Could you briefly define what is exactly the role and responsibilities of your agency?
The Directorate for privatization in the RS was established in 1998 after putting into effect a set of privatization laws that regulated privatization of the state capital in the companies, privatization of the state capital in the banks and establishment and function of the institutions of the market capital in the RS. The task of this Directorate, according to the law, is to conduct activities related to the sale of the state capital in the companies. It means that the Directorate is an authorized seller of the state capital in the companies and it's doing it in behalf of the RS government. So far, there's been several attempts of privatization in this country. In 1990 and 1991, Ante Markovic, at that time Prime Minister of Yugoslavia introduced a concept of the inside privatization. Unfortunately, the process was stopped by the war. In 1995 and 1996 a new privatization law went into effect in the RS implemented by the Agency of privatization led by Dr. Aleksa Milojevic. However, the International Community declared this law to be discriminatory. The president of the RS at that time, Mrs. Biljana Plavsic accepted the opinion of the IC and the National Assembly of the RS repealed the law as well as the results of the law. So, this is the third attempt of privatization in the RS. You are probably familiar with the law passed by the High Representative which states that the property of the entities should be privatized by the entity laws.
What has been the major success in the privatization process so far?
First it would be good to explain that the adopted model of privatization is combined with an individual methods of a cash sale and a transfer of one part of the state capital into two funds: fund for pension and disability insurance and fund for restitution. We've registered 1110 companies in the RS that have a state capital subject to privatization.
The privatization strategy foresaw several goals; fast privatization with a fast transformation of the state ownership into the private and creating preconditions for market economy. Privatization doesn't have a big power but it's one of the most important parts of the transition process.
The strategy also foresaw certain benefits to the categories most affected by the war; soldiers (during the war), families of fallen solders, disabled veterans, etc. Those benefits were accomplished during the massive privatization by the free distribution of vouchers.
The privatization concept also anticipated that the initial balance sheets should be cleared of the inherited liabilities from the past. That is liabilities of the companies toward the foreign creditors, toward the state, budget, and so on. All these debts were taken from the balance sheets of these companies, corrected on the level of the state capital and taken over by the state as its obligation.
So, that was more or less the strategy to make those companies attractive for foreign investors and to realize certain privatization budget for fulfilling the liabilities taken over from the past.
Simultaneously, with the privatization of the state capital in the banks the governments of two entities were supposed to carry out the reforms of all segments of the society.
Unfortunately, hardly any of these goals have been fulfilled. The first reason is that the Directorate for privatization is not authorized to appoint the managing structures, to control the finances of the companies, to put companies into receivership. On the other side, there was a very strong coordination between authorities and managing structures in the companies. It means that the ruling parties were appointing managers and directors, that is political managers and political directors. As the state has proved itself as a bad owner and as the managers were too lazy to fulfill their obligations, delivery of the privatization programs to the Directorate was one and a half year late. That was the biggest reason for delay of the process. In addition to that, it was necessary to engage a number of institutions that were assisting the Directorate to create preconditions for implementation of the massive privatization as a base of the process. However, it turned out that those institutions were not capable to provide us with necessary assistance. The IC, especially OHR, that supervised the entire process, in several occasions demanded prolonging of some phases in order to avoid discrimination of the refugees and displaced persons. That has additionally slowed down the process.
Massive privatization was completed in March, last year. There were 830 companies included in the process of massive privatization. In accordance to the law, 648 companies got vouchers in exchange for 55% of the state capital. 183 companies that were on the government's list of strategic companies and that are being privatized according to the special privatization programs, offered up to 20% of the state capital in exchange for vouchers. The first step was to distribute the vouchers to the citizens according to the fixed rules. The citizens had a right to invest their vouchers into the privatization investment funds that are not typical funds but transitional form that would in five years become typical - closed funds. 13 privatization investment funds were formed and had an obligation to collect at least one million of vouchers. Citizens invested roughly 50% of their vouchers into investment funds, that is the citizens and the funds had equal rights to decide in what companies they want to invest their vouchers. The anticipated period of investment was closed down in March last year. After that the Directorate reached a settlement of the results. As vouchers didn't have a nominal value we had to use the following way of settling: the final list presented a state capital of each company offered in exchange for vouchers; total number of invested vouchers was calculated for each company, as well as individual investments of citizens into investment funds; we calculated participation of each investor by comparing individual investments with a total number of collected vouchers for each company. In that way we calculated a number of shares, as well as a nominal value for each investor. The Directorate informed the citizens and the privatization investment funds about the final settlement. We also informed the companies whose state capital was an object of massive privatization because they've got a list of new share-holders, that is the new owners.
In summer last year, we started a process of corporatization of the companies that were included in the massive privatization. We successfully corporated over 600 enterprises, so now they are registered at the court as corporations. These enterprises are left with maximum 30% of the state capital. Simultaneously with this process we carried out the cash sales. There are three methods of sale according to the law: an auction, a tender and a direct sale. Enterprises whose state capital was under 300 000 KM were being sold only at the auctions. So far, we have privatized 115 enterprises. A buyer has become a major owner of these companies. In 111 firms the 30% of the state capital, remained after voucher's privatization, was sold out. It means that 111 companies that were included in voucher's privatization are completely privatized. These are the companies whose capital was over 300 000 KM. So far we have privatized 4 strategic companies privatized according to the method of international tender; "Glinice" factory in Zvornik (production of alumina), "Cenex" in Banja Luka (production of paper and paper's products), "Vitaminka" in Banja Luka (fruit and vegetable processing) and "Unis" in Derventa (production of pipes). The buyers are from Ukraine, Slovakia, Switzerland and Liechtenstein. That's all we've done with the strategic companies and with that part we can be the least satisfied.
We are neither happy with the preparation of the special privatization programs for the needs of the government nor for attraction of the foreign investors. Privatization of the strategic companies was supervised by the International Advisory group: USAID, GTZ, The World Bank, IRC, etc. At first, they ensured the preparation of these special privatization programs for the government in terms of donations. They selected a consultant who would conduct the preparations and at the same time their task was to attract the investors.
Are you satisfied with their work?
Not completely. GTZ prepared 12 big enterprises and one group of 40 veterinary stations that are on the list of strategic companies only to preserve their activities. They don't have a big capital but they are important for the Republic. But the GTZ did almost nothing in attracting foreign investors even for 6 strategic companies from lumber industry.
USAID's office "Business consulting" prepared in a short period 10 privatization programs but we still cannot be fully satisfied with the attraction of foreign investors. |
At the moment European Commission is completing the proposals for 8 special privatization programs. One of the most important is a program for oil industry in the RS. We have one oil refinery in Srpski Brod, motor oil refinery in Modrica and two distributions; "Petrol" and "Krajina Petrol" that have petrol stations. One more, in our opinion significant program is related to "Fabrika duvana" (tobacco factory) in Banja Luka and the Olympic center on Jahorina. Regarding the other programs we can mention a sale of "Fructona" from Banja Luka, that is actually a bottling factory for "Pepsi". We had a misunderstanding with one foreign investors about "Banjalucka pivara" that is one of the best companies in the RS if not the best.
There were three offers of the eminent companies; "Interbrew", "Kalzeberg" and "Laska pivovarna". The World Investment News Ltdr was the Belgium "Interbrew" but unfortunately the contract was never signed. When everything seemed to be finished they asked for a possibility for their investment to be turned into the additional capitalization. It meant they wouldn't get a package of shares offered by public tender but far bigger package. Of course that wasn't in accordance to our law, so we couldn't except it. There was something else that would have probably created additional problems; "Banjalucka pivara" is already 47% in private ownership. So, even if we had been ready to break a law this case would have probably finished in the court.
"Interbrew" is still in good relations with us, Mr. Renee Cumly who is in charge of purchase sent me an e-mail the other day. He said they are grateful for our professional attitude regardless of the results. They are waiting to see the results of our negotiation with "Laska pivovarna" from Slovenia and if it happens that we don't sign a contract with them "Interbrew" is ready to take part in the renewed tender.
We appraise that the "Interbrew" changed its strategy in the meantime. The truth is that they are powerful enough to set conditions and they can afford themselves to change the rules during the game. Our disadvantage was that in that moment their interests were more related to "Union pivara" from Ljubljana that was also interesting for our present negotiator "Laska pivovarna".
"Laska pivovarna" will have to come up with a new offer within 30 days as it has passed 6 months since the old one and in that period many changes might have occurred, especially because they are increasing their capacity up to 1 million hectoliters a year.
So far, the preparation of the special privatization programs was mostly donated but I think we have exhausted that source. We expect common institutions of BiH to approve a credit of the World Bank as a technical assistance to the privatization process. We intend to speed up the privatization of the strategic companies by using the other way; to announce a public competition for a consultant who will work on the special privatization programs; the selected consultant will in many cases have a role of a deal maker, which means that he will attract the foreign investors and charge his percentage depending on the price he manages to get. Everything will be supervised by the World Bank; of course, only the part related to the application of their procedures but not in the terms of selection of the consultant.
Which sector of the economy will be of specific interest in future?
As far as the RS is concerned, we have a great potential for agricultural production, primarily production of healthy food. The RS has significant natural resources.
As the World Bank is supervising the privatization of the sector of energy, "Elektro-privreda" company, according to the last study done by the PA Consulting, will not be privatized until 2005. Foreign investors will certainly find interest to invest in both, existing production of the electric energy, and in the unused potential for building new hydroelectric power stations on the rivers.
How do you promote investment possibilities in the RS abroad?
In several ways. By delivering an appropriate material through the embassies and consulates of BiH in the world and through embassies and consulates of other countries in BiH; by updating information on our website; by publishing information about tenders in the "Economist", in financial magazines among others.
What are you doing in order to involve local invesors into that process?
I would like to say a few more things about the foreign investors. Due to the delay in carrying out the global reforms in the country, we haven't created the environment favorable for attraction of foreign investors. There is a number of obstacles; it takes every foreign investor 90 days to get registered; we have elections every two years, that is new authorities every two years. In the eyes of the foreign investor this is seen as a big risk, political instability. Every foreign investor wants his invested capital to be reproduced as soon as possible. In that sense there is a lack of competition abilities in the RS and BiH because the transition process is going on in our surrounding too. Foreign investors will go also to Serbia, Montenegro, Croatia, Slovenia, Macedonia, Bulgaria. So, the reforms of the society have to be speed.
I have to notice that things are getting better. A set of tax laws was passed; a law on Foreign Direct Investments and a law on concessions were discussed at the RS Parliament. There are laws being worked out that will remove administrative bureaucratic obstacles and shorten the period from the arrival of the foreign investor to his registration. So, the aim is to have one liberal law on foreign investment with certain customs exemptions, possibility of free profit transfer, etc. Unfortunately, we are running out of time.
What have been the major steps in your professional career?
I'm a graduated economist by vocation. I worked for a long time in a wood processing company in the research & development department. In April 1998, I was engaged by the RS government on the project of privatization. At that time USAID did some projects related to privatization, public education, legal reforms and DIFID's project of development of the institutions of the market capital. I was directly involved in the preparation of legal regulations. After that I worked again on the USAID's project, this time with the "Business Consulting" that was preparing a certain number of special privatization programs for the strategic companies.
First director of the Directorate for privatization was Mr. Obradovic until April last year when Mr. Djukanovic came but only for a short time. Mr. Ivanic tried to talk me into taking over the position and although my private and professional plans were different I allowed him to persuade me.
Presently, the Directorate needs an urgent reorganization. We have a lack of personnel, there is no more supporting projects that provided us with the assistance of local and foreign consultants. We also have to find an appropriate office space; we've been renting this office since the beginning of the project but it doesn't satisfy the needs of such a large project. I hope that with the assistance of Mr. Ivanic and support expressed by the International Advisory Group, we'll solve this and some other important issues by the end of this month.
At the moment we are preparing some changes in the legal regulations in accordance to the conclusions of the RS Parliament that privatization is the most important economic and political process. I hope that this conclusion will not stay on the paper but that we'll get a support of all key institutions in order to successfully accomplish this process.
Do you like challenges?
Certainly. And not only me. For example, I brought recently my colleague to work as a consultant on this project. Before that he was working for the World Bank on a nice project, he was well paid, he was supposed to go to the USA for three weeks. But he left all this and he joined us on this project. So, he embraced the challenge. That's what we need; young but smart people who will bring a new quality and speed up the process. If a company has a surplus manpower, if it's in debts, that will repulse even the domestic investors not to mention the foreign ones. They would rather build a new company, introduce a new production then to deal with social issues and fear that some of the creditors start bankruptcy proceedings. We know that the business people take risk into account, but the risk can be calculated and uncertainty can't.
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