ECONOMY

Serbia dragging its feet on sale of oil monopoly

BELGRADE (Reuters) – Discord in Serbia’s fractious coalition government appears certain to delay the privatization of oil monopoly NIS for yet another year, leaving the company to stagnate without investment and fall prey to competitors, analysts and officials say. NIS is the only state-owned oil firm in the Balkans to have escaped major restructuring or sale. It dominates Serbia’s market, the biggest in the region, with a monopoly on refining, but is already feeling the pinch from more sophisticated competitors. Its partial privatization was first discussed in 2005 as part of a deal with the International Monetary Fund (IMF). It was slated for 2006 but postponed due to months of election and political crisis. Officials and analysts say it is doubtful whether the current deadline of end-2007 can be met. «The government has not yet discussed the privatization of NIS,» a senior government official told Reuters on condition of anonymity. The coalition of nationalists and pro-Western liberals that was formed in May made the sale a top priority. But so far, they «have different concepts» of the sale, the official added. NIS’s nominal value is $1.2 billion. The initial plan in 2006 was to sell a 25 percent stake for around $300 million, coupled with a requirement for the buyer to commit to an additional $250 million in investment. Suitors lined up, with MOL, OMV, PKN Orlen, Hellenic Petroleum, Lukoil, Gazprom Neft and Rompetrol expressing clear interest. But now, the official said, parties could not decide whether to sell 25 percent or over 50 percent, for a better price. «It could take weeks, or months, to resolve,» the official said, and that without factoring in the necessary legal steps. The row is also blocking a commercial loan that NIS sought in order to modernize its main refinery, expand its network of 490 petrol stations and look into exploration abroad. «If we don’t get this credit, we will not have enough money to modernize,» a source at NIS told Reuters. «We will not be competitive when the market opens up.» NIS management originally asked the government to approve a loan of up to -380 million, but was rejected. It is now awaiting a decision on a -100 million loan, not too hopefully. «Why give them credit to modernize when they have a monopoly?» a government source close to the deal told Reuters. «Derivatives must be processed in their refineries and the price is higher than anywhere in the region.» Belgrade has banned imports of oil derivatives until 2010 to allow NIS some breathing space to recover from the damage caused by Serbia’s economic isolation in the war-torn 1990s and the 1999 NATO bombing targeting its two refineries. But with state finances tight, very little has been done. «A free market would be a disaster for NIS,» Energy Minister Aleksandar Popovic told independent radio station B92 last week. The 3.5 million tons of derivatives NIS produces annually is not enough to even cover domestic demand, and does not fulfill necessary quality standards for export. When the monopoly expires, firms with a retail presence already established will be well-placed to challenge NIS seriously on all fronts. Unofficial data show the firm lost 10 percent of its retail market share in the last two years to the more polished offerings of newcomers, such as Austria’s OMV and Hungary’s MOL. «NIS cannot compete with those companies in the retail sector,» said economist Vuk Djokovic of the CEVES think tank. The longer Belgrade waits, the lower will be NIS’s market value, some officials warn. «It is not just selling it, it’s when we sell it,» Milan Parivodic, adviser to Serbian Prime Minister Vojislav Kostunica, told Blic daily. «By delaying, we’ve lost millions.» But some in Belgrade say a proper sale might never take place, and NIS could be sacrificed to political bargaining. «One reason to delay the sale would be to keep open the possibility of trading NIS with the Russians in return for their support on Kosovo,» one government official said.