North Macedonia’s state-owned loss-makers await new owners

North Macedonia’s state-owned loss-makers await new owners
The priority for privatisation is the national postal operator, Post of North Macedonia (pictured).
By Valentina Dimitrievska in Skopje January 27, 2021

The authorities in North Macedonia are determined to go ahead this year with plans to sell or find a private partner for several state-owned enterprises that have been accumulating losses for the last decade, with the aim of making them profitable.

The Social Democrat-led government intends to do so either through privatisations or through public-private partnership (PPP) schemes. The main priority is the national postal operator, Post of North Macedonia, formerly known as Makedonska Posta. According to audit reports the postal operator piled up losses of about €10mn in the last few years. The revenues from the possible privatisation will be used to support the budget.

The government has already kicked off the process of selecting a company to draft feasibility studies for both Posta and thermal power plant TPP Negotino, the statement said.

The same process will follow for Railways of North Macedonia-Transport, thermal power plant TPP Oslomej and some of the energy facilities operating within state-run power producer ESM.

Prime Minister Zoran Zaev said at the end of last year that restructuring is also planned for the military equipment supplier Eurokompozit, locomotive and wagon manufacturer Kolska and tobacco factory Tutunski Kombinat Prilep.

ESM, as a power producer and a strategic company for the state, will not undergo any transformation for the time being.

“The feasibility studies will show which restructuring model is the most suitable — whether it will be a public-private partnership or privatisation,” the government press office said in a statement e-mailed to bne IntelliNews.

“In some enterprises, changes in the concept of their functioning are necessary. Analysis showed that the restructuring of some of them is inevitable and will take place in the coming period,” the press office explained. 

However, if the studies show that some of the companies can be self-sustaining, internal changes will be made to enable them to improve their operations and turn to profit, it said.

Socialist-style postal operator

Zaev announced at the end of 2020 that companies from Austria, Slovenia, Romania and the Czech Republic have already shown interest in Posta.

Critics say that authorities are to be blamed for the troubled situation of the postal operator, which was shaken by numerous scandals, such as series of unresolved robberies and lost shipments, while the company was under the management appointed by the ethnic Albanian Democratic Union of Integration (DUI), the junior partner in the current and previous governments. Management put in place by the DUI ran the company for more than a decade.

Employees are working in socialist-style, obsolete offices that have not been renovated for years. The main post office building, one of the symbols of Skopje's new architecture after the devastating earthquake of 1963, was engulfed in a massive fire in 2013 in which it was largely destroyed. This was the worst of a series of fires at post offices. Now the new director of the company is Jani Makraduli from the ruling Social Democratic Union of Macedonia (SDSM), under whose leadership the transformation of the company will be carried out. 

This is not the first attempt by the authorities to sell Posta. Back in 2009, Canada Post Corporation wanted to take over the postal operator, but negotiations with the then Macedonian government led by conservative VMRO-DPMNE lasted two years without results. Canada Post wanted to take over Makedonska Posta for free and in return invest €40mn in the company in the next 20 years to make it profitable.

The restructuring of Posta will also be the next step towards the full liberalisation of postal services in line with EU regulations, a process which has been delayed for years. Currently, Posta holds a monopoly on small shipments of up to 50 grams, which are mainly letters, postcards and utility bills. The other private companies that offer postal services deliver only larger shipments. The latest postponement of the liberalisation allows Posta to keep the monopoly until 2022.

The situation at Posta deteriorated recently with the collapse of local Eurostandard Bank, through which payment operations were performed, so the postal operator was only able to provide postal services.

The situation was resolved after the local unit of Turkish Halk Bankasi, Halk Bank Skopje, got approval to replace Eurostandard Bank. Halk Bank will take over payment operations, which will enable people to pay their utility bills and make other payments through Posta starting from March 1 under a 15-year contract.

Posta is the largest employer in the postal market, accounting for about 65% of the total number of employees in this sector in 2019, or 2,107 of the 3,243 postal workers. However, the number of employees at Posta has been decreasing for the last few years, and fell by 8.6% since 2014. At the same time, the number of workers in the 44 postal companies on the liberated market has been constantly increasing.

Statistics from the Postal Agency showed that in 2019 the volume of the postal market in the country amounted to 41.1mn shipments, up by 5.2% compared a year earlier.

The volume carried by Posta rose slightly by 1.6% to over 35.9mn shipments, while it jumped by a more significant 40.9% at private operators to 5.1mn.

However, despite the annual rise in 2019, until 2018 the volume of shipments by Posta had been constantly declining since 2014, when it amounted to 46.8mn postal items. On the other hand, the volume of shipments delivered by free market operators has been constantly rising, from 3mn in 2014.

TPP Negotino next in line for transformation

The next in line for major restructuring is the 195 MW TPP Negotino thermal power plant. As part of the sale or PPP process, TPP Negotino should also be transformed to produce electricity from natural gas. The plant started power generation in 1978, but has been out of operation for more than 10 years mainly due to the high costs of power production.

Described as a real fuel oil "swallower", TPP Negotino can process 1,200 tonnes of toxic and expensive fuel oil per day and produce 4,680 MWh of electricity, enough to meet 20% of domestic electricity consumption. But the costs are huge compared to the benefits.

Zaev said last November that so far at least 10 foreign companies, including General Electric, have shown interest in TPP Negotino, due to its excellent geographical location and connection to the energy infrastructure.

Another candidate for a major privatisation or PPP scheme is Railways of North Macedonia-Transport, part of the state railway company, which also has another unit, Infrastructure. Some experts say that the sale of the railway company Transport and the liberalisation of the railway traffic, which has been delayed for the last ten years, should be done simultaneously and as quickly as possible.

With the failure to carry out a timely liberalisation of railway traffic, North Macedonia has lost hundreds of millions of euros that could have entered the country. Large quantities of goods are now transiting through Bulgaria instead of via North Macedonia, experts say.

The utilisation of the Macedonian railway capacities is now reduced to 10%, which means that 90% of the wagons are empty.

One of the company’s main problems is lack of investments in the railway infrastructure and lack of connections with neighbouring countries. The major railway axis that ran from Munich to Athens via Macedonia has not been operational for decades, though the railway link from Skopje to Thessaloniki was still in use until recently.

However, in 2016 Greece closed its borders to railway traffic following a large-scale operation by the Greek police to evacuate migrants and refugees from the Idomeni camp on the border, which blocked the tracks after Macedonia closed its borders to illegal crossings. Freight and passenger railway traffic to Greece remain at a standstill.

Traffic on the line from Belgrade to the Greek border operated occasionally, mainly in summer. In 2019, the opposition criticised the authorities as the sole regular international route, Belgrade-Skopje-Thessaloniki, was no longer running, 146 years since the first train started to carry passengers in the country.

The other major problem is a delay in the construction of the key railway link to Bulgaria and another to Albania as part of the pan-European Corridor VIII project that runs via North Macedonia.

Media cited officials from the transport ministry as saying that amendments to the railway legislation are expected to be ready by mid-2021 in line with EU directives, while opening of the market is expected by the end of 2022.

According to some proposals, the railway transport company should be divided into three companies that will deal with passenger traffic, cargo and maintenance, after which all three segments could be offered separately for privatisation.

Thermal power plant TEC Oslomej has an installed capacity of 125 MW and when it was operational it accounted for 10% of the total electricity output. In November 2020, power producer ESM signed a deal on the construction of the 10 MW Oslomej photovoltaic power plant with the Turkish company Girisim Electric on the site of the old Oslomej lignite mine. The restarting of the TPP Oslomej near the mine is also expected through a planned privatisation or PPP scheme.

In 2021, the authorities of North Macedonia also plan to implement the 333MW HPP Cebren on the Crna river in the south of the country, a project which has also seen several delays in the last decade and more.

The Cebren HPP project was initially planned by the previous VMRO-DPMNE government, but the project was never implemented. Since the plans were drafted, nine tenders for the Cebren HPP have failed so far.

Awarding the concession includes the use of water for generation of electricity, rights to design, build, operate and maintain Cebren HPP and the Orlov Kamen dam as well as the exclusive right to operate and maintain the existing 116 MW Tikves HPP. The estimated value of the Cebren HPP and the Orlov Kamen dam is €570mn.

"Criminal" post-independence privatisation

The first major wave of privatisation, which started after Macedonia separated from former Yugoslavia in 1991, was described mainly as “criminal” because many state-owned companies were practically given to their directors and managers for very little money while many people lost their jobs.

Businessman Risto Gusterov, who made a fortune from privatisation after being the socialist-era manager of consumer goods trader Tehnometal Vardar, was recently quoted by media as saying that the method of the post-independence privatisation was a “cardinal mistake”.

“Back in 1994, I suggested to [now late] president Kiro Gligorov that privatisation should not be done that way and such cardinal mistakes should not be made,” Gusterov, who was credited for bringing Johnson Controls to invest in Skopje free zone, told Deutsche Welle last October.

He said that he suggested the big companies from the energy, banking and telecommunication sectors first be consolidated and then offered for sale to local or foreign investors.

Nearly three decades on from the first disastrous wave of privatisation, the current government of North Macedonia faces the challenge of how and whether the new candidates for privatisation will be sold.