ECONOMY

Bosnian Serb PM denies mishandling privatizations

SARAJEVO – The Bosnian Serb government has rejected suggestions it mishandled two high-profile privatizations in the energy sector, saying it clinched good sales for firms that had been facing bankruptcy. Anti-corruption activists, financial market analysts and media say the government was unnecessarily secretive about the sell-offs, failed to provide timely and accurate figures about how much money it raised, and agreed to terms that hurt the interests of small shareholders. «There is nothing non-transparent in either of these agreements,» Serb Republic Prime Minister Milorad Dodik told Reuters this week in a written response to questions summarizing the criticism. Parliament approved the deals and contracts were available to all interested parties, he said. The contracts have not been published, but authorities have said they would be available for viewing with prior appointment at the government’s discretion. Some analysts and investors say the controversy around the privatizations has hurt the stock exchange. The Banja Luka bourse’s BIRS index fell from a record 4,801.94 at the end of April to 2,614.36 at the end of October. Bourse spokesman Darko Lakic said prices had boomed in what looked like a promising environment in 2006, but in the last couple of months have borne the brunt of the controversy. «We warned the authorities this would not be a good model for the development of the capital market,» he said. Economist Svetlana Cenic said falls on the Bosnian Serb exchange «all started with the so-called ‘confidential privatizations.’» This year had seen a breakthrough in Bosnia’s long-haul effort to attract investment following the disastrous 1992-95 war which left a country stitched back together in two uneasy halves – the Serb republic and the Muslim-Croat federation. The Serbs sold refinery Brod – where the state held a 70 percent stake – plus lubricants producer Modrica and fuel retailer Petrol to a Russian investor in February; and signed a joint venture (RITE) with Czech state power company CEZ in May. The government at first declined to give details on the Brod contract saying it was a «business secret.» It gave price details later but added to the confusion by making a redundancy payment that the Russians were supposed to cover, saying it would get the money back later. In the case of both Brod and RITE, it took months to release figures on the exact amounts involved in the deals. Different agencies gave conflicting figures on the amounts going to the state and pension funds and those covering debt and long-term investment. The confusion, discrepancies, initial delay in making the details public, and the exclusive use of direct talks with investors in negotiations have all drawn criticism. Dani magazine accused Dodik of «destroying the capital market in Republika Srpska» and this week the «60 Minutes» investigative TV program accused the PM of «murky deals.» Local officials of the IMF in Bosnia, the World Bank and the European Commission office have so far declined comment. Srdjan Blagovcanin of the Bosnian branch of Transparency International says the government treated strategic resources as if they were its private property, sending a «bad signal for foreign investors and the capital market.» Prime Minister Dodik said, «I consider both deals – the joint venture of RITE Gacko and CEZ and the privatization of the oil industry – as extremely favorable for Republika Srpska.» Bosnian Serb Energy Minister Gojko Ubiparip said there were only «two alternatives» for the fate of the oil sector, «one being privatization and the other bankruptcy.» Under the deal with CEZ, the government handed over a power plant and a coal mine of the RITE Gacko company as its 49 percent stake in a joint venture. But critics say it failed to get a fair price by valuing RITE at -204 million at a time when its market value at the bourse was -390 million. In the case of Brod, new owner NeftegazInKor cut the value by 36 percent once it took over. In both cases, small shareholders, who owned 20 percent in the firms through a postwar share compensation scheme, complained they ended up losing part of their savings without being consulted. Adam Cleary, who heads London-based investment firm Monte Cristo Capital which has a small stake in RITE, was among the first to complain about the deals. He sent an open letter to the Energy Ministry in June saying: «These transactions are extremely damaging for the reputation of a developing market such as the Banja Luka bourse.»