SERBIA: CORRUPTION ARRESTS TARGET FORMER GENEX EXECS

UNCLAS BELGRADE 001384

SIPDIS

SIPDIS
DOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: ECON EFIN SR
SUBJECT: SERBIA: CORRUPTION ARRESTS TARGET FORMER GENEX EXECS


Summary
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1. Police arrested five former Genex (one of the biggest companies
in the former Yugoslvia) executives, and a former Privatization
Agency official on October 3. The group is suspected of conspiring
to sell Genex land holdings without a public tender and abusing
their positions. The police investigation of Genex began following
the most recent elections. The privatization of Genex is
proceeding, but the arrests and moves at the privatization agency to
reassign the Genex case leave many questions unanswered. End
Summary.

Arrests of Former Executives
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2. Milorad Savicevic, former director of socially-owned
conglomerate Generaleksport (commonly known as Genex) was arrested
on October 3, with four other former company executives and Ljiljana
Mladjen, former director of the Center for Legal Affairs of the
Privatization Agency. The other former Genex executives arrested
were: Petar Novakovic and Ivica Lukic, both former general
directors; Nebojsa Premovic, former director of the Kopaonik travel
agency, and Vladimir Gajic, general director of Genex subsidiary
Internacional CG.


3. According to a police statement, the group is accused of
illegally selling 1.2 hectares in New Belgrade without a tender in
2004, and abusing their positions by incurring losses of more than
EUR 20 million from the company budget. The executives are also
suspected of other illegal use of company funds including allowing
free use of services in several hotels at the Kopaonik mountain
resort, which cost the Internacional CG Company some EUR 55,000.

Investigation Begins After Elections
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4. The police released a statement that the investigation into the
activities of the former executives of Genex began at the end of
January. Coincidentally, this is just after the parliamentary
election in which the SPO (Serbian Renewal Movement) failed to cross
the five percent threshold for participation in parliament and thus
SPO's role in government. SPO had controlled the Genex management
board. In Serbia control of the managing boards of large public
companies is apportioned between political parties in the ruling
coalition. The current government is still struggling to agree on
the final distribution of control of public companies.

Genex History
--------------


5. Established in 1952, Genex was the largest foreign trade company
in the former Yugoslavia. By 1990 it had more than 6,500 employees
and annual revenues of nearly $7 billion, accounting for more than
10% of total Yugoslav foreign trade. Genex had 70 representative
companies around the world. Its businesses included foreign trade,
tourism, hotels, consulting, construction, etc. It had its own
aviation company Avio-Genex with eight planes. Genex properties
include the former hotel Intercontinental now Hotel Belgrade,
business apartments in Belgrade, hotels Grand and Konaci at Kopaonik
Mountain, a hotel in Becici in Montenegro and four Boeing 727s.
During the 90's Genex collapsed, accumulating debts and losses.
Today, the company has two representative companies in Cyprus and
Russia and 1,600 employees. Currently, the privatization agency
estimates the company's value at just $150-250 million.


6. Savicevic was director of Genex from 1973 until 1990. Soon after
the October 2000 revolution, Savicevic was again appointed to head
the firm. After a series of changes he carried out despite protests
by the employees, he was dismissed from the position in December
2005 by the management board.

Privatization Advisor Concerned
--------------


7. Wojtek Mlodziejewski, Restructuring and Privatization Advisor at
the Privatization Agency, told Econ Assistant that he did not
believe that there was a political motivation behind the Genex case.
He said that Genex case is very complicated, with many property
issues. Mlodziejewski thinks that once the decision to move ahead
with the privatization was made the due-diligence and preparation
for privatization uncovered the issues that led to the arrests.
However, he said that the timing of this police action coincided
with moving the Genex case within the Privatization Agency to a
different office in the agency that is less likely to be able to
manage the complicated privatization.

Comment
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8. The Genex case is still developing, but it is symptomatic of the
challenges Serbia faces in economic transition. Genex was once a
leading Serbian company that is now reduced to a shell of its former
value. The primary interest in the privatization of the firm is its
property holdings, which are valuable. It is not surprising that
the privatization was stalled during the previous government as the
SPO was a small, but critical member of the previous minority
government coalition. With the departure of SPO from the
government, Genex privatization was able to move ahead. If in fact
the charges hold, the government will have made a significant stride
in making well-known officials accountable for corruption. End
Comment.

MUNTER