Province Wins Battle Over Future of Petroleum Giant

Friday, 30 September, 2005

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IWPR

Institute for War & Peace Reporting

The Serbian government this week ditched plans to shift a branch of the lucrative NIS oil company to the capital in the face of pressure from the Vojvodina authorities.

The province has bitterly contested moving the offices of one of three newly-formed companies in the restructured NIS consortium from Novi Sad to Belgrade.

Government officials saved face by insisting the location of the company headquarters was never crucial to them, so they were able to compromise on a new site at Pancevo - close to Belgrade but just inside Vojvodina.

Vojvodina officials voiced jubilation over the September 28 victory. They feared that losing part of NIS could deprive the province of up to half the profits gained from the company’s future privatisation.

They said this would have had grave long-term effects on the province’s finances and weakened its development potential.

The struggle between the two administrations escalated sharply on September 22, when the provincial assembly adopted a resolution demanding that the Serbian government rescind its decision on the restructuring of NIS and the transfer of one of the three new component companies.

If the demand was not accepted in Belgrade, the president of the Vojvodina assembly, Bojan Kostres, urged people to take to the streets in mass protests.

The future of NIS is seen as vital for the province’s future as it is one of Serbia’s few profit-making state corporations. For years its profits have filled the regional authorities’ coffers and those of the Novi Sad municipal administration.

NIS was set up in 1991 following a merger of several enterprises engaging in refining and distributing petrol.

With 17,500 staff across Serbia, its net profit last year was more than 28 million euro, comprising more than 20 per cent of Serbia’s total annual budget.

Under current law, profits from taxes on businesses located in Vojvodina, as well as on the workforce, go to the Serbian treasury. But part of the money is returned to Vojvodina.

The restructuring of the company is the first step towards its privatisation. Under International Monetary Fund pressure, the Serbian government pledged to start preparing for a sell-off by the middle of this year.

But it failed to meet this first deadline owing to the lack of a consensus among the various actors, including the government, the company management and the trade unions.

The government set a new deadline for the end of this year. As a first step, on July 7, officials decided to form three companies out of NIS, one of which, the petrol transportation firm Transnafta, was to move to Belgrade. This decision was planned to come into force on October 1.

The government justified the decision to move Transnafta to Belgrade, saying the nature of its business meant it needed to be located in the capital.

“Petrol transport is an international business, so Transnafta clearly needs to be in the same place as the government and international diplomats,” said Zoran Milovanovic, an advisor on energy matters to Serbia’s deputy prime minister, Miroljub Labus.

Vojvodina disagreed and on August 25 filed a case with the Supreme Court seeking an annulment of the decision on restructuring. They claimed the Serbian government’s decision was illegal as it was made in July and the old law on NIS was suspended on August 22.

Vojvodina’s economic and political leaders became very nervous, as they had great hopes of the benefits they stood to make in connection with NIS’s privatisation.

Under current law half the profits from a sell-off stand to go to the province, which means more money for the Vojvodina Development Fund, a regional development agency.

Istvan Pastor, the province’s secretary for privatisation, estimated the total value of NIS at 3 billion euro.

Even if it was sold at privatisation for only a tenth of that price, Pastor said, it could still net Vojvodina 120 million euro a year.

“When you consider that the whole Vojvodina budget this year was about 188 million euro, adding 120 million euro to development gives you an entirely new perspective,” he added.

The head of the province’s government, Bojan Pajtic, agreed on the crucial significance of NIS to Vojvodina’s economic future.

“If these companies were privatised to the tune of several hundred million euro, and it would surely fetch that amount, half the resources would go on new investments in Vojvodina and on new enterprises and jobs,” he said.

Vojvodina was one of the more developed regions in the former Yugoslavia, but wars, sanctions, mismanagement and Belgrade’s habit of draining funds into the national budget have run down the economy.

About 2 million people live there today of whom 276,503 are unemployed. The highest rate of joblessness is in central areas.

The Belgrade authorities insist the privatisation of Transnafta is not yet on the cards, so worries about losing profits from a sell-off are irrational. But that cuts no ice with Vojvodina’s leaders.

“On the basis of our previous experiences with the government of the Republic of Serbia, I can’t say I believe a word they say,” said Kostres.

It was not just concerns about the money raised from future privatisation schemes that pushed Vojvodina close to revolt.

The province’s secretary for finance, Jovica Djukic, said moving Transnafta to Belgrade would have deprived the region of a major source of business taxes.

These business taxes are crucial to the local economy as Belgrade returns only 18 per cent of the money collected in Vojvodina from ordinary income taxes but 42.7 per cent of that from corporate taxes.

In the first half of this year, 26 million euro acquired from both ordinary income and business taxes was returned to Vojvodina, making up 28 per cent of this year’s total budget for the province.

Much of that money came directly or indirectly as a result of the presence of NIS on its territory.

If Transnafta had shifted to Belgrade, the municipal authorities also stood to lose out. They get part of their budgets from such business profit taxes, and are entitled to 5 per cent of the value of the privatisation of any firm on their territory.

Kostres and Pajtic insisted that all the three new NIS entities must stay in Vojvodina.

They said that when NIS was established in 1991, most of the companies and resources that merged into it had been located in Vojvodina, and that many of the natural resources connected to the industry were also from the province.

Kostres said Vojvodina had a right to demand the retention of the investment ratio that existed when NIS was set up.

“More than 80 per cent of funds [in 1991] were invested from Vojvodina and less than 20 per cent from Serbia,” he said.

The Serbian government is not moved by such arguments, maintaining common interests overruled those of the regions.

Zoran Milanovic, Labus’s energy adviser, said they understood the desire of the regional and Novi Sad authorities to keep all the businesses created out of the restructuring of NIS in Vojvodina.

But he added that central government, unlike the local authorities, was obliged to “secure an equally attractive work environment over the whole territory of the country”.

Following the September 28 about-turn, Zeljko Martinovic, spokesman for the Serbian ministry for mines and energy, told Balkan Crisis report, BCR, they still did not consider the location of companies’ headquarters important.

He said Vojvodina would not have suffered a big loss if Transnafta had moved to Belgrade, and that the city, as the country’s administrative centre, would have been an excellent choice.

“The entire story of NIS’s transformation has been politicised,” he said.

“That’s why we have now settled on Pancevo, so satisfying the local patriots. Now let’s finally start something and get down to work.”

Miroslav Zadrepko is a journalist with RTV B92.