State Robbery in the Act

Serbia Confiscates by Force Property of American ICN Pharmaceuticals in Yugoslavia

AIM Podgorica, 9 February, 1999

With last week's decision of the Serbian government, American public company ICN Pharmaceuticals (ICN Ph) was deprived of its majority (75 per cent) ownership of Zemun drug factory ICN Yugoslavia, better known as former Galenika. It is the biggest Yugoslav drug manufacturer. With this act, the Ministry of Health of Serbia and the Health Insurance Fund of Serbia have practically nationalised the property of a foreign company and private persons, citizens of different countries (ICN Ph is quoted on New York Stock Exchange). With the decision signed by Zivorad Tesic, acting director of the board for evaluation of capital - in the name of the ministry of privatisation - the ratio of ownership in ICN Yugoslavia was changed: instead of 75 per cent, American company ICN Pharmaceuticals has got a little over 35 per cent, while Galenika Holding Company, instead of its 25 per cent has become the owner of more than 64 per cent of the capital of ICN Yugoslavia. This nullified the value of 220 million dollars this American company had brought to Galenika as non-material rights which refer to four drugs against cancer some of which are at this moment tested in Belgrade hospitals.

Such a decision in fact means unilateral breaking of the contract on investments signed in 1990 by American private company SPI (which has later on become public company ICN Pharmaceuticals) and Galenika, which was attended by Slobodan Milosevic himself. Tesic refers to the obscure law on changes of ownership of social capital passed in 1996, although the now valid law on foreign investments, among other, prescribes that provisions of subsequently passed laws cannot be applied on a contract on foreign investments if they are less favourable for the foreign investors.

Experts, however, deny legality even pursuant the law Tesic is referring to, since its validity was prolonged until the end of this year, and Tesic says that it has expired in the middle of July last year. The reason for founded suspicion that the decision of the evaluation board was backdated should probably be sought in the manipulation concerning the date of the beginning of enforcement of this law (the decision bears the date of 26 Novemebr, 1998, but it arrived in ICN Yugoslavia on 5 February, 1999!). The change of ownership was forcibly carried out by illegal nomination of the new director (until then anonymous Marija Krstajic, deputy of the Serbian minister of health) who entered the factory escorted by members of special police units, armed police officers and court.

Just a couple of days after occupation of Galenika, it became clear that Leposava Milicevic, minister of health in the government of Serbia and prominent member of Yugoslav United Left (JUL), was the main protagonist in this case. She not only held a press conference in the government of Serbia on the occasion, but also had the main say in Galenika itself while the new director stood by as some kind of a decoration. The whole affair is regarded as a new breakthrough of JUL towards full control of health services in Serbia, although there are also speculations about possibility that personal interests of individuals close to the authorities are the main reasons for initiation of the whole process.

It is interesting that high officials in Serbian ministry of privatisation had not been informed about what was going on. And Milan Panic, president of the management board of ICN Ph, says: "The attempt of the government of Serbia to forcibly take over ownership and control of ICN Yugoslavia is utterly illegal. This is violence which has nothing to do with law. The decision on possible change of ownership relations can be reached only by international arbitration in Paris, and not by the authorities of the Serbian state". The management of the American company has already decided to seek the epilogue at the international arbitration in Paris, judges of which will, pursuant the main contract, sit in Belgrade (which was incorrectly interpreted by Ms. Milicevic as a possibility of arbitration by a Belgrade court). Criminal charges were raised in one of the Serbian courts against individuals involved in the affair.

Experts are convinced that ICN Ph has sufficient evidence to come out as the winner of the controversy, but they warn that the decision of the court from Paris - which is final - should be implemented by Serbian autthorities, and hardly anyone believes that they will really do it (just as hardly anyone believes that criminal charges will be considered at all). The mManagement of ICN does not believe it either, but expects much more from the American administration representatives of which (Greg Burton, economic advisor in USA Embassy in Belgrade) followed the developments on site. It is highly probable that the USA will officially get involved since Robert Rubin, spokesman of the State Department, has already mentioned confiscation of property of American citizens at his press conference.

However, while waiting for the outcome of the court proceedings (which may last five or six months) the battle for workers has flared up. Leposava Milicevic has entered it with the appeal to the sacked workers and workers on forced leave to return to Galenika, promising them jobs and salaries. Milan Panic, however, appealed on all employees to boycott the new management, offering them to stay in ICN Yugoslavia, the majority owner of which is ICN Ph, promising them regular payments (twice a month) of salaries, maintenance of shares and dividents, possibility of distribution of new shares, 12 monthly salaries and a 100 marks for each retiring worker, children's allowance, abolishment of forced leave, jobs in a modern factory, and "work, order, professionalism, correctness and truth, instead of lies and delusions". Panic also says that he did not appear in person in front of the workers because he suspects that Yugoslav police would have arrested him on arrival to Belgrade.

Both parties claim that they enjoy the support of about 1,600 workers, which might be correct because Galenika had 3,000 employees at its best. It is interesting that a certain number of workers who have left the factory having received compensation of 7,000 marks, now want to return - they will not give back the money, of course. But, regardless who is right and regardless in whose favour speak Yugoslav and international laws, with the manner in which it has snatched away the property of a foreign investor - by force - Serbian state has created for itself the image of a state resembling the Wild West in last century, and increased the risk for foreign investors who come to Serbia. How wise that is will be clear very soon, in view of the fact that negotiations on sale of Beocin cement works to a French company is in its final phase (practically completed this deal was postponed because of the sanctions imposed by the European Union which should be lifted if negotiation in Rambouillet succeed).

Experts who deal with these problems (every one of them) believe that foreign capital will in the future come only if it is given special guarantees, or if the price of domestic resources drops very low in order to be attractive; it will be invested only into the dirtiest technologies; and it will be attracted only by extremely high exploitation level of cheap manpower. Foreign capital, experts say, does not avoid countries which are not ruled by law, but in that case its principle is to take as much as possible and to take everything it makes out of the country concerned as soon as possible. There are also those who believe that Serbian authorities in fact do not wish to see foreign capital in their country but intend to transform Serbia into something similar to Iraq. But, this opinion has one flaw: Slobodan Milosevic's cashbox is empty, he is desperately trying to sell Beocin cement works. But it also has one argument which speaks in favour of it: the favourite model of sale in Serbia is minority ownership for the foreign partner - or at least retaining the so-called golden stock.

In any case, the denouement of the story about ownership of former Galenika still lies ahead.

Veselin Kovacevic (AIM)