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Kosovo: “Corrupted privatization”

By Astrit Gashi / Koha Ditore

Prishtinë, Mar 28, 2006 - Continuous withdrawals of the highest bidders for the privatization of SOEs over the past year have strengthened suspicions on corruption in privatization.

Corruption during the sale includes not only potential agreements between bidders, blackmailing, or threats, there are also suspicions that KTA officials or members of its managing Board are involved in corruption.

Last week the highest bidders for Grand and Iliria hotels and Rahovec Winery withdrew. They did not pay the money within the deadline. The three enterprises were sold through special spin off. The Makos consortium informed one day before the deadline that it is withdrawing from the sale of Grand. The money for Iliria was not paid until Friday 17:30 when the deadline was to expire. In its letter to KTA, Makos wrote that they are withdrawing from the privatization of Grand because they were threatened. But the police did not confirm anything. The public commented Makos’ claims as being a justification for getting back their € 500,000 from the KTA bank account, alluding in secret agreements.

Meanwhile, the media published documents, which show continuous failures of the main shareholders to collect the money for the purchase. The two bombs in front of Grand Hotel are also linked to the privatization of this enterprise, although neither the motives nor the target of the attack are known.

But that does not mean there are no reasons to believe the bidder withdrew because he lacks the money.

Right after having been informed that the highest bidder is withdrawing, the KTA said they have started negotiations with the second bidder, thus agreeing to sell the enterprise to a bidder that offered lower price, less investment and to hire less people.

The sale price is not the main element in the privatization of enterprises in Kosovo given that it is not known how many of them will remain in Kosovo, and how many of them will go to Serbia. The importance of the privatization in Kosovo was first of all that the enterprises have a legal owner through completely right and transparent procedures. A process that refers to legal issues should not allow action that could be considered as law violations, such as secret agreements or collusion. By entering in negotiations with the second bidders KTA is first of all supporting collusion, although in fact it should do everything possible to prevent them. KTA’s duty is to not allow such sales.

The list of the enterprises, sold to the second or the third bidder, is long. We will only mention some of them: Ferronikeli, Farmed, Eximkos, Water Factory in Kllokot. The reason why KTA is allowing these things to happen is unknown. There are, however, suspicions that its officials are involved. Two years ago KTA officially accused officials of the Privatization Department of being involved in secret agreements regarding the sale of Plastika enterprise. The tender was cancelled and re-tendered and the enterprise was sold. Last year there were allegations that KTA officials are involved in collusions, maybe because of the provisional withdrawal of the highest bidders.

In the Ferronikeli case the daily Koha Ditore published proofs for Bujar Dugolli and his advisor John Johnson being involved in the sale in the interest of Alferon. Dugolli is Deputy Chairman of the KTA Board, which made the final decision to declare the second bidder a winner. Meanwhile, Johnson was Director of Privatization at KTA until a year ago. This way the possibilities for Johnson to lobby in favor of Alferon go even further than the one of the Kosovo minister and reach up to the KTA in general.

There are allegations that KTA officials interfered also in the withdrawals of the bidders like in the case of the three enterprises. No proof was found so far for any of the accusations. There are some explanations for this: either the accusations are groundless or they are remaining silent as it benefits somebody at KTA.

Even if we leave these allegations aside, the KTA cannot deny its role in the privatization of SOEs, especially of those privatized through special spin-off.

The Privatization Department is in contact with the bidders all the time during the whole tender process. This department’s task is to help those interested by supplying them with data on the enterprises. The data offered have an impact on potential investors when deciding to participate in the bidding but also when determining the price. We should bear in mind that last year two foreign investors and many serious investors withdrew from the privatization process before being announced loser. Samsung withdrew from the bidding for Ferronikeli as if was afraid it would fail to provide sufficient energy. Mittal Steel withdrew from the tender for Llamkos enterprise for unknown reasons. These two enterprises were sold to some other investors, whose names do not indicate anything good.

Over all, the problem is within the privatization procedures, which were changed more than a year ago. These procedures allow two rounds of bidding, thus offering the bidders a possibility to make agreements in between the two rounds, so that the KTA officials could ask for their “spoil”. This period also leaves space for threats. When the KTA decided to allow two bidding rounds, local and international lawyers and economists warned of corruption. But the suggestions were not considered. The procedures that were applied at the beginning were much simple. There was only one round of privatization, the bids were opened latest an hour after being submitted, they were reviewed within a day and the provisional winner was declared. Analyzing the effect makes everyone suspect that the aim of changing the procedures was corrupted. If this was the goal, it has been achieved. Privatization is corrupted.

Astrit Gashi is chief editor for economy of Kosovar daily Koha Ditore
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