privatizacija u srbiji - rezultati i institucionalni promašaji

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ECONOMIC ANNALS, Volume LVI, No. 191 / October – December 2011UDC: 3.33 ISSN: 0013-3264

* Faculty o Economics, University o Belgrade, Serbia, [email protected]** Faculty o ransport and raffic Engineering, University o Belgrade, [email protected]

JEL CLASSIFICATION: P26, P31

ABSTRACT: Since the beginning of the1990’s several models of privatization havebeen applied in Serbia. While much waswritten concerning the models themselvesat the time of their application, remarkablylittle has been written in regards to theassessment of their implementation overthe last decade. Te paper investigates the

scope, types, and results, with an emphasison this time period. Given that the official failure rate of privatizations undertakenis around one in four, the paper focuses onthe weaknesses of the legal and economicaspects of the model, the weaknesses ofthe privatisation implementation, and

the weaknesses in the monitoring of the privatization process. Another focus is onthe inadequate attention paid to the need forinstitutional coherence, which led to resultsthat were not in accord with the goals setout. Te paper will also point out the areasof further research that, in the opinion ofthe authors, should be undertaken in order

to come to an assessment of privatizationas the central and most important aspect ofthe transition.

KEY WORDS: privatization, propertyrights, socialist enterprises, transition

DOI:10.2298/EKA1191089V

Ivan Vujačić* Jelica Petrović Vujačić**

PRIVATIZATION IN SERBIA –RESULTS AND INSTITUTIONAL FAILURES



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Economic Annals, Volume LVI, No. 191 / October – December 2011

1. INTRODUCTION

Te transition in Serbia, o which privatization is surely the centrepiece, wentthrough various phases due to many reasons, the most important being thewars in the ormer Yugoslavia and UN sanctions, as well as permanent politicalinstability.

When analyzing the process o privatization one should be aware o itspolitical ramifications. Indeed, it is our belie that the privatization process ispredominantly politically determined, with institutions being ormed anew toachieve political goals. Furthermore, we will argue that the political aspect o

privatization was the primary actor that led to some or most o the institutionalailures o privatization in Serbia. Given that privatization in any countryundergoing transition is a process o large scale property rights transer, asopposed to most privatizations in established market economies, it has long-term consequences regarding the economic and social structure, thereby creatingpolitical consequences that may block the completion o the transition process.In itsel such a state o affairs may lead to prolonged stagnation, or reasons thatwill become apparent.

2. THE HISTORICAL LEGACY

Any student o the Yugoslav system o sel-management is well acquainted withthe hybrid system o a managed market economy with somewhat uzzy propertyrights. A vast body o literature was produced over the years o the heyday osel-management, providing the literature in the field o comparative economicsystems with both empirical and theoretical works o enduring value (Vanek,1970,Estrin,1984). Te most important eature o this system was the right o useo firms’ unds by the managers and workers’ councils, within the bounds o thelaw and without the right o sale o the firms’ property and assets. It is also wellknown that there were various orms o political control and some elaborate plansto introduce a certain degree o planning through so-called ‘social compacts’between firms.Nevertheless, the Yugoslav economy certainly resembled to a highdegree a true market economy as opposed to a centrally planned economy. Aferall, central planning had been done away with in the 1960’s.

Tereore, the most important characteristic o the Yugoslav system was that itempowered employees and provided them with the belie that they ‘owned’ the

enterprises that they were employed in. One cannot stress this eature enough,



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as it proved to be the single largest constraint at the beginning o the process oprivatization. Tis may sound somewhat contradictory, since the experience o a

market economy and previous market reorms should have been an advantage orproceeding with privatization. In other words, the natural way to proceed wouldhave been a model o privatization suited to the political and socioeconomicconstraints stemming rom the social reality inherited at the starting point o theprivatization process.

Indeed, the first efforts at privatization were geared in that direction (Zec etal,1994).Tis short-lived effort was primarily aimed at defining property rights;that is, at setting up a legal ramework or the incorporation o firms in order

to define property rights, afer which a model o insider privatization could beapplied. Te liberalization and macroeconomic stabilization that accompaniedit, as well as the ounding o the stock exchange, were all steps in creating theoundations or the privatization process that was to come. In act, the Act onFinancial Operations and Laws on Social Capital, passed in 1989, enabled amodel o insider employee privatization. Te shares o enterprises were sold at a30% discount to present and ormer employees. Each year o employment gavethe workers a 1% discount up to a total maximum discount o 70%. Although thisapproach barely took off, given the deteriorating political situation that turned

into armed conflict and UN sanctions, some 1,220 enterprises began the processo privatization.

Given the conflicts, sanctions, and demise o the Yugoslav ederation, all o therepublics embarked on their own roads to privatization by passing their own lawsin order to regulate this process. In 1991 Serbia adopted a Law on Conditionsand Procedures to ransorm Collective Property into other Forms o Property.Tis allowed or the privatization o ‘social capital’ and nonstate-owned firmswhose ownership was ‘transormed’ into ownership by state or local privatization

authorities. Furthermore, privatization was not mandatory.Te approach didnot stray rom the general philosophy o employee privatization, but had morerestrictive conditions. Employees got a 20% discount, with 1% or each year oemployment up to a maximum o 60%, with a five-year repayment period. Acap on the maximum worth o shares was introduced amounting to the sum oDM (Deutsch Mark) 20,000 or individual workers and 30,000 per manager. Teprivatizations begun under the previous law had to adjust to the new legislation.From August 1991,when this new law came into effect,until the spring o 1994,only 668 enterprises had commenced the privatization process. Almost doublethat number had begun the privatization process on the basis o the previous

ederal legislation. In any case, hal a million workers became shareholders, with



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the overall structure o capital in these firms being 80% private and 20% social(Uvalić, 2010, p.65).

Te legislation provided or revaluation o capital on a yearly basis. However, dueto record hyperinflation, the process became a giveaway and became politicallyunacceptable. In act it was the opposition party (the Democratic Party- underthe leadership o Đinđić) that proposed amendments on capital revaluation inorder to rectiy the drastic gap being ormed between a realistic share value andinflationary undervalued company shares. Te ruling party (Socialist Party oSerbia- under the leadership o Slobodan Milošević) not only adopted theseamendments but also used the application o revaluation coefficients in such a

way as to basically annul the whole process. Te coefficients grossly overvaluedsocial capital, drastically reducing the share o privatized capital. At the end othe process enterprises were lef with between 1%-40% o private capital, withfirms that had started the privatization process in 1993 having private ownershipreduced to 1%-2% o total capital (Vujačić, 1996.pp 398-9). Tus, in effect, thewhole privatization process up to that point had been reversed or significantlyset back. Tere are differing opinions on whether or not this policy was wrong.Certainly it led to broad discouragement and great reservations in regards to thecontinuation o privatization. Te process was basically halted and compromised.

Along with this process, a process o nationalizing social capital began with largeenterprises and public utilities becoming state–owned as opposed to socially-owned firms.

It is difficult to see how the privatization process could have gone orward underthe exceptional circumstances o sanctions, war, and hyperinflation withoutbreeding extreme and broadly based political resentment. Te only realisticoption in those circumstances would have been to adopt a model o direct orindirect giveaway; that is, a model that would have been based on property rights

transer. Tis did not occur. Instead, new privatization legislation was passed in1997 (Petrović, J., and Vujačić, I., 1997).

According to the new law, afer valuation 10% o company shares would betranserred to the State Pension Fund, afer which employees or ormer employeeswould receive an amount o shares in their companies to the extent o DM 400per year o employment, limited to 60% o the total capital. I the limit was notreached, any citizen (age 18 or above) could also receive these shares on equalterms. Te second round would allow employees to purchase shares at a 20%discount with an extra 1% discount or each year o employment, up to the limit

o 60%. Individual employees had the right to purchase these shares up to the




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amount o DM 6000 and with a repayment period o up to six years. Proceedsrom the sales were to be divided equally between the Pension Fund and the

Employment Fund, with the remaining 50% going to the Development Fund.Unsold shares were to be ascribed to the Shareholder Fund. Only some 400enterprises began privatization under the new 1997 legislation. Te major reasonor lack o interest was not only disbelie in the process due to previous revisionso legislation and the effective annulment o privatization, but also the exchangerate. With the market exchange rate being multiple times over the official rateand the evaluation o firms being done at the market rate, there was very littleincentive or employees to pursue privatization on their own initiative. Tis wenton till the very end o the Milošević regime.

3. THE NEW MODEL

Te radical push or privatization began only afer the interim government wasormed afer the democratic revolution in October 2000. Between that time andthe ormation o the new government by the Democratic Opposition o Serbia(DOS) another 350 enterprises chose to enter the privatization process, bringingthe total to 778 under the 1997 privatization procedures (Uvalić, 2010, p 97).

Te main reason or this was the exchange rate, which was devalued in order tobring it in line with the market rate (at 30 dinars to 1 DM). Te other probablereason can be ound in the uncertainty concerning new privatization legislation.Certainly, and with good reason, employees anticipated that the new law onprivatization would limit their rights and benefits. In other words, the existinglegislation, along with an exchange rate that would guarantee a decent percentageo shares in their firms, gave an extra impetus to employees o relatively solidmedium sized firms to initiate the privatization process. One should thereorekeep in mind that most o the firms privatized according to this method belong

to the group o better perorming companies. Tis must not be neglected whenevaluating the results o the privatization that ollowed. At the moment theailure rate o privatization since 2001 is high, and would probably be lower i theprevious privatizations were to be taken into account.

Te Privatization Law passed in 2001 was heavily influenced by the leadership’sperception o the political nature o the process. Firstly, the privatizationprocess was seen as an opportunity or a clean break with the past system osel-management and the ensuing models o insider employee privatizations thathad been judged as inadequate up to that point. Not only were the results seen

as modest, but also the model itsel was seen as a perpetuation o the inherited



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system. Te model retained the dominant role o insiders, which was seen as animpediment to better corporate governance, considered to be o vital importance

in a ully fledged unctioning market economy. Te act that the process o insideremployee privatizations had been reversed by political action and hindered by alack o employee motivation only confirmed the belie o the reormers that aradically different approach was necessary.

Furthermore, privatization was seen as crucial in making the process o reormirreversible. In other words, divorce o management and ownership romemployee management was seen as a definite break with sel-managementandsimultaneously as a blow to past, entrenched interests that could at some point

rally around the opposition (primarily the socialists and radicals). No matterwhat one may think o sel-management (and the democratic opposition hadbeen ideologically opposed to it rom the beginning) it must not be orgotten thatthe system had been much compromised during the 90s, with the managers in adominant position to abuse social property and quietly strip assets or their ownbenefit, and to provide both material and moral support to the regime.

Finally, having inherited a devastated economy and a country on the verge obankruptcy, the reasons or an approach based on sales were seen as one that

would enable the recuperation o the state budget. Also, it could provide orpotential investment in inrastructure and unds or social services. In otherwords, the proceeds could help the unctioning o the social saety net in theprocess o transition. It is not surprising, thereore, that the proceeds romprivatization were to be allocated to the state budget (75%), the Restitution Fund(5%), the Pension Fund (10%) and the Inrastructure Fund (10%).

Te model based on sales was adopted and provided or two types o sales:tenders and auctions. enders were to be applied to large enterprises with the

hope o attracting large oreign strategic investors that would bring know-how,efficient management, export markets, and the like. Auctions were meant orsmaller and medium sized enterprises. Another 75 large enterprises that werestate owned were meant to undergo restructuring, afer which they would beprivatized through a tender procedure.

It must be stressed that within the tender process the offered price was not thesole determining actor, because uture investment, the social programme, andthe environmental programme were also to be taken into consideration. In itselthis should not have been problematic, since all o these could be converted to a

monetary equivalent. Te weights to be ascribed could, however, be politically




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motivated, while the ulfilment o obligations needed monitoring and oversight.Te social programme was supposed to either provide compensation or loss o

employment or to guarantee the workers employment or a prolonged periodo time. In this way mass unemployment was to be avoided in the process orestructuring afer privatization. It was assumed that overall there would bearound 150-200 tenders so that the processes and outcomes could be controlled.In reality the number o tenders (public offerings) was close to 300.

On the other hand the outcome o auctions was to be determined solely by price.Tey were to be transparent, and the hope was that insiders would not be the mainactors in the process. Te legislation did not prohibit employee participation, but

it did make the privatization process mandatory.

Recognizing the constraints o the previous privatization legislation, the modelprovided or a ree distribution o up to 30% o total shares to employees, ormeremployees, and citizens. Each employee or citizen would acquire DM400 per yearo employment up to a limit o DM14,000 ree o charge only afer the completiono the sale (70%). Tis was supposed to paciy resistance and give the employeesa stake in the privatized firms.

Te companies that had embarked on privatization in the previous periodwere stopped rom distributing shares in the second round, but transerredthe remaining shares into the Share Fund. Te Share Fund was to sell theseundistributed shares at the request o the Privatization Agency, with the idea thattheir value would be based on the market value determined on the stock market.Te Share Fund was obliged to sell these shares, either on the stock market or byauction, within six years.

Te Privatization Agency was to run the privatization process and to be divorced

rom the Ministry. Its main task was to promote, initiate, carry out, and controlthe privatization process. Te Ministry was to participate in the orming o tendercommissions, oversee the process, and set policy.

4. THE MODEL AND INSTITUTIONAL FAILURE

Te model adopted was by its very nature incompatible with its objectives. Tebasic flaws were embedded in the model o sale and tender. By definition modelsbased on sale, with the expectation o significant revenue, need a market with

a strong demand side. Tis was obviously lacking. Te first interest in tender



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privatization came rom some o the oreign firms that had already shown interestunder the Miloševićregime, the most prominent example being Laarge.

Te firms that were attractive or purchase were profitable, cheap by westernstandards, and could be easily restructured. Most o these were in the sectorso cement, breweries, steel, and similar enterprises. Te goal was either cheapacquisition and/or market share. Tis is, o course, natural, since it is easy to selloff good firms as opposed to those which are less profitable or on the verge obankruptcy. Acquisitions by oreign flagship companies were also supposed tobe a sign that Serbia was business riendly with a pro-business government, thushopeully attracting new investors into the privatization process.

Te tender process itsel was more or less straightorward, in the sense thatonly legal entities could bid and in this case large enterprises were the objecto privatization. Certain firms might have an advantage, given that the tenderconditions could be designed to avour certain large oreign enterprises. However,oreign consultants were part o the valuation process and helped to set theconditions o tender. Te process was transparent and in the public spotlight,thus ensuring that the process itsel would be completed without wrongdoing.

Te other disadvantage stems rom the length o the process. In order or a firmto be sold it is necessary to establish a price. Tereore procedures required thatfirms be evaluated by licensed evaluators, afer which a Dutch auction would beheld. Tere were 7,000 firms that needed to undergo the privatization process anda limited number o evaluators, so the process would take time.

Te government could not have a massive sale, achieve a avourable price, andcomplete, or even initiate, the process speedily. Te government should have beenaware o the limitations o the model, and should have sacrificed either the idea

o a massive sale or the expectation that this process could be done with haste.Given what actually occurred, it ell short o both o its objectives.

Afer becoming aware that the process o privatization was not moving rapidly,the model was amended in August 2002, changing the methodology o auctionand o valuation o firms. Tese amendments were done through ordinances andundamentally changed the rules which had guided the process to that point.Instead o valuation the starting price was determined by corrected book value,and the auction method was changed to the English auction or ascending bid,with the bidding starting at 80% o the determined value.




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Tis revision did speed up the process, as obviously speed had become thepriority (Mijatović, 2005). Although the valuations might have reached prices

that were too high, given the lack o demand, this was the very reason that Dutchauctions had been introduced. Te corrected book value gave an advantage toinsiders (mostly management), as they were in a better position to correctlyestimate the firm’s real worth. In this way insider inormation became a moreimportant actor than it would have been otherwise. In other words, an incentivewas given to insider and management buy-out privatization, based on drasticallyasymmetric inormation,possessed by ew. Insider employee and/or managementbuy-outs were what the original model was meant to avoid. Te scrapping o valuation led to another problem not related to pricing, which could have been set

independently. Te lack o valuation practically eliminated basic due diligence,leading to problems o unrecognized contaminated assets, the true state oequipment, etc.; problems that suraced afer the completion o the privatizationprocess.

Te other disadvantage o this approach o starting at a low price (in general thebook value is lower than that assessed through evaluation),was that in the publicmind it was seen as a garage sale in which enterprises would be sold well beneaththeir true value. Tis planted a seed o resentment and grew the attitude that

privatization amounted to thef. Te explanation that the price was determined ina transparent process and was a market price did nothing to alleviate this broad-based public perception:to the contrary, it has become even more widespread andingrained.

Te true flaws o the model, i.e., its application, were related to severalinterdependent institutional flaws, as well as the auction process itsel. Teinstitutional flaws related to :

1) Lack o adequate controls on money laundering and the origins o capital2) Te lack o legislation concerning restitution and3) Te lack o adequate valuation and regulation o urban land use.

Te first issue o dubious origins o wealth and potential money laundering werenot adequately dealt with (Milovanović, 2007). Te political issue o whether ornot to allow the individuals who had enriched themselves during the 1990s byclose ties with the regime and/or criminal activities was not really addressed. Teonly effort was made by Prime Minister Đinđić when he proposed alaw on ‘extraprofit’. Te central idea o this was to tax some o the individuals who had enriched

themselves over the years o sanctions and war, and to thus make a clean break



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with the past. Te idea was to settle the whole question o so-called ‘tycoons’. For various reasons o a political nature there was resistance,both rom the governing

institutions and rom some o the wealthy individuals in question, and this effortailed. Tis has lef Serbia with a problematic legacy that is still present today.Wealthy businessmen are seen as ‘tycoons’ or ‘entrepreneurs’, according to whichis politically advantageous to the political actors. In the meantime the act thatSerbia has lacked a suitable and enorceable political party finance law over thelast decade has lead to a widespread suspicion that there is a strong bond betweenwealthy businessmen and the political leadership which osters corruption andshapes legislation.

Tat money laundering in the privatization process has not been adequatelydealt with is worse. Tis has led to privatizations in which individuals widelysuspected o criminal activity have used their wealth to purchase firms. Tiswas apparent in cases at the very start o the privatization process, leading tounderstandable reservations on the part o the public regarding the process itsel.Te recent revelations o money laundering o narcotics trade revenues throughprivatization and/or the purchase o firms has only added to the widespread viewthat privatization is detrimental to society.Tat the latest estimates o the amountslaundered through privatization and/or purchase o firms run into hundreds o

millions o euros certainly points to the ailure o the government to monitorprivatization and the economy.

Te lack o legislation at the very beginning o the transition regarding restitutionis understandable. Restitution needs consensus on adequate legislation, can bedifficult to implement, and requires unds that are lacking. Furthermore, thegovernment had numerous more pressing tasks to attend to. Nevertheless, thepercentage o revenue rom privatization proceeds ascribed at only 5% to theRestitution Fund should have been seen as inadequate. Certainly, no one should

have nurtured the illusion that in the end restitution could be avoided or dealtwith later in a symbolic way, making a mockery o the very idea that underliesit. Tis is also connected to the denationalization o urban land use, which hasin its own way affected the privatization process. In truth, all the governmentssince 2000 had avoided acing the issue, until the current government was orcedto come up with a proposal under pressure rom the EU accession process;restitution being one o the major issues that needs to be conceptually dealt withas a condition or obtaining candidate status.

Finally, urban land use turned out to be a major motive in privatization in many

cases, thus making the purchase and uture o certain firms almost a side issue.




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Te inherited system did not ascribe urban land to the firms that occupied it, butrather gave them use instead o ownership. As urban land had been nationalized,

the issue is closely linked to restitution. Te ailure to deal with this issue provedto be one o the major flaws in the privatization process. Although it does notmake sense or industrial plants and storage acilities to be placed on primeurban land, nor does it not make sense to neglect it in the valuation o the firms.

Te logical way was probably to transer the land to the firms, thus adding valueto the firms to be privatized. At the same time a large part o the estimated value o the land could be ascribed to the Restitution Fund, thus providing or abroader base rom which to address the issue. Tis should have been a clear option

rom the very beginning. What occurred was that in a large number o casesprivatization was pursued or the sole purpose o acquiring urban land use orurther development and building real estate, mostly apartments, at a huge profit.Te lack o regulation in this area opened the way to potential and real large-scalecorruption, insider inormation dealing. and bribes or building permits. Tatthe original model neglected this potential outcome proved to be one o its majorflaws. Tere is no easily available data on the number o firms purchased or thissole purpose, but it certainly deserves to be on the research agenda.

Above all, the auction process itsel was undamentally flawed in several ways.Te most important o these had to do with the existence o what basically camedown to dual prices. In effect, participants in the auctions could be either legalentities that were obliged to pay the price attained by auction immediately, orindividual citizens who had the opportunity to pay in six yearly instalments.Obviously this leads to dual prices, individuals getting the benefit o a lower priceby being able to postpone payment into the uture at zero interest (although theprice was set in euros).

Te act that all the individual buyer had to provide was a letter o guaranteerom a bank or cash, had deep and dire consequences or the whole privatizationprocess. At that point in time the origin o wealth did not come under scrutiny.Tis led to some individual purchases o firms by individuals being used asproxies or other wealthy businessmen who wished to remain out o the spotlight.In some cases, as we see now, some o these purchases were used or moneylaundering; i.e., making illegal wealth legitimate. Tere were also managementand employee buy-outs, in which individuals took on personal debt. Te majorflaw o this model was that afer the first instalment(or at any point urther downthe road till ull payment), the new owners could simply drop out o the process

by not meeting scheduled payments. It can be assumed that in a significant



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number o cases it was the property and tangible assets o the firm that were omain interest to the bidders. Even i, or example, the firm was later dislocated

and the urban land used or residential construction, this usually meant that thebuyer would be getting the firm or ree and achieving a huge profit without anysignificant improvements in the firm’s capabilities or market perormance.

Tis led to several types o raud. One method was to use the firm as collateralin order to obtain more credit, pump out a large sum in cash, and purchaseanother firm in the privatization process, again as an individual. Afer thatthe first privatized firm could be returned to the Privatization Agency by notpaying the second instalment. In the meantime, assets would be striped. Another

approach would be to use the firm as a legal entity to purchase another firm in theprivatization process(once again using the original first firm as collateral). Tesecond purchased firm could again be used to obtain credit, which could then beused to either repay the individual debt on the first firm or to purchase anotherin the on-going quick paced process o privatization. Tis led to the ormation oconglomerates that were based on a type o Ponzi scheme.

Further research should look at the price bid in relation to the starting price andthe subsequent ate o the privatization process on a case-by-case basis. Tere is

reason to suspect that behind the very high bids, tangible assets (or example,officespace) or urban land use were the primary motives. It would also be worthwhileto see whetherthere is a high correspondence between high privatization bidsand the subsequent annulment o contracts with the Privatization Agency.

5. CONCLUDING FINDINGS

Looking at able 1, we can see that some o our broad hypothesis concerning

the auction process cannot be dismissed at first glance. Te prices reached atauction in the case o annulled privatizations were 43% above the book value,while or the others they were below book value with the price to book valueratio at 0.90. Searching through the Privatization Agency database we ound thatapproximately 40% o annulled auctions were due to ailure to meet instalmentpayments or the privatized firms.

On the other hand, those individuals who were not in the privatization processor dubious reasons had an on-going obligation to maintain core businesseconomic activity at the level reached at the time o purchase. Tis was meant

to preserve employment, but it actually put a lot o the strain on management, at




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times becoming an impediment to restructuring. In act close to 25% o annulledprivatizations were due to the new owners not keeping the level o activity o the

core business, or more generally not preserving the continuity o the business.Tis is worth looking into more seriously, as in some cases there might have beengood reason or broader adjustments due to market conditions. In retrospect,some cases may have been due to mistakes on the part o the Privatization Agency.

Nor was the auction process immune rom dealing in inside inormation.Obtaining knowledge o how many and which parties had shown interest in theauction o a certain firm could lead to price collusion. Furthermore, having theprocess proceedin a criminalized environment could lead to pressure on those

that had shown interest and to extortion and racketeering. Finally, the ailure oauctions or lack o a second bidder did not apply in the case o a second auctionattempt. It is quite obvious that in that case the attained price would be extremelyclose to the starting price. In act the data in able 1,a summary o privatizationresults in the last decade, i.e., under the new model, support the conclusion thatin the auction process the prices achieved were very close to book value.

A separate aspect, which we will not go into here or reasons o space, is thegaining o extra shares through the recapitalization process by investing in kind

instead o cash. Specifically, this meant that appraised second hand equipmentcould be invested in the firm, increasing the number o shares o the ownerand shrinking the proportion o minority shares, thus reducing their price orpurchase at a later date. Protection o the rights o minority shareholders waspractically non-existent. We shall not urther pursue this issue here, nor shallwe deal with the possibility o manipulating the shallow stock market in orderto lower the price o shares pending a purchase rom the Share Fund. Suffice it tosay that such possibilities were present and should be a topic o urther research.

Te other results in able 1 and able 2 are in line with expectations. Again, stockmarket sales by the Share Fund had a high ratio o success (84%) in the firmsthat embarked on the process under earlier legislation. However, the price-to-book value ratio was lower than in the other cases - 0.68. As these should havebeen the better perorming firms this requires some explanation. One o themcould be that prices might have been manipulated or the benefit o the majorityshareholders.

Over all, the results are unimpressive. Te initial success o tenders stands at41%. I we add the act that 36 o these, whose combined value reached at auction

was around 1/3 o the total tender sales, had their contract annulled, the only



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conclusion is that these results are unsatisactory. In the case o auctions, althoughthe success rate was somewhat higher (64%), the combined value reached at

auction o those whose contracts were later annulled was around 50% o the total value reached in auctions.

Te investment and social programme obligations stemming rom theprivatization process were o some significance in the tender privatization, but o very little in the privatizations carried out through auction. Tese are presentedin able 2. Tey do not significantly change the overall conclusions, althoughsome contracts were nullified due to non-ulfilment o the social programme(about 50 in all).

Research on what actually occurred during the privatization process o the pastdecade requires an elaborate research agenda. Tis agenda should include notonly the interaction o the flaws listed here, but also the effects on corporategovernance, efficiency, product development, and other aspects o the privatizedfirms. Case studies would certainly be welcome. It is surprising that very littleresearch has been done on this topic over the last five years, and we hope thatthis paper will inspire urther research. Tis is important because privatizationhas not been completed. On the contrary, ormerly privatized firms are being

returned to state ownership and the Privatization Agency. Hopeully some lessonshave been learned. However, given the record o the past decade and against thebackground o the last economic crisis, privatization as a process that society willbenefit rom will be extremely difficult to sell to a disenchanted public.




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1 . 4 3

7 9 . 5 0 8

T e n d e r s + A u c t i o n s

( T

+ A )

4 . 3

5 2

2 . 6 7 8

6 2 %

1 . 5

6 4

1 9 8 . 2 7 2

1 . 9 0 4 . 6 3 1

1 . 9 8 1 . 1 2 9

1 . 0 4

1 . 1 3 9 . 8 4 4

S t o c k m a r k e t ( S M )

6 6 0

8 5 %

5

6 0

1 1 5 . 1 7 2

5 1 2 . 1 5 9

5 2 6 . 3 0 8

1 . 0 3

5 . 9 0 2

S t o c k M k t .

p r e v i o u s l y a n n u l l e d

c o

n t r a c t s ( S M a )

2 5 9

6 6 %

1 7 0

2 1 . 0 4 6

9 2 . 8 7 3

1 0 0 . 2 8 0

1 . 0 8

0

S t o c k M k t .

p r e v i o u s l y p r i v a t i z e d

( S

M p )

1 . 0 5 1

8 4 %

8

8 8

8 5 . 9 9 4

7 3 . 6 0 5

5 0 . 3 6 4

0 . 6 8

0

T o t a l

T + A + S M + S M a + S M p

3 . 5 9 7

6 6 %

2 . 3

8 4

3 3 4 . 4 9 0

2 . 5 8 3 . 2 6 8

2 . 6 5 8 . 0 8 1

1 . 0 3

1 . 1 4 5 . 7 4 6

N o

t e : D a t a p r o v i d e d b y t h e P r i v a t

i z a t i o n A g e n c y o f t h e R e p u b l i c

o f S e r b i a u p o n r e q u e s t o f t h e a u t h o r s . A f u r t h e r d a t a b a s e o f a n

n u l l e d

c o n t r a c t s w a s p r o v i d e d o n t h e b a s i s

o f w h i c h c a l c u l a t i o n s a n d a p r e l i

m i n a r y a n a l y s i s b y t h e a u t h o r s , p

r e s e n t e d h e r e , w e r e c a r r i e d o u t .



104


Table 2 Social Programme and Investment Programme Resultsin the Process o Privatization

Sum 2002-2011Social Programme

(in 000 Euro)I/B S/B

enders () 276.689 1.01 0.30enders –annulled 2.042 0.52 0.00Auctions (A) 0.21Auctions- annulled 0.22

enders + Auctions (+A)276.689

0.60 0.15

Stock Market(SM) 0 0.01Stock mkt. previously annulledcontracts (SMa)

0 0.00

Stock mkt. previously privatized(SMp)

0 0.00

OAL

+A+SM+Sma+SMp276.689 0.44 0.11

Source: Privatization Agency o the Republic o Serbia

Acknowledgements

We are grateul to Vladimir Cvetković and Boris Majstorović o the PrivatizationAgency o the Republic o Serbia or providing us with the use o the latest datarom their data bases. We are also grateul to Miodrag Zec or valuable suggestionsand comments. Tis research was supported by the Ministry o Science andechnological Development o the Republic o Serbia through the project TeRole o the State in the New Growth Model o the Serbian Economy (no. 179065).

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Received: September 09, 2011

Accepted: October 21, 2011

privatizacija u srbiji - rezultati i institucionalni promašaji

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