As is the trend in former Yugoslavia countries in the past years, Croatia is embarking on a path where privatisation of state companies is imperative for further development of state economy and infrastructure. Even though each country in the region has pursued a different path toward democracy and a free market economy, all relevant countries have a similar blueprint when it comes to the process of privatisation.
Recently, Croatia ensued a new phase of privatisation on a rather large scale. Although it is not proceeding as planned and the Croatian government is no doubt ruing its own particular lack of fortune after the country’s latest failed privatisation sales, the commitment to restructuring and privatisation is still there. Stable economy, EU membership, strategic location, infrastructure and human capital represent some of the major advantages which Croatia offers to an investor. Key sectors, as defined by the Agency for Investments and Competitiveness (Agencija za investicije i konkurentnost) are: tourism, information computer technology, automotive, food, pharmaceutical, logistics, metal and textile. Also, due to Croatia’s EU Accession which took place on July 1st 2013, there is no need for product double testing or custom clearances between EU countries and Croatia.
Legal basis for privatisation of companies in Croatia is provided by National Property Management Act (Zakon o upravljanju i raspolaganju imovinom u vlasnistvu Republike Hrvatske; NN st. 94/2013), which is relatively young, as it was adopted and entered into force in 2013. It predicts the following methods of privatization:
- Public offer of shares,
- Public auction of shares,
- Public call for offers,
- Public offer of shares on organized markets
- Acceptance of the offer in the process of takeover,
- Minority shareholders squeeze-out,
- Public call for capital increase,
- Direct sale.
The above mentioned methods may be combined with the procedures of restructuring and capital increase of the companies.
Two additional legal acts are also imperative in the privatisation of companies: Strategy on property management for 2013 – 2017 (Strategija upravljanja i raspolaganja imovinom u vlasnistvu Republike Hrvatske za razdoblje od 2013. do 2017. godine), adopted by the Croatian Parliament, and Plan on property management 2015 (Plan upravljanja imovinom u vlasnistvu RH za 2015. godinu), adopted individually for each specific year. The above mentioned documents are very important as they divide companies into groups based on categories, which are designed to show and predict the possibility of commencing the process of privatisation. That being said, Strategy on property management determines guidelines for the process of selling companies and Plan on property management further analyses and breaks down the possibility of selling companies, where the decision to privatize a specific company shall be adopted by a specific decision of the Government.
So far, a synonym for Croatia’s privatisation story has been Croatian fertilizer firm Petrokemija. The sale of Petrokemija was supposed to show that Croatia was fully committed to restructuring and privatisation. On March 12th 2014 the deadline for binding offers to buy a controlling stake has passed without any concrete bids from the trinity of preferred bidders – Borealis from Austria, Nitrogenmuvek from Hungary and Agrofert from the Czech Republic, while other attempts at full-scale privatisation date back all the way to 1998. As a result, Croatia is stuck with a firm whose Yugoslav-era industrial facilities are in desperate need of investment to be competitive and meet the exacting environmental standards laid down by the EU. As privatisation of Petrokemija has not moved along as predicted, the Croatian government is now saddled with a company that for much of the recent past has been a drain on the state’s finances.
National office for managing state property (Drzavni ured za upravljanje drzavnom imovinom) was concentrating most of its attention towards the monetization of highways. A concession model of monetization was expected, meaning that the state was planning to delegate highways to a concessionaire which will in return for a payment of lump sum estimated at € 2.4 to € 3.2 billion to the government manage and maintain them for a span of 30-50 years. The procedure was lately stopped by the Government, in part due to a huge opposition of the public opinion. At the moment, the Government, although the sources are still unofficial, is planning a completely different approach, with an IPO where the 51% of the company would be offered to the Croatian pension funds, the employees and the Croatian citizens.
Airports of Split, Dubrovnik, Zagreb, Osijek, Pula, Rijeka and Zadar are not predicted for any financial restructuring, privatisation or sale. However, on October 9th 2014 the government adopted a decision to re-launch the privatisation of Croatia Airlines. The state currently holds 90 % of the national carrier, valued at € 50 million. After securing approval from the Croatian Competition Agency (Agencija za zastitu trzisnog natjecanja) in June 2013, the company began implementing the € 259 million restructuring plan, scheduled to last until the end of 2015. The plan includes further redundancy measures and the closure of retail units abroad in 2015. In 2015 it is not realistic to expect any interest or even offers from European airlines but certain interest is shown by the Asian airlines, namely Hainan Group and All Nippon Airways. The Croatian government has declared that Croatian Airlines can be owned by a majority only by a legal or natural person based in EU, other co-owners located outside the EU cannot own more than 49 % of equity share.
Also, in December 2013 the sale of government’s 99.13% stake in Croatian Postal Bank (Hrvatska Postanska Banka) failed after the only binding bid filed by Erste Bank was rejected due to the low offering price. However, the bank is imperatively inserted in the Plan on property management 2015 in which it is predicted, firstly, its restructuring and the sale of the shares by public tender afterwards.
Even though experts predict no major completions of privatisation in 2015 due to parliamentary and presidential elections, here are some numbers, which could prove otherwise. More than 90 companies are expected to be privatised in 2015 and 16 companies where state own more than 50 % of shares are ready to be sold.
There are 27 companies of strategic importance for the state, namely HEP Group (Hrvatska Elektroprivreda d.d.), JANAF (Jadranski naftovod d.d.), Plinacro d.o.o., Hrvatske Sume d.o.o., Croatian Lottery (Hrvatska Lutrija d.o.o.), Croatian Railways (HZ Infrastruktura d.o.o.), Hrvatske Vode, etc., where no privatisation is expected. There are 26 companies of special strategic importance, namely ACI d.d., Croatia Airlines d.d., Jadrolinija, Zagreb Airport (Zracna luka Zagreb), Croatia banka d.d., Croatian Postal Bank (Hrvatska Postanska banka d.d.), The People’s Newspaper (Narodne novine d.d.), Croatian Railways (HZ Cargo d.o.o.), Brijuni Rivijera d.o.o., Zadar Airport (Zracna luka Zadar), Split Airport (Zracna luka Split), etc., in which the state owns more than 55 % of all shares, where the government will decide whether privatisation will start or not and another 6 companies with special importance where the state owns less than 50 % of shares.
There are 558 companies with no strategic importance where the restructuring agency is making all the decisions regarding privatisation. Of those, 507 companies are owned by the state with more than 50 % of all shares.
To conclude, no major breakthroughs are expected in 2015 but still, fortune could smile on Croatia and its privatisation plan.
By Branko Ilic Partner, ODI Law Firm
