Privatisation in Kosovo

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March 2006
Privatisation in Kosovo Udine Seminar March
2006Ahmet ShalaKTA Deputy Managing
Director SOE Division (Socially Owned Enterprises)
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Kosovo Overview
Area 10.887 km² Population 2
million Languages Albanian/Serbian Capital Pris
htinë/Pritina Currency Euro Enterprises Private
50,000 SOEs 500 POEs 24
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Reserved Powers
After the formation of the Kosovo Government,
there are Reserved Powers remaining with the
SRSG. One is the
Authority to administer public, state and
socially-owned property in accordance with the
relevant UNMIK legislation in force, in
cooperation with the Provisional Institutions of
Self-Government. (Constitutional Framework 8.1 q)
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Legal Framework of Privatisation

• There are two UNMIK regulations which govern the
  KTA
• UNMIK 2002/12
• UNMIK 2005/18
• And two others which are important to
  Privatisation
• UNMIK 2002/13 Establishes the Special Chamber
• UNMIK 2003/13 Land Use Regulation
• Complete text available www.kta-kosovo.org

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Legal Framework of Privatisation

• The KTA, under the UNMIK framework, is controlled
  by the KTA Board.
• The KTA Board approves Rules of Tender, which
  govern the privatisation of the SOEs.
• For complete copies of these Regulations, and
  sample Rules of Tender, go to the KTA website
  www.kta-kosovo.org

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The Land Regulation

• Regulation No.2003/13 On the Transformation of
  the Right of Use to Socially-Owned Immovable
  Property
• Currently used for spin-off privatisation.
• Transforms rights of use to socially-owned land
  into leaseholds for 99 years.
• Gives 20- of sale proceeds from the sale of an
  SOE to the SOEs workers

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Right of Appeal

• Any person or legal entity that feels that
  their claims were not properly addressed by the
  KTA have the right to appeal to the Special
  Chamber

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Legal Framework in Kosovo
New Government with a comprehensive program with
focus on institution building and developing the
market economy
Business Operations Business Organizations Sales
Pledge Foreign Investment
Taxation VAT Wages Profits Pensions Property
Corporate Governance Accounting Standards Labor
Law
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Why is Privatisation Important to the Future of
Kosovo?

• Promotes productive use of SOE assets and land
• Promotes long-term investment in industry
• Create new businesses
• Create new job opportunities
• Promotes a growing private sector
• All necessary for the sustainable economic
  development of Kosovo

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KTA and Privatization

• The KTA is able to preserve or enhance the value,
  viability, or corporate governance of socially
  owned and public enterprises. This includes
• Appointing and replacing enterprise managers
• Creating supervisory or managing bodies for
  enterprises
• Carrying through external audits
• Issuing instructions to management
• Entering into arrangements for management or
  reorganisation
• Granting concessions or leases
• Establishing corporate subsidies
• Initiating bankruptcy proceedings

For Socially Owned Enterprises Spin-offs
Liquidation
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SOEs
Socially Owned Enterprises 500

• Agriculture 21.3

• Textiles 7.5

• Trade and Retail 11.5

• Services 4.6

• Construction Materials 9.6

• Forestry 4.2

• Metal Processing 9.0

• Wood Processing 4.0

• Agro-processing 8.2

• Tourism Hospitality 4.4

Chemicals, plastics, rubber, glass, mining,
transport, pharmaceuticals, other 15.7
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Whats on offer?

• Industry Enterprises in
• Agro-processing 39 8.2
• Agriculture 102 21.3
• Metal Processing 43 9.0
• Construction Materials 46 9.6
• Chemicals/Plastics/Glass etc 13 2.7
• Textiles 36 7.5
• Forestry 20 4.2
• Wood Processing 19 4.0
• Trade and Retail 55 11.5
• Tourism and Hospitality 21 4.4
• Mining 7 1.5
• Transport 13 2.7
• Pharmaceuticals 3 0.6
• Services 22 4.6
• Other 39 8.2

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Privatisation to Date

• Enterprises tendered to date 145
• NewCos tendered to date 219
• TOTAL CONTRACTS SIGNED 84
• TOTAL CONTRACTS PENDING 66
• TOTAL CONTRACTS PAID AND PENDING 150
• Est. Total of Sales contracts Paid and Pending
• over 160 MILLION EURO

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SPECIAL SPIN-OFFS Completed Sales

• Perperimi Sold (1.19 million EURO)
• 2.0 million EURO investment commitment
• 147 employment commitment
• NewCo Silosi Flourmill Sold (1.0 million EURO)
• 19 million EURO investment commitment
• 358 employment commitment
• NewCo Ballkan Sold (1.4 million EURO)
• 6.0 million EURO investment commitment
• 375 employment commitment

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SPECIAL SPIN-OFFS Completed Sales

• NewCo Llamkos Sold (4.1 million EURO)
• 15 million EURO investment commitment
• 500 employment commitment
• NewCo Banja e Kllokotit Sold (1.8 million EURO)
  
• 3.1 million EURO commitment
• 201 employment commitment

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SPECIAL SPIN-OFFS Sales in Progress

• NewCo Ferronikeli Final negotiations to
  conclude sale in progress
• 33 million EURO
• 20 million EURO investment commitment
• 1000 employment commitment

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SPECIAL SPIN-OFFS Sales in Progress

• Peja Brewery Bid (11.1 million EURO)
• 15 million EURO investment commitment
• Rahovec Winery and Vinyards Bid (5.5 million
  EURO)
• 5 million EURO investment commitment
• The Grand Hotel Bid (10.7 million EURO)
• 20 million EURO Investment Commitment
• Hotel Iliria Bid (1.6 million EURO)
• 3 million EURO Investment Commitment

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Other KTA Investment Opportunities

• Brezovica Ski Centre
• Trepca Complex

Contact KTA for more information
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BID PROCEDURES Regular Spin-off

• Bidders must PRE-QUALIFY at least 5 business days
  prior to Bid Day.
• Bid Deposits
• Each Bid Deposit will be determined based on a
  case-by-case basis.
• Bid Deposit amounts will be listed in each
  Newcos Rules of Tender.
• Bids will take place in ONE ROUND
• The bidding takes place from 10 am to 12 noon on
  Bid Day.
• These bids will be opened at UNMIK.
• Bidders who submit the 3 highest bids advance to
  Second Round and submit a Second Bid. (Special
  Spin-off ONLY)
• Bidding Room and Opening Procedures
• 1) 3 Officers of the KTA receive bids, issue
  receipts, and seal bids in locked bid box.
• 2) Locked box escorted to UNMIK Theatre bids
  opened publicly bid values declared and
  provisional finalists/winners announced.

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WHO MAY NOT BID?

• POEs and SOEs
• Government Institutions
• Municipalities
• Companies and individuals in bankruptcy or
  insolvency
• Individuals found guilty of a felony or who are
  currently in criminal proceedings
• KTA Employees
• Entities that are not in good standing with KTA
  or its Enterprises
• Entities black-listed for money laundering or
  fraudulent behavior

(See section 1 of ROT for full list)
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SPIN-OFF TRANSACTION
SOE
ASSETS
New owner of NewCo is not responsible for debts
and employees of SOE
NewCo

• Land
• Buildings
• Machines
• Licenses (re-issued)
• Leases

ASSETS

• Land
• Buildings
• Machines
• Licenses
• Leases

Limited liabilities transferred
LIABILITIES
SOE

• Tax bills
• KEK bills
• Water bills
• Unpaid suppliers
• Unpaid workers

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AN EXAMPLE OF SPIN-OFF
Spin-Off
Assets used in business
Spin-Off
Bread Factory
Flour Mill
Spin-off example SOE IMB
Remaining Assets
Liquidation
Kiosks
Ware-houses
Liquidation
Liquidation
Liquidation example SOE Graniti
All Assets
Liquidation
Liquidation
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WHERE DOES THE MONEY GO?
SOE WORKERS
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Money
INVESTOR
KTA TRUST ACCOUNT
80
SOE OWNERS CREDITORS
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PRE-QUALIFICATION
Step 1, Prospective investors bring

• Filled-out registration form
• Physical persons Copy of ID or Passport
• Legal Entity Business Registration and Identity
  of Owners (see rules of tender)
• Statement that the bidder fulfills the conditions
  of clause 1.1 of Rules of Tender (Not a
  prohibited bidder and in good standing with KTA)

Step 2

• KTA checks information provided by the investor
• KTA issues bidder registration certificate

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DUE DILIGENCE
Prospective investors should

• Sign a non-disclosure agreement
• Review of rules of tender
• Review of Information Memorandum of NewCo
• Review of Data Room of NewCo
• Site-visits
• Checks at Municipal and other authorities

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HOW IS THE WINNING BID DECIDED?

• What is the Winning Bid?
• Highest Price (Regular Spin-off)
• What if prices are identical?
• Bid is from employee/s of SOE
• Earliest submitted bid
• What if there are no bids?
• KTA may re-tender
• When can the tender be cancelled?
• If there are fewer than 3 bids, and the bid
  prices are not rational
• If there is a perception of collusion between
  bidders, coercion, threats or other illegal
  activity

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What is the Key Difference between an Regular
Spin-off and a Special Spin-off?

• For a Regular Spin-off
• Only the Bid Price for the NewCo matters.

• For a Special Spin-off, there are three
  criterion
• Bid Price (50 of Total Bid Value)
• Employment Guarantees (25 of Total Bid)
• Investment Guarantees (25 of Total Bid)

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Where do I Get More Information?
KTA Central and Regional Offices Prishtina
Central KTA Office Ilir Konushevci street, nr.
8 Tel [phone] ext 1255 Fax 381 (0)
38 248 076 E-mail kta_at_eumik.org
www.kta-kosovo.org
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THANK YOU VERY MUCH FOR YOUR ATTENTION