatisation Ministry did everything to refute rumours about privatisation and tried to understand how it was possible for a programme of reforms of property relations (which is also the basic driving-force of overall changes in the economic structure) to be so positively received by world experts and so little understood in the country. It was finally recognised that "the level of information on privatisation was disastrous" which was reason for launching a large-scale "literacy" campaign on this process among citizens. Minister Vlahovic and experts from his team worked as promoters and popular teachers in streets with the task of visiting some 50 towns all over Serbia in a very short time and explaining to people the basic concept of this process.

It remains to be seen whether millions of leaflets, with their pictures and privatisation glossary, dropped into mailboxes will help citizens of Serbia overcome the fear deliberately instilled in the past decade vis-à-vis every change in their lives. Those who four months before the adoption of the Law on Privatisation were explaining the essence of privatisation to management structures and trade union activists thinking that they would convey that message to workers later on, have now taken upon themselves to do it. "All we need to change the situation is one case of successfully concluded privatisation", says Deputy Minister for Privatisation, Marko Cvetkovic.

Waiting for that change to happen, leaflets with a study offering reasons why Yugoslavia is more suitable for investment than, for example, Malaysia, Czech Republic or Poland were sent to hundred addresses of potential investors who, despite some assessments that Serbia is the most attractive investment region do not see a reason for investing their money here.

This study was also prepared in cooperation with the World Bank and, as the Secretary of the Foreign Investments Agency, Dusan Zivkovic, Ph.D. (who worked for 12 years for the UN in Geneva, Cambodia and Africa on issues of international finances and investments, restructuring of debts, technology transfers and stock market investments), said "we should identify investors, define our advantages to the last detail and convince them with economic arguments to invest in this country. But, we must provide them with full information - from legal regulations to instructions for managers who plan to come and live here". A round table organised by the Economist Group (leading organiser of high-level strategic firms) for the Government of Serbia and foreign investors under the slogan "The World and Serbia Face to Face with Reforms", can be considered an important step in promoting privatisation in Serbia as a prerequisite for direct foreign investments.

The best proof that concrete moves produce concrete results are those 20 social firms in Serbia, which according to Prime Minister Zoran Djindjic, are not sitting on their hands. Among them is, for example, the Serbian Glass Factory from Paracin which has completed all preparations to embark on privatisation process and is now expecting a tender. It has already established contacts with firms from Central Europe, America, Italy and Greece as potential strategic partners. A health food concern "Bambi" from Pozarevac, whose 54.64 percent of capital has already been privatised, is also expecting an expeditious privatisation process.

It is expected that after the evaluation of fixed assets and verification, privatisation will be completed in the next couple of months. CA-IB Investment Bank from the Bank of Austria will have an advisory role and propose the best way for finding a strategic partner. Priority will be given to those who are willing to contribute to the further development of this concern. The factory "Prva petoletka" is also looking for a strategic partner. It is unique in Europe for its complete production process of pneumatics, hydraulics and electronics and now factories from which it used to buy their licences are offering to cooperate with it. A nitrogen fertiliser factory "Azotara" from Subotica is about to conclude a contract with the Austrian firm CAIB, which is operating within the Austrian Bank to which it entrusted the preparation of an analysis for the restructuring of Subotica fertiliser producer. State Privatisation Agency has approved this deal and the next move is specification of debts and reaching an agreement with creditors on their future treatment. CAIB will also try to find a strategic partner who will offer the best possible conditions for privatisation, i.e. someone prepared to invest in "Azotara" and to secure funds for welfare and development programmes.

Tatjana Stankovic

(AIM)