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The Government of the Republic of Serbia

In the service of citizens

€1.2 billion for capital investment in Serbia until end 2007

Belgrade, 26 July 2006

Serbian Minister of Finance Mladjan Dinkic said in an interview for today’s edition of the daily “Danas” that some €1.2 billion is intended for capital investments in various sectors during the upcoming year and a half, of which approximately €400 million will be invested by the end of the year, and €800 million by end of the next one.

The Serbian government’s official website presents excerpts from the interview.

On the National Investment Plan:

The idea of preparing a National Investment Plan appeared in March following the conclusion of negotiations with Austrian investors regarding Mobtel. Then we realised that for the first time we will have huge privatisation revenues which we did not plan according to the Law on budget. I considered ways to stop this money from going into current expenditure, through a one-off payment of profit, subsidies or other expenditure which would cause inflation on one hand, and on the other hand be spent without any gain. Thus I came upon the idea that before these funds become available a National Investment Plan should be made so that later we are not confronted with demands that that money be spent for other purposes.

Largest capital projects to be realised through the Plan:

We have seven priorities: investments in the areas of education, health, transport infrastructure, projects for initiating economic growth, building housing facilities, projects to improve citizens’ living standard, such as investments in the areas of sport, culture and social care, projects to improve work in public administration in the framework of which investments will be made in police, military, courts and improving the work of public administration.

The budget for the National Investment Plan for the period until 2011:

The idea is to allocate somewhere in between 4% to 5% of GDP for capital investments for the construction of new or the modernization of existing facilities. 4% of GDP in Serbia is around €1 billion.

On inflation and possible budget surplus:

In the structure of financial resources for the National Investment Plan privatisation proceeds will have a dominant role to play, as well as loans from international financial organisations. We will use loans only for facilities of national importance such as the Belgrade ring-road or modernization of clinical centers, where financing will mainly come from loans by the European Bank for Reconstruction and Development and the European Investment Bank. From 2007 we will make efforts to ensure the EU co-finances the National Plan. If we annually invest 5% of GDP we would seek that the EU contributes around 1% of the GDP, which would amount to €250 million and will be €500 million in 2011.

On payment of debt:

Our level of national debt today is 44% of GDP. Within the framework of the package we will additionally ask for support from the EU for a demand which we will submit to the Paris Club of Creditors to use the $1 billion debt for investment into completion of Corridor 10, important ecological projects, and development of infrastructure in poor municipalities. Apart from that when we regulate the issue of the so-called “Kosovo debt” our level of national debt will be lower still. We don’t have a problem even now, and after the write-offs the debt will be below 40% of GDP which is far lower than in France, Germany, Italy, Belgium, Croatia and many other countries.

Are there problems in realising a budget surplus?

We did not plan that half of the planned surplus of 39 billion dinars will be realised in the first half of the year, because seasonal revenues are lowest in the first quarter, and largest in the last. Keeping in mind the unforeseen, non-tax revenues from the sale of license and Mobi 63 we will in fact realise a significantly larger surplus than we planned. We are working on preparations for a rebalance and the surplus, without the National Investment Plan, could be around 55 or 56 billion dinars. It is true that we have had a slight setback in VAT revenues when compared to our plan, but the situation has improved in the last few months.

Privatisation of public companies:

We do not wish to privatise some of them. We are not considering the privatisation of “Telekom Srbija” at all because it is conducting excellent business and making huge profits. As far as the privatisation of the Serbian Oil Industry (NIS) is concerned, the plan is to announce the tender in autumn. It seems to us that Jat Airways (JAT) can not survive in the long run without some kind of a strategic partnership. That is the unified position of the ministries of capital investment and finance. After annual holidays we will consider a model for a strategic partnership. There are two options – one is classic privatisation, and the other, which the Ministry of Finance prefers is giving management control to strategic partners with a division of profit, so we have a “contract on management”. Similarly, there are no plans for privatisation of the state telecommunication and postal company (PTT Srbija) and the forest management company “Srbijasume”. When it comes to the Serbian Electric Power Industry (EPS), we are not thinking of privatisation, but of new Greenfield investments, that is, joint investments in individual areas and there we are expecting very concrete projects in the near future. These are investments in areas of transport of gas and production of electricity. The Serbian railways company will certainly remain a national company until further developments. There is no need to privatise the Airport, because it is one the best public companies. We are talking only about joint investments here. The US firm Dyncorp should build the cargo terminal. However, there is a problem concerning the contract which they have proposed and the government has decided to form a mediating group which will negotiate on controversial points at the highest level. The group will consist of ministers Ilic and Parivodic, and I. Negotiations should be concluded by the end of summer.

Are benefits being provided to investors who opt for Greenfield investments effective in case they cannot buy land?

It is not the Law on city building land which has delayed or prevented Greenfield investments because it is possible to lease land for 99 years and most of investors use that right. We have introduced a temporary measure for three years according to which we will give a non-repayable amount from €2000 to €10.000 for every new job opening created through Greenfield investments. The competition will be announced in the upcoming period.

On influx of investments:

I would say that this year we can expect record foreign direct investment, because the influx of such investments has been worth some €900 million during the first six months, and in the meanwhile expected investments such as the German investment in the company “Hemofarm”, worth almost half a billion euros, and proceeds from privatisation of banks and Mobi 63 will also enter that balance. It will not be a surprise if foreign investment exceeds $2.5 billion this year. I think that amount will progressively increase. We expect significant privatisation proceeds from NIS and of insurance company DDOR. It is certain that when negotiations on Kosovo-Metohija finally end, the risk of political instability will disappear and that will additionally contribute to the growth of foreign direct investment.