Sunday, March 26, 2006

Privatization Central to Kosovo's Economy

With the privatization process accelerating toward completion, Kosovo stands to benefit from millions of euros in investment and substantial job creation
(Focus news Agency)
By Jasper Dick, managing director of the Kosovo Trust Agency

Following the end of the conflict in the summer of 1999, Kosovo's economy was a basket case. Years of under-investment, chronic mismanagement and the legacy of central planning had greatly reduced the economy's capacity to both produce and compete.
It was clear from the start of the international community's involvement in Kosovo that reforming and rebuilding the economy would be a major challenge. A central component of this policy for the economic re-vitalization of Kosovo is the privatization of stranded enterprises, commonly identified as "socially owned enterprises", SOEs, and the modernization of Kosovo's public utility firms, "publicly-owned enterprises", POEs.
To facilitate the above aims, The Kosovo Trust Agency (which was established by the United Nations Interim Administration in Kosovo, UNMIK, in June 2002) is charged with "preserving and enhancing" the value of both publicly owned and socially owned enterprises in Kosovo.
POEs include businesses such as KEK, the electricity company of Kosovo, and PTK, the telecommunications and postal services provider.
In the above cases, as with all other POEs, the KTA has put in place a program of incorporation, enabling it to reorganize the businesses in line with accepted corporate models and current best practice.
This includes attempting to provide accurate financial records, reporting mechanisms and systems, establishing capacity-building efforts to train local staff, introducing boards of directors and putting into place effective and robust corporate governance structures.
As far as SOEs are concerned, the KTA is tendering such enterprises for sale through a process called "spin-off." This privatization methodology is used to transfer the assets and profitable components of the enterprise into a new company, or "NewCo". Shares in this new company are then held in trust by the KTA, which sells them to private investors. The proceeds from these sales are held in trust by the KTA.
As of March 1, the KTA has tendered 145 SOEs. Because the KTA is occasionally obliged to divide SOEs into more than one new company, or NewCo, in order to privatize, this has resulted in the creation of a total of 219 NewCos.
The SOEs of Kosovo were not an overwhelmingly large number of business enterprises, numbering less than 600. But they had, and still have, a critical strategic place within Kosovo's economic landscape. Some informal estimates state that SOEs at one time comprised approximately 90 per cent of Kosovo's industrial assets, and made up 20 per cent of prime agricultural land (including major consolidated land parcels suitable for large-scale modern agricultural methods) and 60 per cent of Kosovo's forests.
In addition to successfully privatizing a large number of small and medium sized SOEs in a diverse range of economic sectors, the KTA has had a degree of success in targeting major SOEs for privatization, and in many instances has seen these privatized companies flourish. In July 2005, for example, the KTA finalized the sale of Llamkos, a steel-galvanizing factory, which is now successfully exporting steel pipes throughout the Balkans. In February 2006, the KTA put forward a number of large SOEs for privatization, including the Grand Hotel, the landmark high-rise which dominates downtown Pristina, the Peja Brewery, Kosovo's only major beer producer, and the Rahoveci Winery, the largest winery in Kosovo.
The process for concluding the sale for the firms tendered in February is ongoing, but when completed they have the potential to generate well over 30 million euro of direct investment. In addition, the sale of the largest single SOE to be tendered to date, the Ferronikeli Nickel mine, is nearing completion. Under the current conditions of sale, the privatization will include a minimum investment of 20,000,000 euro by the purchaser and will require the new owner to employ 1,000 workers within one year of the finalization of the sale.
The KTA is also active in a number of other projects considered critical to Kosovo's economic development. In late February 2006, the KTA began an advertising campaign, looking for strategic partners to assist local interests in the development of the Brezovica Ski Centre. The KTA is also laying the groundwork to begin the process of assisting in the reorganization of Trepca, which hopefully will go some way towards revitalizing these famous mines.
Each of the major transactions and projects outlined above has difficulties and challenges associated with them. Privatization can be a complicated and time-consuming process. In Kosovo, the process of privatization has been made more challenging because of the KTA's and the international community's determination to protect the rights of minorities and to carefully assess worker, creditor and ownership claims.
With these concerns in mind, the Kosovo Trust Agency continues to move forward with the privatization process, which will hopefully assist in the creation of private property rights, increase private investment in infrastructure and generate thousands of new jobs.

Jasper Dick has been managing director of the Kosovo Trust Agency since June 2004. In addition to Kosovo, he has been involved in privatizations in Turkey, Slovenia, Russia and Mongolia

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