Although the rumor has been spreading in Serbia for years that everything worthwhile was sold in privatization for small money, the truth is still significantly different. The key property remained in state hands, but it is extremely poorly managed. Public companies have 23% of the total capital in the Serbian economy. Privatization, with rare exceptions, has so far bypassed them, with the exception of NIS, the concession for Belgrade Airport and the partial privatization of Air Serbia.
There are currently 549 public companies operating in Serbia at the national, provincial and local levels. The state also owns several companies organized as d.o.o. or a.d. (formally they are not public companies), such as the State Lottery, DIPOS, Corridors of Serbia, JAT Tehnika, Prosvetni pregled, three joint stock companies separated from the Railways and several other smaller companies. Public companies employ about 115,000 workers (130,000 with Telecom and RTS), or about 10 percent of the total number of employees in the economy. Most of them are at the local level (local utility companies, mostly water utilities), but they are mostly micro (174) and small companies (260). Large companies employ almost 2/3 of the total number of employees in public companies.
Public companies have huge assets at their disposal. According to the balance sheets, business assets amount to about 22 billion euros, and the value of real estate is about 17 billion euros, not counting Telecom, Airport and Air Serbia. It is a huge fortune – today the construction of the Djerdap hydroelectric power plant would cost from 3 to 5 billion euros, not to mention other energy facilities within EPS or the Belgrade water supply and sewerage network.
However, although they have huge assets and have a monopoly position, public companies operated (cumulatively) in 2019 with a loss of 4.8 million euros. They generate only 5.9 percent of the total income of the Serbian economy, although their business assets make up 16.3 percent of its total business assets. This shows that huge public funds are used very inefficiently and irrationally, ie that the private sector shows incomparably better business results.
After the relative consolidation, which begins in 2001, there was a big downturn in 2008, and partial stabilization in 2014, with the beginning of a new negative cycle in 2018. Telecom and Srbijagas can serve as a good illustration of the collapse of public companies.
Telekom has stopped investing in development since 2008 and thus practically leaves the only technology of the future (multimedia) to the competition of SBB, which is becoming a de facto monopolist with about 50 percent of that market. Through a series of small leech companies, money is being withdrawn from the company and the business performance of the company is starting to decline sharply. The attempt at privatization failed ingloriously, and in order to distribute free shares to citizens before the 2012 elections, Telecom took a loan of over half a billion euros and bought 20 percent of shares from the Greek co-owner at a fabulous price of 420 million euros. From then until today, all governments insist on paying dividends, so the company is slowly failing.
As a result of ten years of wrong business policy, Telecom was forced to buy out all the remaining cable television operators and to invest in the production of television series (in the jargon – content), with enormous borrowing. If, for example, instead of buying the Greek share and paying dividends, Telecom invested in the development of multimedia and expansion of optics, today it would not be in a situation where its corporate bonds must be bought by the National Bank, but would bring huge profits to the state. And, not to mention, from its sale, maybe two to three billion euros could be collected (currently, not even half a billion can be obtained).
Since 2011, Srbijagas has been taking liquidity loans worth one billion euros, with state guarantees and high interest rates. Since he was not able to repay those loans, in the following years they all fell on the budget. The money was not invested in development, but Srbijagas became a co-owner of a whole range of companies, not only gas consumers – non-payers, but also political projects such as, for example, Belgrade’s Informatika. By the way, due to the non-acceptance of the state issuing guarantees to Srbijagas, the Minister of Finance Dijana Dragutinovic was replaced in 2011, and the issue of guarantees was one of the reasons for the termination of the arrangement with the IMF.
In an extremely ungrateful situation, after the initial confusion, the government began in 2014 a partial consolidation of public companies (this was also sponsored by the IMF). The state stopped issuing guarantees for current liquidity to public companies (investment guarantees remained) and there was an increase in the prices of services of certain companies. Public companies have stopped tolerating perpetual defaulters such as Azotara (five million euros a month at the expense of Srbijagas), Petrohemija, Staklar in Paracin, Zelezara in Smederevo and RTB Bor. Some of those companies ended up in bankruptcy, some were privatized, and Petrohemija began to settle its obligations.
An employment ban has been introduced so that the number of workers is slightly reduced. Public companies were also “pleased” that the state de facto fixed the dinar exchange rate, so they did not have to bear losses based on exchange rate differences for loans in foreign currency. The large drop in interest rates for loans also contributed to the improvement of the position. Public companies have benefited greatly from the increase in financial discipline of citizens since the collection of utility services was transferred from the courts to the executors, which led to a huge jump in collection, which today is practically 100 percent (previously 85-90 percent).
After a short stabilization, it soon continued as before, so public companies began to decline intensively again. One of the reasons is the decision that all public companies pay dividends to the budget instead of investing in development. A special irony is that Telecom has to pay dividends in the amount of 21 million euros this year, although it had to issue corporate bonds due to the impossibility of normal borrowing from banks (part of the bonds ended up with the NBS, because there was no adequate commercial demand). EPS also paid dividends to the state, only to operate at a loss last year, and this year it fell to subsidies from the budget of 40.1 million euros, for the first time in the company’s history.
However, it was not only the withdrawal of profits by the government that brought public companies into crisis. The incompetence of the management staff, as well as the growing corruption, began to pay off. This can be seen in the example of Jugoimport-SDPR, whose business is, however, the least known due to the confidential nature of the arms trade. In addition to Telecom, SDPR had to issue corporate bonds of 200 million euros in the fall (it is not known whether part of those bonds ended up with the NBS), and in 2012 they had 150 million euros in cash on their account, which speaks of the company’s decline.
Public companies manage huge resources and on top of that they have (for the most part) a monopoly on the market. However, the business results, ie the net loss of the sector, show the extent of incompetence and corruption of management structures. Key public companies, which are extra-profitable everywhere in the world, have been brought into a humiliating situation – EPS receives subsidies, and Telekom and SDPR issue bonds that end up with the National Bank…
Instead of being the engine of economic development with large investments, the public sector (except for road construction) “coughs” and barely manages to ensure normal functioning. There is a lack of money for large investments that would significantly improve business and contribute to better provision of services to the population. These funds cannot be provided from regular operations, since most public companies report losses (and even when they report profits, the state takes dividends into the budget instead of investing in development). That is why companies have limited opportunities to borrow, so that is covered by state guarantees. Of course, the question is how long the state will be able to issue guarantees for new loans due to the sharp jump in public debt this year.
Although the rumor has been spreading in Serbia for years that everything worthwhile was sold in privatization for small money, the truth is still significantly different. The key property remained in state hands, but it is extremely poorly managed. This does not mean that the public sector should be privatized – as a rule, the private monopoly is worse than the state one. Of course, we can say that Serbia did not do badly with NIS and that for now the concession for the airport is working well (since the private partner started large investments at the time of the huge air traffic crisis). However, the experience from the neighborhood calls for caution – Croatia is dissatisfied with how it went with Zagreb’s “Tudjman” airport, and the Hungarian experience around highways is no better.
For the future of the economy and the general well-being of society, a significant turnaround in the public sector is necessary, which must become a generator of development. Without that, not much time will pass and we will be in a situation where we will be forced to privatize state-owned companies under conditions that will not be favorable, Nova Ekonomija reports.
