So far the effects of privatization in Serbia have been mixed. Twenty-five years after the first attempts, the Parliament of the Republic of Serbia has adopted a new law (the “Privatization Law”) that brings in a set of solutions aimed at facilitating a much-needed new investment cycle. The Privatization Law takes effect on 13 August 2014.

The previous privatization law was adopted in 2001, making privatization mandatory. The majority of privatizations so far were carried out under it. This law has undergone numerous substantive amendments, which in its 13 years of application failed to create a framework that would meet economic and social expectations. The new law is an attempt to rectify the mistakes of the past, to enshrine privatization methods that were applied on a case by case basis without being fully regulated pursuant to the relevant privatization framework, and to save as many of the failing companies set for privatization as possible.

As there are a large number of companies still undergoing privatization restructuring and several hundred companies in the portfolio of the Privatization Agency, the Serbian Government has high expectations of the Privatization Law.

Main features of the law

Change of ownership over socially and state-owned capital and assets will be made in accordance with the Privatization Law. Privatization of socially-owned capital and assets is mandatory and has to be finalised by 31 December 2015. However, privatization of state-owned capital and assets does not appear mandatory or subject to a particular deadline. These privatizations will be subject to the decision of the Serbian Government or of the relevant provincial or municipal authorities.

The Privatization Law contemplates the following models and methods, which may be combined where suitable for a particular privatization scenario:

  • Capital sales by way of public collection of bids with public auction, with relevant capital markets and takeover rules applying;
  • Asset sales by way of public collection of bids with public auction;
  • Transfers of capital free of charge to employees or to strategic partners (in the latter case rules providing for governmental incentives would also apply);
  • Strategic partnerships by way of collection of bids.

While some of these models and methods were already envisaged in a relatively similar form, strategic partnership is a new approach to privatization in Serbia. The law contemplates privatizations via strategic partnerships through joint ventures either by establishment of a new company or by capital increase of an existing company set for privatization. The Serbian Government shall decide on the form of strategic partnership and mode of implementation.

The Privatization Law also provides for conditional debt write-off and conversion of debt to equity for companies set for privatization by either sale of capital or strategic partnership through capital increase.

The Privatization Law does not apply to, inter alia, sports organizations, companies for professional rehabilitation and employment of persons with special needs, and arms and military equipment companies, unless the specific legislation governing such companies or organizations expressly stipulates that the Privatization Law applies in their case.

Other newly introduced provisions should simplify the privatization process, namely by eliminating the need to adopt separate decisions for the sale of assets, and excluding the application of company law provisions pertaining to the disposal of high-value assets.

Finally, the Privatization Law introduces criminal liability for persons authorized to represent companies in the privatization process, if they fail to submit to the Privatization Agency timely, relevant, complete and accurate information and documents about the assets, claims, obligations and capital of companies undergoing privatization. Criminal liability is also introduced for buyers of capital, assets or shares if they fail to submit to the Privatization Agency accurate and complete information and documents during the process of overseeing the implementation of agreements entered into in the privatization process. Sanctions in these cases include both fines and imprisonment.