Privatisation of Cement Works

Who Will Buy Beocin Cement Works

Since the Government of Serbia is now formally authorised to find a strategic partner for each socially-owned company (and there are still about seven thousand of them) and since it is also authorised to take all the money (for 70 per cent of the ownership), the contract with Lafarge on the sale of Beocin cement works might finally be signed. But that company probably wonders again under what conditions it will be able to carry out such a contract past the will of the political centre in Novi Sad and whether Djindjic's term in office will last shorter than expected, and moreover, whether he will keep his promise in view of his known intimacy with German leading politicians

AIM Belgrade, October 23, 2001

Constant entanglements, quarrels and political manoeuvres have for years accompanied the plans for privatisation of Serbian cement works, most of all in the story about privatisation of Beocin cement mill (BFC). According to the latest news, after numerous previous talks on the purchase of Beocin cement works with former Serbia's prime minister Mirko Marjanovic in Belgrade and then with the current Prime Minister Zoran Djindjic in Paris, Yves Leclerc, General Manager of French Lafarge concern, has finally paid a visit to Novi Sad and Nenad Canak, chairman of Voivodina's Assembly, who had at the time of Milosevic's regime publicly threatened that after the victory in the elections he would nullify the sale of Voivodina's cement works to the French, and last spring warned Djindjic that he would interrupt the realisation of the allegedly re-signed contract with Lafarge by physically blocking Beocin. It seems that this time Leclerc got lucky and finally heard from Canak on October 10 that he was not against this company's taking over the cement works in Beocin "if it offers high-quality manufacturing, social and environmental program of reconstruction of BFC".

This still does not mean that the deal has been definitely arranged - because in the meantime several new problems have arisen for the French. The least of all seems to be the problem that Lafarge has not sent special letters of intent that it would participate in the call for tenders on the purchase of the capital of each of the three Serbia's cement works by the set deadline, September 1, 2001. The Government of Serbia was forced to give up on the attempt to sell the other two cement works (in Kosjeric and Popovac) along with the attractive Beocin factory in a specific "tied deal". That was the meaning of the statement of September 6 Republican Minister for the economy and privatisation Aleksandar Vlahovic announced that one cement mill would be sold in November this year and the other two in February next year, or perhaps later on after the call for tenders in April or May 2002.

A major problem in the procedure may arise because Lafarge has entered a too big an investment when it bought a chain of cement works in America from its global rival Redimix from London, so the question is whether it has sufficient liquid assets to pay to Serbia what it had promised. This investment of Lafarge's into Redimix also explains the fact that this British company has not submitted a tender for the purchase of BFC although three years ago it struggled fiercely to get this job.

Nowadays, however, Lafarge has even fiercer competition because by the mentioned deadline, September 1, powerful world companies sent their letters of intent to buy the capital in BFC: German Heidelberger, Italian/French Italcement Group - French Cement Works and Austrian/German Atlas International - Ginter Papenburg. As some sort of outsiders, tenders were also submitted by Italian Cementir and German Schweng. Information got through that German companies from this list had sent messages that they had money prepared for the purchase of BFC and that they offer more than the French, some up to half a billion marks, so that repeated statements of Serbian minister of the economy and privatisation, Aleksandar Vlahovic, that for the Government of Serbia what matters the most is not the biggest offer, but the one that ensures the greatest investment, can be understood as his preventive attempt to justify his word he seems to have given to Lafarge - that he would after all complete the deal Mirko Marjanovic had initiated three years ago.

All the rivals for ownership of BFC have in the former complications with the privatisation of this cement mill had clear financial parametres about the kind of money the Government of Serbia counts on getting from this deal. Ever since the moment when Republican Prime Minister Zoran Djindjic (on May 10 this year) declared that the Beocin cement works was sold to French Lafarge corporation for 133 million German marks, stories have never stopped circling not only about whether others offered more, but also about who in fact is entitled to sell this cement factory (and also whether it should be sold at all) – the Government of Serbia or the Assembly of Voivodina. The political conflict that has on other grounds flared up between Novi Sad and Belgrade can once more complicate the call for tenders for the sale of BFC.

Minister Vlahovic has defended the mentioned attempt of the sale of BFC in Paris in May with the explanation that the decision of (the former) Marjanovic's government had to be respected and added that Djindjic's Government had conducted “additional negotiations” and managed to increase the transaction price from 95 to 133 million marks, and increase within the financial arrangement the amount of investment capital by 30 million marks. It later turned out that Djindjic and Vlahovic had presented the talks with French President Chirac and a few consultations with Lafarge in a completely different light – because it turned out that no contract on the sale of BFC had ever been agreed on with Marjanovic's government pursuant the regulations in force at the time, but only talks were conducted on the debt of the Government of Serbia to this corporation and as a guarantee that the loan it was planned to give ownership shares of the Republic of Serbia in the BFC ownership portfolio would be paid back. However, since financial sanctions were re-introduced for FRY in the beginning of the war in Kosovo, the deal was off. Legally, Beocin cement mill did not formally take upon itself anything that resembled a contract with Lafarge on the purchase of about half of the ownership of the company, so that according to the former law one could not say that the contract was signed.

Since pursuant the new law on privatisation the Government of Serbia is formally authorised to seek a strategic partner for every socially-owned company (and there are about 7000 of them) and since it is also formally authorised to take all the money (for 70 per cent of the ownership) such a strategic partner pays – the contract with Lafarge could finally be signed, but that company must be wondering again on what conditions that contract can be realised past the will of the political centre in Novi Sad and whether Djindjic's term in the office of the prime minister will last shorter than expected, and moreover, whether he will keep the previously given promise in view of his known intimacy with the German leading politicians.

The great interest in BFC is based on the fact that it is a big cement mill the capacity of which is almost three million tons of cement a year, located on the bank of the Danube, that can continue to supply the entire European market for another 100 years (such is the estimate of the capacity of the clay deposits in Fruska gora). All European competitors in the purchase of Beocin cement works are fully aware that it is potentially a highly profitable enterprise, although in the past ten years it has almost constantly had running losses (last year of seven million marks). More precisely its losses were always the result of the prices controlled and depressed by the government, so that, for example, a ton of cement on the domestic market cost 5 German marks in 1993, while in the world market the price of that ton was 150 German marks. Nowadays when the prices have been freed of direct control, a ton of cement costs between 120 and 130 German marks, so that this price can cover the high expenses of energy necessary for its manufacturing (the cost of imported gas exceeds 50 per cent of the total manufacturing costs).

Dimitrije Boarov

(AIM)