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The Government of the Republic of Serbia

In the service of citizens

NIS will be gradually privatised with majority state ownership

Belgrade, 22 August 2005

Serbian Minister of Economy Predrag Bubalo said in an interview for yesterday’s issue of Politika daily that he supports a gradual privatisation process of the entire Serbian Oil Industry (NIS), provided that the state keeps the majority of the share capital, up to 51 percent of all parts, including the refineries.

Predrag Bubalo

The Serbian government’s official website provides excerpts of the interview:

The way NIS will be privatised:

- I support privatisation through recapitalisation with participation of a foreign strategic partner, and a possible public tender for shares in which citizens could also take part. Naturally, an independent managerial team must be appointed.

According to the Memorandum, the government has obliged itself to sell its majority stake in the refineries:

- There is no denying it, but some words are disputable. In my opinion, instead of selling its stake, it should be privatised by recapitalisation and the sale of shares through public bids, and the word ‘majority’ in ‘majority state ownership’ should be omitted.

Why recapitalisation and not sale, and why do you insist on majority state ownership:

- First of all, because the money for 49 percent of share capital or less, that a foreign strategic partner would bring through recapitalisation, would end up in the public company, in one of the core activities for enhancing production, technological, and other possibilities. Thus, the value of the state’s share would also increase. If the majority capital is sold, these funds would go into the budget, and the question is how much someone would be interested in investing in the core activity itself, since they have already given a considerable amount for the majority stakes. Or they would keep exploiting the existing possibilities as long as they have interest to do so, and then simply give up. If we sell 51 percent now, the remaining 49 percent will never be as attractive as it is now, since there will be a major shareholder. As for the public offer, I am not eliminating it, but I leave it as an option.

How did other countries do this:

- My arguments are based precisely on the experience of other countries in the region. Except for Romania, which sold the majority stake of 51 percent all at once for €1.5 billion, other states privatised their oil companies more gradually. It took up to ten years, as was the case in Poland, until a foreign partner became a majority shareholder.

About the NIS management:

-It must be independent, freed of any political party influence. The International Monetary Fund (IMF) believed that the only way to enable this is by a foreign partner’s majority ownership, but I think that this is possible regardless of that. I think that Serbia also has good managers, capable of successfully managing a company, and I am not talking about the current NIS management. After all, we could also get competent foreign managers.

Serbia-Montenegro can even hand over the management to a minority partner with 40 percent of the share capital, or a joint mechanism could be established to decide on the most important issues, if the country finds it would yield profit. Besides, we all know that in Croatia, the state is the majority owner of their oil industry (INA), but the management is controlled by MOL, with 25 percent of shares.

Strategic partner for NIS:

- I would like, above all, for this competition to be transparent, that all interested parties compete, as many companies have announced participation, and that the best bidder wins. And who would I like to see as the winner? British Petrol, Shell, Lukoil, OMV, MOL. Approximately, in that order.

About the final engagement with the IMF:

- There is no doubt about the success of the final engagement and the sixth revision. The stakes are too high for anyone not to take things seriously. That is why I insisted that specific deadlines be set, along with the decision on the invitation for bids for an adviser, to decide on the steps to be taken and the precise time they will be realised, and not to create an impression that we are trying to buy time, and not to leave any space to doubt our preparedness for reconstruction and privatisation. But I repeat, privatisation, not sale.