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Privatisation remains of central importance to Kosovo’s economic revival


Kosovo stands to benefit from millions of euro investment and substantial job creation

By Jasper Dick

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 economic re-vitalization is the privatisation of stranded enterprises, commonly identified as "socially owned enterprises", SOEs, and the modernisation 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 programme of incorporation, enabling it to reorganise 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 privatisation 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 privatise, 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 privatising a large number of small- and mediumsized SOEs in a diverse range of economic sectors, the KTA has had a degree of success in targeting major SOEs for privatisation, and in many instances has seen these privatised companies flourish. In July 2005, for example, the KTA finalised the sale of Llamkos, a steel-galvanising factory, which is now successfully exporting steel pipes throughout the Balkans. In February 2006, the KTA put forward a number of large SOEs for privatisation, 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 privatisation 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 finalisation 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 reorganisation of Trepca, which hopefully will go some way towards revitalising these famous mines.

Each of the major transactions and projects outlined above has difficulties and challenges associated with them. Privatisation can be a complicated and time-consuming process. In Kosovo, it 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 privatisation 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 privatisations in Turkey, Slovenia, Russia and Mongolia.
 
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Background information for foreign investors

Kosovo: General Information
Kosovo: Key economic indicators
Why do business in Kosovo?
Legal Framework in Kosovo
KTA and Privatisation in Kosovo



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Current publications

Company Foundation, Taxes and Employment Law in Kosovo
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Program of Recovery and Production in Ferronikeli (in English)
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