Serbia, All public companies will be transformed into joint stock companies or limited liability companies by 2025

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All public companies will be transformed into joint stock companies or limited liability companies by 2025, according to the Draft Law on Public Companies

A public company cannot be privatized, but a joint-stock company can. This is the reason why the first reaction of the opposition parties to the news that EPS and “Pošta Srbije” will be converted into joint stock companies was that the state wants to privatize these companies. However, since all public companies will have to transform into joint stock companies or limited liability companies by January 1, 2025, this news from the Draft Law on Public Companies sheds a different light on the mentioned news. The transformation means that the state remains the owner, but it opens the possibility for some public companies to be entrusted to the management of professional managers.

Ljubodrag Savić, professor at the Faculty of Economics, emphasizes that the transformation of public companies into joint-stock companies can be done without having to go through the privatization process.

– The owner of a public company is the state. She will be the owner in the new company as well, but the joint stock company implies that some others can also get a part of the ownership. These can be citizens, employees, former owners and pensioners. In the case of EPS, since it is the largest state-owned enterprise, the state will individually remain the majority shareholder. From the aspect of management, it means nothing, the state will continue to manage that company. But it can also mean something else. If it corporatizes a public company, perhaps the state will decide not to be the manager and entrust it to professional managers. In which the state sets the goals and controls the implementation, and someone who manages is responsible for the realization of the goals.

The professor of the Faculty of Economics says that the transformation into a joint-stock company opens the possibility for EPS to be privatized, but this does not necessarily have to be done. The state can sell a large part of the shares, while retaining the golden share, that is, strategic control over the company, which means that without the state, the price of electricity cannot be increased, workers can be laid off, or production capacity can be built. There are also such situations where the states are not majority owners, but retain the gold share and decide on capital matters and do not interfere in the day-to-day management.

– I give the example of EPS because not all public companies are equally interesting. There is quite a large number of them that no one would take because of the condition they are in or the fact that the activity is not profitable. The state does not intend to transform public companies into joint-stock companies for the first time, it has announced this before. I would be satisfied if he did a proper assessment of the value of public companies, found out what he has, what the problems are, where the losses and bottlenecks are, and to know exactly what is in the state’s ownership portfolio. EPS is most suitable for privatization with a majority or minority partner, and in 2005 I proposed that it be a minority partner. The state does not need much wisdom, it should form a team of strong experts and send them to CEZ to copy what they did there and apply it in Serbia, if they have the political strength and will. EPS would become a successful company in four or five years – believes Savić.

Nemanja Nenadić, program director of Transparency Serbia, states that the Draft Law on Public Enterprises, which should be adopted by the government, sets a deadline of one year for the transformation from public enterprises to joint stock companies and companies with limited liability. The law will apply from January 1, 2024, which means that the deadline is January 1, 2025.

– Since the two previous laws on public companies from 2012 and 2016 also proclaimed professional and corporate governance, there is no explanation in the explanation of the new draft as to why this has not been implemented in practice so far. A positive thing is that the conditions for the representative of the state in the assemblies of capital companies are being set. Until now, this had not been regulated and we did not know how they were chosen. That person will have to have a university degree, five years of experience and at least three years of managerial experience – notes Nenadić.

He reminds that in our country, a joint-stock company, in which the state is the sole owner, has a shareholders’ meeting where only one representative of the state makes all important decisions, including the decision on the election of the director. The new law now foresees a competition, but it would not be called by the government, but by the shareholders’ assembly and the supervisory board.

– The most important change is that a joint-stock company can be transformed by ownership, that is, it can be privatized or allow the entry of private capital, and such a thing is not possible with public companies. Since it is the largest newspaper, it is logical to think that in the near or far future one of these companies will be sold. The fact that the ownership form will change is in no way a guarantee of better management of the public company. We still have capital companies that apply the law on public companies, such as railway companies, and capital companies that do not apply the law on public companies, such as “Telekom” – says Nenadić.

Nenad Gujaničić, from the “Momentum Securitis” brokerage, also confirms that turning the company into a joint-stock company does not necessarily mean the beginning of any privatization, i.e. the sale of the state’s stake in the company. Moreover, the firm can be listed on the stock exchange, and the state does not have to sell its own ownership stake (after all, like any shareholder). For example, “Telekom Srbija” is nominally corporatized (the state is the majority owner), but it did not go public even ten years after the shares were distributed to the citizens.

He adds that decades of practice have shown that the corporate organizational form is the most efficient way of organizing large companies. Its main features are the separation of ownership from management and listing on the stock exchange, which enables indirect control of the company through the market price discovery mechanism. Merely turning the company into a joint-stock company where the state will be the sole owner means nothing and will probably represent only a cosmetic change to meet the demands of the foreign financial institutions from which this proposal probably came.

– As long as the company does not have a widespread ownership structure and, most importantly, is not listed on the stock market, there will be no progress when it comes to the openness of its business and the realization of indirect management control – Gujaničić states.

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