Privatization in Kosovo

Privatization in Kosovo

Kosovo is the last country of the former eastern European block to embark on a large-scale privatization process. While the privatization in Kosovo started in 1989 based on the act of social capital, the number of companies that went through this process was very small. At that time, the privatization process was soon brought to an end due to the imposition of emergency measures and abolition of Kosovo's autonomy by the Serbian government in 1989. The self-management system ended after the 1999 war, which was the culmination of a decade of emergency rule, resistance and armed conflict. During this period, thousands of employees were made redundant; companies were underinvested and stripped off their assets. After the war, Kosovo was governed by the United Nations Mission in Kosovo (UNMIK) according to the Security Council Resolution 1244 until the declaration of Kosovo's independence in February 2008.

UNMIK made its first attempts at privatization as early as 2000 by commercializing companies by transferring them to private sector investors through a 10-year lease, avoiding the difficult question of ownership or creditor claims (Riinvest, 2002). This process proved to be cumbersome and complex and was rendered as inappropriate. The privatization process itself started in 2002 under the auspices of Kosovo Trust Agency (KTA), continuing its operations under the Privatization Agency of Kosovo (PAK) after independence. Since its start, the process has been brought to halt twice - firstly during the fourth quarter of 2003 and 2004 and then during 2008 (Riinvest, 2008). However, it had a good flow during 2005, 2006 and 2007. The method of privatization used in Kosovo has been 'sale to the highest bidder' (regular Spin-Off); a method which was not largely employed by successor countries of former Yugoslavia (Riinvest, 2004). However, in cases of some large companies, employment and investment commitments were also introduced (called special Spin-Off). In general only the assets and current liabilities (defined generally as the last three months of unpaid accounts payable and the last year of unpaid VAT) of SOEs were sold, while other liabilities are dealt with the privatization proceeds which are hold in an escrow account.

The privatization process in Kosova inherited around 500 Socially Owned Enterprises of which only about third of them were functioning after the war. Important technological and hu­man assets were concentrated in these enterprises during the 1980s but because of the developments during the 1990s (explained earlier); the depreciation of assets and technologies, and changes in regional and international business environment most of these enterprises were operating ineffectively and below their capacities and many ceased operations altogether.

The privatization process in Kosovo is now in its final phase, leaving some 10 percent of SOEs to be privatized in the coming period. Low perceived performance of the privatized companies has fuelled the opposition of the Kosovan society towards this process. Currently the general perception of the society is that the process is a complete failure. Considering the circumstances and real alternatives, the 'complete failure' statement is rather an incorrect representation. The accumulated proceeds from the sale of privatized assets reached over €600 million or around 15% of GDP. However, proceeds continue to be kept in an escrow account, frozen and withdrawn from economic activities of the country.

On the other hand, Public Utility Companies, which are regarded as Publically Owned Enterprises (POEs), are to be privatized under the auspices of the Government who is planning to embark quickly on their privatization. The process is faced by strong opposition from different stakeholders and from all the sides of the political spectrum. Some oppose the ideology of privatization itself, while some accuse the process of being highly tainted by corruption, which failed to establish and set transparent procedures and accountability measures.