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Telecom Sale Raises Hopes and Fears in Republika Srpska

01 12 2006  RS stands to make 400 million euro from the sale of the state-owned telecom company. The question is whether it will use the money wisely.

By Gordana Katana in Banja Luka (Balkan Insight, 1 Dec 06)

Economists in the Bosnian Serb entity, the Republika Srpska, are urging the prime minister not to waste big expected profits from a telecom sale on short term political projects and to invest the money for the future.

The impoverished entity stands to make about 400 million euro from the sale of Telekom Srpska - a figure equal to half of all donations received by the RS since 1995.
 
According to government information released earlier this month, two offers of this amount had been received by the closing date of the tender, November 20, one from Telecom Srbija and the other from Telecom Austria.
 
Economists say the government would be making a major strategic error if it used the cash to balance the budget or to pay for social security.
 
Their worries relate to campaign pledges made by Milorad Dodik in October, when the RS leader said he would use the cash for the benefit of education, health care and war veterans.
 
Dodik, head of the Alliance of Independent Social Democrats, SNSD, did well in October elections in Bosnia and Herzegovina, sweeping the board in the RS. As a result, he should be able to govern the entity unaided for the next four years.
 
Damir Miljevic, chair of the RS Association of Independent Entrepreneurs, said he feared the telecom-sale money might be wasted on fulfilling those campaign pledges.
 
"The economy will not benefit if the promises made in the election are kept with money generated from the sale," he said.
 
Miljevic noted that the government had already dipped into its emergency fund over the past six months, spending about 80 million convertible marks from the fund (around 40 million euro) on maintaining services.
 
He says that as the entity owes a total of about 100 million euro to various creditors, Dodik may use the sale money to pay it off.
 
"It's not difficult to imagine how quickly the privatisation money will melt down if it's used to repay the debt," added Miljevic.
 
"The money should be used to support economic development and... for infrastructure development and pension insurance reform."
 
Mladen Micic, head of the RS chamber of commerce, agreed.
 
"Experts must assess what are the most profitable branches of the economy in the RS and invest the money in those, before directing it back into the budget to improve the position of those living off the budget," he said. 
 
Micic added that "election promises are one thing and real life quite another".
 
"I hope the government will refrain from using state money to settle political debts."  
 
Government officials say the concerns are baseless and that the sale money will not be blown solely on improved social welfare programmes.
 
They insist the capital from the sale will be entrusted to a new institution, the RS Development and Investment Bank, RIB, which starts operations next month.
 
Jasminko Jotic, acting director of the RIB, said fears that the telecom-sale money would be wasted on meeting welfare bills were unfounded. 
 
"A fraction will be given to social welfare but the lion's share will be used in line with the RS's economic policy," said Jotic.
 
As yet, he is not in a position to specify exactly where the money would be invested. "The RS has enough capacities and potentials to make good use of it," he went on. 
 
While Jotic claims the RIB will work transparently, sceptics still worry about possible political interference in its decisions.
 
Some believe the RIB will be far too close to the government. Three of the bank's founding members are government bodies - the Directorate for Privatisation, the Foundation for Development and Employment and the Foundation for Restitution.
 
The past record of the Bosnian Serb entity in handling privatisations is also far from reassuring.
 
"The state has proved a bad manager and we are concerned with the way it has sold strategic state-owned companies so far," Boris Divjak, director of Transparency International, told Balkan Insight.
 
"There has been a lack of transparency on the part of the RS government in organising tenders." 
 
Divjak said he would not be surprised if the telecom-sale money "ends up with party enterprises or politically loyal individuals".
 
Jotic, however, said domestic and international concerns about political interference with the RIB had no foundation.
 
"We have removed that threat [of political interference] because the RIB board of supervisors will only include individuals who are not part of the legislative and executive institutions," he said.
 
Darko Lakic, of the Banja Luka Stock Exchange, believes the RIB will live up to expectations and devise a successful profit-making strategy, partly by employing skilful and well-paid fund managers.
 
"I am hopeful that investments will not be made on the basis of political criteria," he said.
 
Gordana Katana is Balkan Insight's Banja Luka correspondent. Balkan Insight is BIRN's online publication.