Dilemmas with the Montenegrin Privatization Model

A BATTLE BETWEEN THE RUSSIANS AND THE AMERICANS

Privatization of Montenegrin enterprises is attracting much attention these days. Parliamentary discussion about amendments to the Law on Privatization is underway, while the authorities and the opposition are crossing swords about some already concluded deals. Montenegrin citizens who follow this session in live TV broadcasts have learned many new details about shady deals with the transformation of attractive Montenegrin enterprises.

AIM, PODGORICA February 19, 1999

The direct sale of one third of the Medical Institute "Dr.Simo Milosevic" in Igalo has been the subject of much controversy. The opposition, deputies of the Liberal Alliance and Bulatovic's SNP, are accusing the authorities of having concluded a detrimental contract with Milan Panic, the American businessman and the former Yugoslav Prime Minister, and selling him shares of the well-known Montenegrin sanatorium in Igalo practically for a pittance because of "political sympathies". As some other previous deals, this one was also concluded directly, far from public scrutiny, although no international tenders were invited. Suspicions about the whole transaction and Panic's relations with the top Montenegrin leadership were further intensified by the recent visit of this American businessman to Podgorica. After ICN was takenover in Belgrade, Panic promptly changed the registration of his firm to Podgorica, where it is now called "ICN Montenegro".

Another major scandal which broke in Montenegro six months ago was handing over of the management of the Aluminum Complex to the Swiss corporation "Glenkor". Literally 50 percent of the Montenegrin economy depends on this aluminium giant from Podgorica. This deal was also struck in direct negotiations. In this whole story an important role was played by the private firm "Vektra", major Montenegrin aluminium importer, whose owner is Dragan Brkovic, a man very close to the Montenegrin President Djukanovic.

Such cases of non-transparent privatization attracted the attention of foreign diplomats. They sent rather unpleasant warnings to the Montenegrin Government that this process had to be public and organized according to international standards.

It seems that this warning was not loud enough. Recently a new privatization affair broke. It again concerns an attractive company envisaged for sale through an international tender - the monopolistic distributor of oil and oil derivatives, "Jugopetrol" from Kotor. Is it true that the largest Russian oil company "Lukoil" is deeply involved in business operations of the Kotor "Jugopetrol" whereby principle of transparent privatization of this Montenegrin firm has been seriously called into question?

According to the American professional magazine "Plan Econ" the deal has already been struck directly. The text published in "Plan Econ" stated that continuing with its expansion in the Balkans, the Russian company "has bought an unknown amount of "Jugopetrol" shares. This deal was concluded without an international tender which shows that the old-style transactions still play an important part in oil deals in the region. Terms and conditions of the purchase are yet to be published".

Montenegrin privatization authorities denied these claims. After the news was published in the local papers that "Lukoil" has concluded a joint venture contract with "Jugopetrol", last week the Privatization Council ordered the Kotor enterprise to halt all negotiations with the Russian firm because this seriously compromised the initiated privatization of this company.

With its 33 gas station, motor pool, silos in the port of Bar and installations in Morinj, "Jugopetrol" is one of the most attractive Montenegrin enterprises. Its value has been assessed at 130 million German Marks. The sale of 55 percent of shares has been planned. The sale of "Jugopetrol" is not only economically, but also strategically important. For, this enterprise also owns silos in the port of Bar. In that way, the firm that buys "Jugopetrol" will practically have a free access to Bar, with major Serbian and Bosnian markets in its background. The port of Bar could also be important in controlling the Kosovo conflicts. President Djukanovic has offered the CSCE verificators free use of the port, and recently also sent a similar invitation to NATO if it decided to send allied troops to Kosovo.

The story about the expansion of "Lukoil" in Montenegro was launched already last year. First, the Serbian media published texts claiming that the Western and Russian capital were fighting for the Montenegrin oil market (and perhaps the port of Bar). In his interview to "Weekly Telegraph" (Nedeljni Telegraf) this summer, Predrag Drecun, the then Vice Prime Minister of the Montenegrin Government in charge of privatization, pointed out that he had personally prevented the coming of dubious Russian capital to Montenegro, by insisting on the observation of the regular tender procedure. In July, the "Hong Kong Shanghai Bank" was chosen at a competition for Jugopetrol's privatization counselling agency, but bids have not been invited yet. Is it because, in negotiations wrapped in secrecy, someone from the Montenegrin authorities was favouring the Russian oil company? Experiences of East European countries show that such delays with the inviting of bids in an initiated privatization process of a firm open up possibilities for underhand dealings, corruption and favouring of specific companies.

For their part, people in "Jugopetrol" do not think that anything is wrong with conducting preliminary negotiations with "Lukoil" on joint investments while a tender is in progress. According to Branko Kascelan, Business Manager, the Montenegrin Government is informed about these negotiations and nothing can be signed without its approval. "The contract on investments in two gas stations has not yet been concluded with "Lukoil". We only made the Minutes of the negotiations", claims Kascelan adding that direct negotiations on joint investments are also underway with the American company "Vitol". In his opinion that cannot endanger the international position of "Jugopetrol" when the time comes to invite tenders. "On the contrary, it will only improve the standing of this Kotor firm at the market", claims Kascelan.

However, this joint venture with a foreign partner will single out only parts of the enterprise. That would undoubtedly significantly reduce its price at the world market and bring into question a possibility of selling it for a good price to a strategic investor. The most valuable parts of "Jugopetrol" are its gas stations on attractive locations (Budva and Podgorica) in which "Lukoil" is interested, as well as the silos in the port of Bar which are interesting for "Vitol". Who will then make offers at the international tender when professional magazines have published the news that the Montenegrin authorities have already found a buyer for "Jugopetrol" in their secret negotiations with "Lukoil"?

Those well-versed in the situation in oil industry claim that the most important thing is for "Jugopetrol" to find a buyer who will promote its distribution network because oil and its derivatives can be freely bought on the world market. It would be therefore more important for Montenegro to find a well-known western distributor, rather than to choose a Russian company which does not have direct access to the world financial market, nor respects high West European standards for gas station equipment, their development and extension of services. In addition, it is no secret that many large Russian companies often make shady deals with money of rather dubious origin and do not play by the western rules.

Does the case of "Jugopetrol" confirm a thesis that privatization of large Montenegrin enterprises is getting out of hand and escaping rules? Judging by hitherto experience it turns out that deals are first concluded in direct negotiations with companies which are thereby in a privileged position, after which there is practically no sense in inviting international tenders.

In a statement to Podgorica weekly "Monitor", Veselin Vukotic, Vice-President of the Privatization Council, claimed that had not the Council reacted the deal between "Jugopetrol" and "Lukoil" would have compromised Montenegro with its foreign partners. Who then gave a "green light" for negotiations? Important representatives of the authorities are on "Jugopetrol" Management Board. Mladen Vukcevic - advisor the the President of the Republic - is at its head, while Vojin Lazarevic, Prime Minister's advisor, is chief of negotiating team. Was it then possible to conduct direct negotiations with the Russians without their knowledge?

Milka TADIC (AIM)