PRIVATIZATION COMPLETION STRATEGY IN SERBIA

UNCLAS BELGRADE 001144

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN KPRV SR
SUBJECT: PRIVATIZATION COMPLETION STRATEGY IN SERBIA

REF: 06 BELGRADE 2091

SUMMARY
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1. Mladjan Dinkic, Minister for Economy and Regional Development,
and Vesna Dzinic, new director of the Agency for Privatization, on
July 18 presented their strategy for completing privatization of
socially-owned companies in Serbia. The current law on
privatization required that privatization in Serbia be completed by
March 2007, but Dinkic said that the goal is simply to have sales
procedures underway for all companies by the end of 2008. However,
bankruptcy and forced liquidation will be used to dispose of some of
the most problematic companies, they said. End Summary.

NEW STRATEGY FOR COMPLETION
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2. Mladjan Dinkic, Minister for Economy and Regional Development
and Vesna Dzinic, Director of the Privatization Agency, on July 18
presented their strategy for completing the privatization of
socially-owned companies. Dzinic said that the remaining companies
awaiting privatization are unique and do not fit into the current
Privatization Law. The strategy proposes adoption of amendments to
the current Law on Privatization extending the deadline to finish
privatization of socially-owned enterprises by the end of 2008. In
addition, the strategy envisages speeding-up of the privatization
process and intensification of the bankruptcy procedures.


3. Serbia still faces a big job on privatization. Dzinic said that
1,177 companies still await privatization. Some 1,070 companies
employing 92,343 workers will be put up for auction, 77 companies
with 69,911 workers will be put out for tender and 27 companies
employing 27,998 workers are in the restructuring process. In order
to reach the set deadline, the Agency is planning to increase the
number of auctions per month from 30 to 60. When asked whether that
goal is realistic, Dzinic said that the Agency has the capacity to
offer to the market the companies by the end of 2008 however the
real question is whether the market has the capacity to absorb
offered companies. She also explained that the plan is to put all
these companies on the market by the end of 2008 but not to
privatize them by the deadline. According to the Agency for
Privatization, 1,737 companies have been privatized since 2002, 89
by tender and 1,648 by auction. However, sales contracts have been
terminated in 243 cases. Total revenues have reached EUR 1.88
billion, with guaranteed investments of EUR 1.1 billion and
severance for redundant workers of EUR 276 million.


4. Dinkic said that the changes to the law will be introduced in
September with the goal of adopting a new law by the end of 2007.
Some companies will be privatized through the bankruptcy process as
a means to reorganize the business and in these cases Dinkic said
the government will negotiate with workers to find the best
solution. He added that changes to the law will include increased
monitoring of contracts and that the Privatization Agency will
continue to terminate contracts where the buyer does not meet the
contract obligations.

HOW MUCH MORE?
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5. For those companies that do not have capital, or assets, or
workers, a forced bankruptcy procedure, which will be introduced
with the changes to the law, will be applied. Dzinic explained that
some companies existing only "on paper" will be deleted from the
Business Register. The revised law would also introduce an
automatic bankruptcy procedure for companies that fail three
attempts at privatization. Taking that into account, Dzinic expects
that the number of companies awaiting privatization will be reduced
significantly from 1,173 companies and that only about 230
socially-owned companies will finally be privatized. Currently,
there are 420 companies in the Bankruptcy Center of the
Privatization Agency and only 53 companies have completed the
bankruptcy procedure.

SENSITIVE PRIVATIZATION CASES
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6. Dzinic said that there are also some 230 companies where
privatization is suspended by two government decrees in order to
protect the property of the former Yugoslav republics. Dzinic
suggested that the decrees should be revoked and that money from
privatization of these companies should be put into a separate
account to be divided among former Yugoslav republics.


7. Concerning the companies with majority state ownership, like NIS
(oil),EPS (electricity),JAT (airline),Dinkic suggested adoption
of a privatization law for each of those companies. The Ministry of
Economy will also propose to the government a strategy to privatize
a state ownership in the local utility companies (approximately 600
companies).

COMMENT
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8. Dinkic has set ambitious goals for privatization that may be
achievable with his new team at the Ministry of Economy and the
Privatization Agency. However, bankruptcies and forced liquidations
are an unpopular means of dealing with failing companies in Serbia
and will be the greatest political challenge. Aside from the
technical challenges of quickly processing all these bankruptcy
cases, the political atmosphere is complicated due to likely
presidential and local elections this winter and most of the
government's attention remains focused on the Kosovo issue.

SIMMONS