Serbia looks to wrap up privatization process

By bne IntelliNews January 28, 2008

Dejan Kozul in Belgrade -

After more then seven years since Serbia began its privatisation effort and following several postponements for the finish date, the government is promising this year will be the one that finally ends the process.

There are some 700 publicly-owned companies still looking for investors and new owners, and almost half of them will achieve it by means of bankruptcy. It's hard to expect that after seven years there are any good quality Serbian companies left, but some of them will attract particular attention from investors.

The big question is the influence of Russian investors, especially since the deal by Gazprom signed by Serbia's President Boris Tadic and Prime Minister Vojislav Kostunica on January 25 to take control of the country's largest oil company, Naftna Industrija Srbije (NIS), and thus pre-empt an open auction of it. Reports, since confirmed by ministers, say the 51% stake was sold for just €400m plus an additional €500m investment. Ceding control of NIS to the Russians is seen as a reward for support over the Kosovo issue, as well as the promise to build a 400-kilometre stretch of the South Stream gas pipeline across Serbia, tying the small country into the gas route to Europe. Gazprom has also reportedly agreed to build an underground gas storage facility with an initial capacity of 300m cubic meters of gas. Serbian Infrastructure Minister Velimir Ilic told the Serbian broadcaster B92 that the deal would provide Serbia with all the gas it needs, create thousands of jobs, bring in €2bn in work for Serbian contractors, and could earn Serbia up to €200m in transit fees each year.

With Serbia clearly open to greater Russian influence in its business, other large privatisations could also go Moscow's way. Prime Minister Vojislav Kostunica last year held meetings in Belgrade with Valery Okulov, general manager of Russian state-owned airline Aeroflot, which is interested in the privatisation of the flag carrier Jat Airways. The Serbian newspaper Blic said Gazprom was also looking at the state power utility Elektroprivreda Srbije (EPS).

Information from the Privatization agency says that there is a huge interest for state owned companies such as JAT, EPS and Telekom Srbija, though it's not clear yet which model of privatization will be used for those companies.

Driving to Russia

One high-profile company on the slate is the Zastava car factory located in Kragujevac. The largest car factory in the Balkans, Zastava will go on sale in April and potential bidders still have enough time, until March 31, to gain access to the necessary data for due diligence. The glory days of this company were during the 1980s, but after the break-up of Yugoslavia the company lost its main market, threatening the jobs of the more than 5,000 employees, and the following years of isolation and Nato bombing in 1999 heavily damaged Zastava's factories. Zastava now employs 4,000 people and has had its huge debts assumed by the state. This was a crucial moment for Zastava, which now produces the Punto car, licensed by Fiat, and the new Opel Astra. Those two contracts should attract investors, because Zastava is now exporting cars not only to other countries in the region, but also crucially to the Russian market without the large import tariffs - 20-25% - incurred by EU countries.

Belgrade Fair

The privatization of Belgrade Fair, whose showrooms in 14 halls cover an area of 106,000 square meters, should start in February. The opening price is not known yet, but according to an earlier statement given by Andjelko Trpkovic, a director of the firm, it could be around €60m. Last year, the privatization agency published a prospectus for the sale of a 70% stake in the company, with the state keeping the other 30% in order to keep some influence. Belgrade Fair had revenue in 2006 of €13.8m and it employs 240 people.

Novi Sad Fair

Serbia's second-largest city Novi Sad also wants to privatise its exhibition facilities. Novi Sad's aren't as big as Belgrade's, but once a year in spring it hosts one of the largest agricultural fairs in Europe and approximately 1m people visit its many exhibitions and fairs during the year. The total area covers 300,000 square meters, with 60,000 of that indoors. This fair has 224 employees and had total revenues of €8,2m in 2006. Privatization advisers recommend the agency should sell 52% of the company. The price in not known yet.

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