Minister Novakovic, how do you propose to revive the power industry given the massive damage inflicted by NATO bombing and the current 62% lack in power output?
We need to consider the situation in January 2001; what has been done and what needs to be done over the next two years. In the last ten years nothing has been done - in 1975 we formed the Power Utility Company of Serbia (EPS). Every single year we invested $750m, but in the 1990s we invested approximately the same amount for the decade between 1990 and 2000. So we have inherited a disaster. It is like a decrepit old car in need of much work but with no money to repair. In the last ten months we have invested our entire budget in EPS. But the entire effort was a success, because this winter (2001-2002) we had only four days of minor power cuts. This is a major achievement as we had the coldest December in several decades, and it can be compared to the unusually mild winter we had the previous year, with 55 days of power cuts.
We have actually had to raise prices by 150% in the last ten months, which makes us very unpopular. We needed to raise prices even further but the impoverished population cannot afford higher prices. So we are unpopular with our customers yet still we lack enough money for sufficient investment. Over the next three years we need to raise prices at an average of 40% per year. In 1990 we had 8400 MW available, now we have only 7300 MW since we lost Kosovo. The system could break at any time, as we need at least 11500 MW of installed capacity. Anyway, we have managed to survive increasing production at a 27% average rate. But we do not have enough money to import electricity, which we are buying at 3.2c ($75-80m) and selling at 2c. Ultimately we are losing $45m per year importing electricity.
How are you working with the Stability Pact and other organizations to attract funding for the EPS?
At the end of 2001 we secured two loans, 100m Euros from KFW and the same amount from the EBRD. They pressured us to raise prices whilst the population pressured us not to do so. Nevertheless, the World Bank recently told us that they are satisfied and considered the redevelopment of EPS to be advancing ahead of expectations.
With elections in Serbia in 2002, will there be further price increases or will you maintain them as they are now?
When I first came into this job in December I was not prepared for the amount of politics involved in this job. There is a great deal of political pressure and there will be no further price increases for the next six months. If you look at transitional governments across the globe you see a similar pattern: people expect immediate results, especially here where everything over the last ten years has been geared towards the removal of Milosevic. However, the reality is very different and things have to get worse before they get better. It is now just over a year since Milosevic fell from power and if you asked the average person if they are economically better off now than they were a year ago, their answer would probably be "No".
How do you intend to proceed with the liberalization process?
Liberalization of EPS depends upon a surplus of power, which we do not have. This year we intend to restructure the organization, repair power lines, transmission and distribution networks, transformers, gas lines, refineries and so on. Only then can we think more about liberalization, which will probably start I 2003-2004.
Can you offer concessions or different measures as carrots for foreign investors?
Absolutely. However, you have to have three separate sectors: generation, transmission and distribution. The cost of generation is, for example, 3c but it can only be sold at 2c at the moment, so no one wants to invest in generation. Nevertheless it will be increased 50% in February or march 2002. Transmission lines are controlled by the government and why buy a distribution center when it costs more to buy the power than you can make from selling it?
In reality, the oil and gas sectors are in much better shape. We will begin privatizing Jugopetrol (JP) and NAP, the two distribution networks, next year. | How do you plan to attract investment in the oil and gas sector?
We have analyzed privatization in other transitional countries and incorporated that into a new privatization law. There is also a new energy bill in the pipeline and a new labor law was passed recently.
Are you considering any joint ventures, perhaps international ones, with any other companies?
Yes, we are talking with several foreign companies, such as RWE, E.ON, EdF, Endesa, INI, etc., about possible investment in Yugoslavia.
What about joint ventures in other industries, for example mining, aluminium, steel or iron?
In 1990 EPS was joined together with the coal industry. We own underground coalmines in Yugoslavia, employing 5,500 people, producing half a million tons per year, and we want to privatize this sector. We also have around 20,000 miners in open-cast mines, which we want either to privatize or create as a separate company.
The problem is that coal prices are closely related to power prices. Any foreign investors therefore have to understand market risk, come here for a period of time, familiarize themselves with the Serbian working environment and make a real commitment. But we do intend to privatize the oil and gas sectors immediately.
What is your marketing strategy for the energy sector?
We have some international interest in the oil and gas sector. I would like to see more interest from medium-sized independent companies, particularly from America. The problem is that Serbia represents a market of only ten million people, and what I want to do is present it as a regional hub representing a market of around fifty million people in the Balkan region.
You worked thirteen years in America in business, including oil and gas, and you have mentioned the difficulties of dealing with politics. How are you finding the transitional period from the private to the public sector?
As my American friends would say this is a very interesting time to be here. I want to deal with long term issues but most of my work is taken up with those in the short term. It is very hard to make any long term plans when you have sudden power failures or, as right now, when miners on are strike. We employ over 120,000 people who all go on strike from time to time.
What is your biggest challenge for this year?
My biggest challenge is winter. Here we worry during winter whether we will have enough power and particularly gas, plus we owe a lot of money to Russia. We have started building underground gas reserves but we have not finished so I do not have the ability to manage supply. If the Russians cut the supply that is the only supply we have. My main challenges then are: to survive the winter, and restructuring and introducing legal reforms in the energy sector
What would be your final message for the readers of Forbes Global magazine?
Come to Yugoslavia. We are now at the beginning of the curve, but the honeymoon with the international community and the donors is over and we are entering the 'realistic period'. We need investors. I would even be willing to invest my own money in the energy sector as ultimately it will offer a good return. Also I think things here are much better than they are represented in the Western press. Even if this government falls, communism is gone and we are well on the road to reform.
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V.I.P. INTERVIEWS 
