Serbia’s First Competition Law

Back in early 2005, Serbia was among the few remaining countries in Europe that did not have a competition law. The Antimonopoly Law of 1996 was formally in effect, but had been obsolete and practically an ineffective instrument since its very adoption.
It was only in May 2005 that the first draft of the new competition law was made public by the working group at the Ministry for International Economic Relations. From our first glance at the draft, it became obvious that the law was drafted in the image of the regulations in the European Union. Some of the provisions were identical to the EU Antitrust Regulation and the EU Merger Control Regulation.

FIC immediately commended the Ministry of International Economic for its efforts in drafting such a sophisticated piece of legislation. Nevertheless, a number of significant shortcomings were also identified. It was the general impression that while this important law paved the way for efficient competition protection in the market, certain provisions had still been drafted at short notice. An in-depth economic analysis should have been a prerogative, but this was clearly lacking.

Another concern at the time was a very short period for the law to come into effect - only eight days. For such sophisticated instruments to be utilized by the competition authorities, eight days was undoubtedly too short.
FIC addressed these issues at the time, calling for a revision of certain provisions that could have a negative effect on the investment climate in Serbia, above all those which are discriminative against the foreign investors. However, the Competition Law was enacted with practically the identical wording as the draft. It took effect on 24 September 2005. The nomination of the Ministry of Trade, as the interim authority for law enforcement, was the only agreed amendment.

Outline of the Law
The Law contains three major areas of regulation: Rules on prohibited agreements and cartels (Antitrust), Rules defining and prohibiting abuse of a dominant position (Abuse) and Control of economic concentrations (Merger Control).
The Antitrust and Abuse rules were a clear upgrade of the old Antimonopoly Law, prescribing modern definitions of all relevant standards and providing effective instruments of control (e.g. inspections, dawn raids) and sanctioning mechanisms (e.g. annulment of agreements and acts and severe fines against companies and their officers).
On the other hand, rules on Merger Control were introduced into the Serbian legal framework for the first time. In short, the merger control rules are aimed at preventing the creation of a dominant position, thus enforcing protection of competition before any violation has occured.

Concerns
The main concerns FIC had raised with the law were in respect of the jurisdictional thresholds for mandatory merger notifications (thresholds which, if surpassed, oblige the parties to a merger or a joint venture to make a pre-notification and wait for the authority’s decision). In Serbian Competition Law, these thresholds are based on the combined worldwide turnover of all parties (Euro 10 million locally, or Euro 50 million worldwide). Some economists argue that these thresholds should have been at least three times higher, elaborating their claims by the relevant levels in comparable economies (Croatia, Slovenia, Bulgaria, etc.).
Another major concern was the fact that the Law does not take into account the turnover of the target company. For that reason, the notification is mandatory even if a mid-sized company wishes to acquire a kiosk or a grocery store. If the acquirer made a turnover above the thresholds, the notification is mandatory and no exemptions are applicable.

FIC Efforts
In many meetings with the Government representatives and key stakeholders insofar as transition monitoring is concerned, FIC has clearly addressed these concerns, stating that low thresholds are discriminative towards foreign investors (which by default make turnovers exceeding Euro 50 million). In addition, the Competition Commission is likely to be covered in unnecessary notifications that do not raise any competition concerns. Because of that, the Competition Commission may be incapable of processing each notification with due diligence and in the end may fail with its most important objective – protecting fair competition between the participants on the market thus ultimately protecting the consumers.

Last, but not the least, FIC has repeatedly praised the Commission’s work to date. In rather stern conditions, with many problems attached to its appointment and funding, the Commissioners and the Expert Council of the Commission have managed remarkably well to cope with some difficult cases, and to show integrity and decisiveness under heavy pressure by the Government and various companies. For that reason, FIC is greatly encouraged by the prospects of competition law enforcement in Serbia and will continue its efforts to help improve the competition law framework.

By Rastko Petakovic, Karanovic & Nikolic

REGION: SEE Telecoms

Source: Kapital

REGION: Foreign Trade Ministers of South East Europe to Adopt Single Agreement on Free Trade

Foreign trade ministers of South East Europe decided at a ministerial conference in Sofia on June 10 to replace all existing bilateral agreements on a free trade zone with a single multilateral agreement which will apply to the entire region. The ministers had agreed to start drafting a proposal for a single agreement on free trade, which would replace the existing system of 28 agreements.

The new agreement would strengthen the joint market or the free trade zone, create a simpler trade mechanism and make it easier for businessmen to market their products in South East Europe.

The ministers had also adopted a proposal for the establishment of a new fund, which will finance the development of joint investments undertaken by companies from the region. The fund will be established at the regional level. It will be financed by the European Union and other interested investors and it will finance joint ventures undertaken by companies from the region. Representatives of Bulgaria , Croatia , Bosnia-Herzegovina , Macedonia , Albania , Greece , Romania , Moldova and Serbia-Montenegro took part in the conference.

Source: Betanews, Press Review and Seeurope

TURKEY: Telecoms Privatization Opens Way to FDI

The Saudi Oger group won the tender for a 55% stake in national telecommunications company Turk Telekom on July 1, with a bid of 6.55 billion dollars. The government is finally on the point of privatizing its largest single asset. This may lead to heightened interest in other forthcoming privatization tenders. In the telecommunications sector, the state will become more of a regulator and less of an owner.

Turk Telekom owns almost all of Turkey 's terrestrial telecoms infrastructure. It has about 19 million fixed-line subscribers. It also provides corporate data transmission and internet access services. It owns 40% of Avea, one of Turkey 's three GSM operators, in partnership with Telecom Italia (40%) and Turkey 's Isbank (20%). Turk Telekom has regularly announced profits, including a record net profit of 1.5 billion dollars in 2004.

The privatization tender attracted four bidders: a UAE consortium headed by Etisalat; a joint venture of Turkey 's Koc group with US Carlyle Group; Turkey 's indebted Cukurova group; and Saudi Oger. Oger won in an auction with the Etisalat-led consortium. The price was above financial market expectations and there were no complaints from the losers. Oger is to make a 20% down payment followed by five annual installments, with 2.5% interest. Telecom Italia and British Telecom's BT Consult will provide assistance in the management of GSM and fixed-line services respectively.

Turk Telekom will be one of only a few state assets sold to foreigners in the history of Turkey 's privatization program, and easily the largest. This reflects a gradual acceptance of sales to foreign interests, but there could yet be political repercussions. Compared to earlier attempts to privatize Turk Telekom in 2000-01, the present tender appears to have been successful for several reasons: a majority stake was offered, majority foreign ownership was made possible, and the scope of the 'golden share' to be retained by the state was minimized.

At the same time, the economy has been more stable, global financial conditions are favorable, and the global telecommunications equity market has recovered. More comprehensive data was made available to prospective buyers and terms were made clearer.

Turk Telekom has performed well, notwithstanding the formal end of its monopoly on fixed-line telephony at the end of 2003. Official support, partly motivated by hopes of privatization revenues, has helped. In 2003, Turk Telekom's poorly performing GSM subsidiary Aycell was merged with its Isbank/Telecom Italia-owned rival Aria to form Avea. In 2004, the Telecommunications Authority ensured a less unfavorable interconnection fee structure between Turk Telekom and GSM operators.

Turk Telekom also fought off new long-distance fixed-line competition aggressively, announcing a new tariff structure, and delaying use of its infrastructure by new operators. At the same time, it aggressively sold its own internet and ASDL broadband services. The Authority has allegedly been slow to intervene against unfair competition by Turk Telekom or to issue regulations facilitating competition in other areas including the local loop.

The deal still has to be approved by the Competition Board and the Privatization High Board, a cabinet sub-committee. A contract will then have to be finalized. At least one court case has been lodged against the sale by privatization opponents. Trade unions and others will continue to campaign against the sale, arguing that national infrastructure should not be sold off -- particularly not to foreign (and Arab) interests -- and that the price is too low and the payment terms too generous. They may question the procedures followed. They may also allege that the tender was biased towards Oger, because of its arrangement with Telecom Italia, and/or that informal relations were forged between the AKP government and the Arab bidders. In all, the deal has an 80% chance of going ahead.

Assuming the sale takes place: It will bring the government revenues of about 1.3 billion dollars per year over a six-year period. Against this, the state will receive only 45% of Turk Telekom's profits from now on. A similar amount of foreign capital will enter the economy each year in the form of investment. It will reinforce investor convictions that the government is following policies favorable to private capital recommended by international financial institutions. There may be heightened interest in the privatization of two other strategic companies, oil refiner Tupras and steel-maker Erdemir, for which bids are due to be received in September.

There are plans to offer some of the state's remaining 45% stake in Turk Telekom to stock exchange investors, perhaps in 1-2 years' time. There are further possible developments: Telecom Italia may take a stake in Oger Telecom in return for its Avea shares.

Oger may find a Turkish minority partner. Isbank may eventually seek to reduce its stake in Avea. The public sector Savings Deposit Insurance Fund (TMSF) may attempt to sell the second-largest GSM operator Telsim within the next few months. Telsim was seized from the Uzan group in 2003 on account of their mismanagement of Imar Bank. To put Telsim on the market at the same time as Turk Telekom was thought unwise. Legislation took effect earlier this year to facilitate sales of TMSF assets, but the issue of Telsim's debts remains unsettled.

The ownership of the largest GSM operator Turkcell is still uncertain. Its majority owner, the Cukurova group, has pulled out of a proposed sale of shares to minority owner Swedish-Finnish Teliasonera and instead arranged a financing package from Russia 's Alfa group which allows it to keep overall control at least for the time being.

Source: Oxford Analytica

ROMANIA: Steady Growth of the Economy

The government of Romania expects steady growth in the economy in 2005 and 2006, with economists forecasting lower inflation and higher employment. The economy grew about 5.9 percent over the same period last year, and is expected to maintain this pace over the next two years.

According to the official Planning Commission of Romania, the growth comes mainly from the private sector and is due to lower taxes enacted at the beginning of the year. On January 1, 2005 , Romania instituted a flat tax of 16 percent and replaced the 25 percent tax on corporate profits and individual income taxes of up to 40 percent. The tax cuts have led to a 12 percent jump in household consumption, boosted by a 13 percent rise in wages.

Inflation is expected to reach 8.2 percent in 2005 and go down to 6.5 percent in 2006, down from 9.3 percent in 2004.

Source: Associated Press

BULGARIA: Government to Privatize Companies in the Military Sector

The Privatization Agency of Bulgaria states that it will speed up the sale of three state companies within the military sector which were previously unavailable for privatization due to their status as national security targets.

One hundred and fifty one properties of Vointekh will be auctioned on August 4, 2005 with a starting price of 20 million Leva (about 10 million Euro). The assets of Kintex, Teraton, and 35.8% of the capital of Arsenal Kazanluk will be offered for sale next.

Arsenal Kazanlak owns more than 300 hectares of land in the city of Kazanlak , 233 industrial buildings, and 474 administrative buildings. The company has military bases in the cities of Sheynovo, Muglizh, and Tuzha, among others. In these cities, the company owns more than 300 hectares combined, about 100 industrial and 200 administrative buildings. The company owns other assets in Nesebur on the Black Sea Coast , Shipka, and Yasenovo. As of July 2004, the company recorded a profit of 2.653 million Leva (about 1.3 million Euro).

The Privatization Agency expects that the sale of Kintex will generate the most interest. Kintex is the most famous Bulgarian company in the business of trading arms. The strategy for the sale has been prepared and sent for approval to the Ministry of Economy which owns 100% of the capital. Before 1989, the annual profit of Kintex reached $1 billion. For the past three years, the company has been profitable.

There has been progress with the procedure for the privatization of Teraton. The Privatization Agency has chosen a firm to prepare an evaluation and a sales memorandum. Teraton has a turnover of more than 10 million Leva according to data from 2001.

Source: Seeurope

KOSOVO: UNMIK Chief Signs Decree on Decentralization

On July 22, 2005 , the UNMIK chief Soren Jessen-Petersen signed an administrative decree on decentralization, which involves the creation of five new municipalities in Kosovo. Decentralization is one of the standards which the international community has set for Kosovo as a condition for establishing the province's final status.

The decree on decentralization has officially approved the implementation of a pilot project for forming five new municipalities: Gracanica near Pristina, Djeneral Jankovic near Kacanik, Junik near Decani, Mamusa near Prizren and Partes near Gnjilane.

The UNMIK chief will determine the territory of each municipality based on recommendations from the Ministry for Local Government. He will also appoint the members of interim assemblies in these municipalities.

The decree on decentralization, which took effect on July 24, will be applicable until the municipal elections scheduled for 2006.

Source: Beta News Agency

GREECE: Flat Tax Rate

The government of Greece considers introducing a flat tax rate of 25 percent in 2007 as part of its broader effort to boost the economy. The flat tax, planned to be effective as of January 1, 2007 , will apply to individual and corporate earnings. Currently, annual income below 11,000 euros is tax-exempt, and amounts above this threshold are taxed at progressive rates from 15 to 40 percent.

The government plans to announce whether it will introduce a flat tax in early September at the Thessaloniki International Fair. Meanwhile, the government has begun decreasing corporate taxes, from 35 percent to 25 percent.

The income tax reform will be introduced together with a new value-added tax on buildings whose building permits are issued after January 1, 2006 .

Source: Kathimerini English edition and Seeurope.net

SERBIA & MONTENEGRO: Banking Reform and Restructuring Pays Off

The latest special report by NBG reveals that the restructuring in the banking sector in Serbia & Montenegro is improving the financial fundamentals. Real GDP growth posted a record high of 7.5 per cent and the fiscal deficit over-performed its target, reaching 1.6 per cent of GDP.

Financial intermediation improved considerably in 2004, reflecting stronger confidence in the banking system and robust economic activity. Credits to the private sector grew by 56.9 percent. Lending to households registered the highest growth rate of 125.6 percent with more room to grow as household lending in Serbia stood at 4.6 percent of GDP compared with an average of 6.2 percent in other SEE countries. Lending activity soared especially in the profitable retail segment.

In 2004 and early 2005, the consolidation of the Serbian banking sector continued with five banks closing business (Pirotska, Srpska Regionalna, Raj, Astra and DDOR). According to experts, this was due mainly to the inability of the five banks to meet an increase in the minimum capital requirement - EUR 10 million (from a previous requirement of EUR 5 million). After the five banks were closed, Serbia was left with forty-three operating banks.

The consolidation process is set to accelerate through mergers and acquisitions. In 2005, 98.3 percent of Eksimbanka were acquired by Austria 's Creditanstalt for EUR 54.1 per share, 88.6 percent of Jubanka were bought by Greece 's Alpha Bank for EUR 152 million, and 83 percent of Novosadska were purchased by Austria 's Erste Bank for EUR 73 million. Seventy-five percent of Delta Banka was acquired by Italy 's Intesa for EUR 277.5 million, and 80 percent of Atlas Bank was bought by Greece 's Piraeus Bank for EUR 25 million.

By the end of 2006, the government plans to sell its stake in ten more banks. The top bidder for 98 percent of Continental Banka is Slovenia 's Nova Ljubljanska Banka, while Hungary 's OTP and Bulgaria 's First Investment Bank have expressed interest in Niska Bank. Other important banks up for sale are Vojvodanska and Panonska. France 's Credit Agricole is in talks to buy a 71 percent stake in privately-owned Meridian Banka.

Source: NBG Research Department and Seeurope.net

CROATIA: Thriving Funds

Fledgling Croatian pension funds are proving so successful they will soon have more money than they are allowed to invest. Croatian pensions have been praised as a rare success story of financial reforms in the former Yugoslav republic-turned EU candidate country. But fund managers now want looser restrictions on where they can invest their growing coffers.

“Without major changes in the liquidity of the Croatian capital market, pension funds will, in the coming years, face a problem of where to invest their money,” Damir Grbavac, head of the best-yielding Raiffeisenbank pension fund, told Reuters.

Croatia launched mandatory pension funds in 2002. By the end of March this year, the four funds had net assets worth 8.5 billion Croatian kuna ($1.5 billion), about one-10th of private savings at commercial banks and roughly 4 percent of GDP.

But a thin Croatian capital market, slow privatization and few eligible shares on the local bourses have squeezed investment options.

Fund managers have to invest at least 50 percent of their portfolio in Croatian state debt and are banned from investing more than 15 percent abroad. They can also only invest in the shares of a few top-tier companies.

“Investment structure was adequately regulated when the pension reform started three years ago, but some changes seem necessary now,” Grbavac said.

Dinko Novoselec who manages A-Z , Croatia 's largest fund, said it was wise to invest at home before venturing into foreign markets, but the limit on overseas investment cannot be maintained as Croatia heads toward EU membership. Zagreb hopes to join the bloc by 2009.

“ Croatia is a transitional economy which we expect to rise faster than the economies of developed countries. It should consequently bring higher yields to our members,” Novoselec said.

Fund managers and state pension fund regulator Hagena agree the capital market could develop faster if funds were allowed to take part in privatizing state assets.

Hagena proposed an amendment to the pension funds bill to allow funds to invest in more equities, including dozens of companies listed in the less transparent public companies tier of the bourse.

“If privatization through a strategic partner secures higher revenues that's fair enough, but pension funds are eager to step in if part of the sale goes through the local bourses,” said Dragan Kovacevic, head of Hagena.

Croatia has already begun privatizing some of its big industries, like oil firm INA and state telecom operator T-HT, through direct sale to a strategic partner. The government has decided to sell another 15 percent of INA in the coming months, which would take the stake sold off to 40 percent — a move likely to please fund managers.

But it is not just mandatory funds that are gaining weight. Voluntary pension funds have also launched in Croatia , albeit with fewer assets at their disposal — 110 million kuna at the end of March.

“They are still establishing themselves,” Grbavac said. “A key issue here would be to create such a tax deduction policy that would motivate employers to pay... into voluntary funds.”

But Kovacevic said that before such voluntary schemes can thrive, Croatia will need to look at wider ways to stimulate its economy.

“Only in a wealthy society can people put their money aside and invest in their future through such a scheme,” he said.

By Igor Ilic

Source: Reuters

ALBANIA: 76% Stake in Albtelecom Sold

Albania will sell 76% of the Albanian state phone company Albtelecom Sh.A. to a Turkish consortium in a deal worth $151 million. The consortium, consisting of Turk Telekom and Calik Enerji Telekomunikasyon AS, was the only international group offering to buy the Albtelecom. Ten other companies - from Slovenia , South Korea , the U.S. , Kuwait and Ireland - had expressed interest earlier but did not submit bids.

Albtelecom, which the government valued about $183 million last January, is the only fixed-line telephone company in the country, which also owns a mobile phone operator.

The deal "is one of the most successful in the history of privatization," said in May 2005 then Prime Minister Fatos Nano. "It is an invaluable contribution in the sustainable growth of the Albanian economy, an incontestable success of the reform of privatization and restructuring of the market and economy toward standards of the global economy."

But the opposition Democratic Party of former President Sali Berisha, who has emerged as the new prime minister-elect after the recent Parliamentary elections, said they would review the Albtelecom privatization process, claiming it was sold beneath its value and that the procedure was irregular.

Source: Seeurope

BOSNIA AND HERZEGOVINA: EBRD Loan to Revive Bosnia 's Railway Sector and Pave the Way to Future Privatization

The European Bank for Reconstruction and Development (EBRD) will approve this year a 140 million Euro loan to revive Bosnia 's railways sector.

The move came after the country's central parliament passed a law reforming the muddled railway system, a main condition for the release of the funds. “The adoption of the law and its implementation are a milestone for the reform of the railways but it is very important the law is implemented as soon as possible,” Serban Ghinecu, EBRD's principal banker and operation leader, told Reuters.

The law allows for the creation of an infrastructure management company and a railway regulatory body. Both will supervise passenger and freight operations in the two separate rail companies of the Serb Republic and the Muslim-Croat federation, Bosnia 's two autonomous regions.

The law also paves the way for a restructuring plan that will see rail services privatized while the state remains in charge of the infrastructure. Ghinescu said the project would be co-financed by the EBRD and the European Investment Bank.

“The preparation of the loan is subject to due diligence, negotiations and approval of the bank's management and board of directors... but we aim to sign it by the end of 2005,” he said.

Source: Reuters and Seeurope.net

MACEDONIA: Siemens Plans to Invest in the Energy Sector in R. Macedonia

Siemens are planning to invest in the Macedonian energy sector. Sources within the government claim that Siemens is interested in building a thermal power plant in Skopje and smaller hydro power plants.

Local papers add that Siemens would have an easier time investing in the energy sector should one of the two largest German electric power companies buy the Macedonia Electric Power Company, with whom Siemens cooperates closely.

Source: EnergyObserver

REGION: EBRD Report Praises the South East European Region

The European Bank for Reconstruction and Development (ERDB) anounced that the new members of the European Union are the most advanced countries in the implementation of reforms.

According to the ERDB, Hungary ranks first in implementing the regluations for economic activities and tax reforms and stimulating private initiative s . Willem Buiter, cheif economist at ERDB , comments that Romania, Bulgaria and Croatia have recorded the fastest advance s in the region.

Source: Seeurope.net

REGION: New Investment Fund Created to Invest in South Eastern Europe

Balkan Accession Management Company announced in late Jan uary 2005 the creation of the Balkan Accession Fund - a fund that will raise 75 mln E uro for mezzanine and equity investment. The fund, initiated by the Romanian American Enterprise Fund, the Bulgarian American Enterprise Fund, German finance and consulting corporation DEG and the Dutch Development Finance Agency FMO, starts off with a capital of 20 mln E uro and deferred commitments for another 7.5 mln E uro from leading investors. Initial investments will target Romania and Bulgaria.

Source: Dnevnik

ALBANIA : Expected to Sign EU Stabilization and Integration Treaty This Year

The government of Albania expects that the country will be eligible to sign the EU Stabilization and Integration agreement this year, and become a full-fledged member of the European Union in 2014.

Source: Seeurope.net

ALBANIA: Scheduled Improvements in the Power System

The state-owned electric company KESH chose Iberdrola SA and the Greek branch of Siemens AG for contract work worth 18.5 million Euro to upgrade the power distribution network in three towns.

Iberdrola, Spain's second-largest electricity company, will install distribution substations under a contract worth 8.8 million Euro. The Greek branch of the German company Siemens AG , Siemens AE , was chosen to improve distribution power meters and lines in a contract worth 9.7 million Euro. KESH estimates that both projects would be completed in the next 14 months. The projects will take place in Durres, Elbasan, and Berat.

Recently Albania has suffered frequent power cuts because of a lack of rain for hydroelectric stations , which provide the bulk of energy output , as well as poor management, an outdated distribution system and outstanding consumer bills. Following significant improvement of its management over the last two years, KESH has received hundreds of millions of E uros to be invested in the power system.

Source: AP

BOSNIA: Selling Control Shares in 15 Key Companies

The Bosnian federal government approved the program developed by the Agency for Privatization on the acceleration of the privatization efforts in 2005. The Agency for Privatization intends to sell state assets worth about 541 million Euro in 15 state key companies. Among these 15 companies to be offered for privatization are: Sarajevo Osiguranje (45.9% state share), Energoinvest Sarajevo (67% state share), and Hidrogradnja Sarajevo (67% state share). However, the state company BH Gas, the only gas supplier on the territory of Bosnia & Herzegovina , will remain under state control at least until 2010. Currently, the privatization program does not allow the sale of 100% of the assets of a company to a foreign entity.

The Bosnian Serb government in Republika Srpska in Banja Luka urged the Directorate for Privatization to accelerate the privatization efforts in key companies under its control this year. The Directorate for Privatization is responsible for the sale of state assets in companies with capitalization above 300 000 Bosnian marks (or about 153 000 Euro). Since 1999, 603 companies have been privatized out of 1,600 scheduled for privatization. The privatization efforts can be stepped up for the sale of the majority stake in the biggest brewery Banjalucka Pivara and the tobacco company Fabrika Duvana. Until the end of January, a plan may be adopted for the privatization of other strategic state companies such as the petrol refineries Brod and Modrica.

The biggest investment in 2004 was the sale of BH Steel to the Indian investor Lakshmi Mital and his company LNM for 280 million US dollars.

Source: Capital

BULGARIA AND ROMANIA: EU Accession Treaties to be Signed in April 2005

T he EU accession treaties for Bulgaria and Romania have been approved by the EU member states.

After the necessary constitutional amendments are adopted by both countries, the text has to be translated into all official EU languages by March 15 , 2005 . Then t he European Commission will give an opinion , and t he European Parliament will endorse the texts by April 13 , 2005 . T he treaties which lay out the terms of the membership of the countries will be signed on April 25 , 2005 .

Source: EU Observer

BULGARIA: Minority Shares in Local Telecom Offered on the Sofia Stock Exchange Create an Investor Craze

The offer on the Sofia Stock Exchange of the minority share of 35 % held by the state in the Bulgarian Telecommunications Co mpany created an investor craze.

Ninety-nine percent of the 2.87 million shares were sold by the end of the first trad ing day at an average price of 218.64 leva (111.79 Euro ) in compensatory notes, a special financial instrument. The shares were floated at a minimum price of 100 leva (51 Euro) . This price reflected the approximate share price that the institutional buyer of the controlling stake of the telecom paid in June 2004. The controlling stake in the telecom belongs to Viva Ventures Holding GmbH, a Vienna-based unit of U.S. equity fund Advent International. Viva Ventures acquired the controlling stake from the state for 280 million Euro.

After the state divested its minority shares on the stock exchange , the state will retain only a "golden share" , allow ing the government to exercise certain control rights under the investment plan it concluded with Viva Ventures .

Source: AP

BULGARIA: Maritime Fleet Offered For Privatization

The privatisation procedure for 70% of the national maritime fleet Navigation Maritime Bulgare (NMB) will be open to strategic and financial investors, the parliamentary committees on economic and transport policy decided in mid- January 2005 . The remaining 30% of the company will be floated on the Bulgarian stock exchange prior to the sale of the majority stake.

The strategic investors interested in acquiring the majority stake in NMB will be required to have a n existing fleet of over 1 mln tonnage or 20 mln tons of cargo turnover . T he financial consultants are required to manage assets of over 200 mln E uro. The buyer of the controlling stake must retain at least 51% of NMB for three years after the acquisition and is prohibited from undergoing structur al corporate changes until 2007 .

Source: Dnevnik English edition

CROATIA: New Tax System Implemented Aimed to Attract Foreign Investors

Croatia has improved its tax system and introduc ed a new law regarding income and profit taxation aimed at attracting foreign investment. The new law sees the abolishment of distributed profits tax and the introduction of the Financial Police to help prevent grey economy. Non-taxable income amounts to 1.600 kuna, 100 kuna more than previously.

Source: HIC

CROATIA : GDP Increases

The per capita GDP in Croatia in 2004 totalled 6,225 E uros, the head of the Central Bureau of Statistics reported at a government session in January 2005 . The government adopted a draft statistical research plan for 2005 which envisages 340 statistical surveys.

Source: Hina

R. MACEDONIA: Judiciary Independence to be Improved

The M inister of Justice of the Republic of Macedonia announced that the constitutional amendments aimed at increasing the independence of the judiciary will be submitted to the government by the end of the first quarter of 2005 . Members of the working group in charge of preparing the amendments have been appointed. T he working group is expected to examine the regulation of the j udiciary and prosecution and make recommendations for improving the independence and efficiency of the system.

Source: Intellinews

R. MACEDONIA: 2005 to be a Decisive Year in Expected EU and NATO Integration

In 2005 R. Macedonia is expected to develop final reforms in order to join NATO and achieve a status of candidate country to join the European Union.

Oli Rehn, the EU Enlargement Commissioner, reporte d that the European Commission will opine on the status of R. Macedonia in the coming months. T he candidate status of the country should be reviewed by the European Council by December 2005 . This timetable puts R. Macedonia in line to join the list of countries from South Eastern Europe which have obtained EU candidate status - Croatia and Turkey.

O n February 14 , 2005 , R. Macedonia will report on the reforms status in response to an EC formal inquiry . To become a candidate country for EU membership, R. Macedonia must have stable institutions and a sound legal system. The country will have to direct resources towards further reforms and improving performance.

The preparation of the report on the reforms status while the political situation in R. Macedonia was out of balance - recent resignation of the Prime Minister, the election of a new government , the referendum on the controversial issue of decentralisation - show that Macedonia has stable institutions which can achieve results in extraordinary circumstances.

R. Macedonia has to set out a national development plan to map a route for the country's long term sustainable economic development within a competitive EU market. Another project is the development of a national program for the adoption of the acquis communitaire legal regime prevalent in all EU countries.

Source: Institute for War and Peace Reporting

R. MACEDONIA: the First Private Pension Funds Set in Motion

The Macedonian agency for pension oversight chose two local banks to develop the first private pension funds in the country. The chosen banks are Tutunska Banka and Stopanska Banka.

Source: Capital

ROMANIA: Minority Stakes in Leading Companies Offered through the Bucharest Stock Exchange

The state will take advantage of the Bucharest Stock Exchange to sell its minority shares in leading companies such as the petrol company Petrom, the savings bank CEC, and the telecommunications company RomTelecom.

Source: Capital

ROMANIA: Flat Tax on Business Approved in the Senate

The Romanian Senate voted in favor of introducing a flat tax rate of 16%.

Source: Cotidianul

SERBIA & MONTENEGRO: Improvements in the Insurance Sector

The national bank of Serbia revoked the license to operate of seven local insurance companies in Serbia . These efforts are part of the initiative to clear the financial sector of irregularities. These license revocations follow on the footsteps of the December 2004 similar initiative which closed down 8 insurance companies. As a result of the tightened control, 22 out of previously 40 companies in the insurance sector have remained in business.

The government decided to tighten control over the insurance sector after irregularities were discovered such as falsified financial reports and tax evasion. In the end of last year, the governor of the central bank of Serbia , announced that until the end of 2005 the banking and financial sector will be “cleared up” of shady dealings.

The main problem in the banking sector is the unknown source of capital used to acquire shares in the banks. To address this issue and improve the business climate for legitimate foreign investment, since 2001 the banking sector has been restructured. In 2001, the national bank of Serbia revoked the license to operate of over 20 then-existing banks and merged 18 state banks. In this way, in one year, the number of local banks decreased to 48 out of 83. Currently, there are 46 banks in operation in Serbia . Recently, Serbia registered significant interest by foreign investors towards local banks.

Source: Capital

SERBIA: Zastava Car Producer Approached by Foreign Investors

R epresentatives of the Italian VM Engines have begun negotiations with the management of the Zastava Group car producer on a possible joint venture in the production of diesel engines by the Kragujevac-based car producer. Zastava Group's general manager, Zoran Radojevic, has confirmed this information to BETA and said that the outcome of these negotiations with the possible partners from Bologna will be known in two weeks.

Director of the Italian VM Engines company, Paolo Marilli, and the company's general manager, Giorgio Garimberti, offered the Kragujevac-based producer to begin joint production of diesel engines of different capacities that would be sold on the western European market to meet the demands of the auto industry.

Source: Betanews and Press Review

TURKEY: Financial Outlook Stabilizes

F inancial markets in Turkey have started to derive tangible benefits from impending talks of EU accession.

The C entral B ank of Turkey (CBT) cut its overnight borrowing rate by another 100bps in January 2005 and i nterest rates are expected to fall into single digits during 2005. The redenominated lira, after dropping six zeros at the start of the year, traded at firmer levels in late January at NTL1.34 for US$1 , and NTL1.74 for Euro 1 as of January 28th.

The Istanbul bourse has been bullish ever since accession negotiations with EU became a reality. The National 100 index rocketed 20% over the past two months, surpassing 27,000 points . Turkey is riding a wave of political and economic success, and a strong improvement in investor confidence has been evident in the country's financial markets. The EU voted late last year to begin negotiations on admitting the country.

Talks are expected to begin later this year, and take more than a decade, but investors have already started to place bets on Turkish financial markets' eventual convergence with Western Europe. The process has been helped by the continued advances of the Turkish economy. Inflation moderated over the past two years, and CBT confirmed that the government's ambitious inflation target of 8% by end-2005 is now within reach. Inflation-adjusted interest rates are soon seen falling below 10%. Economic growth remains strong. The OECD expects the economy to expand by 5.7% per year, on average, in the 2006-2009 period, outpacing most EU economies.

Demand for Turkey's international debt has been spurred by the recent conclusion of talks with the IMF over a US$10bn standby loan package to replace the US$19bn deal which is set to expire in February. Fitch, an international rating agency, raised Turkey's sovereign debt rating to BB-minus ahead of the sale of the US$1.5bn 20-year eurobond issue in mid-January.

Source: Reporter

TURKEY: 13 Candidates for Turk Telecom

There are 13 companies interested in acquiring 55% of the national telecommunications company Turk Telecom. Under preliminary information, the sale must be completed by May 2005, at the latest. Companies from Europe , South Asia and the Persian Gulf have expressed interest to acquire a controlling share in the largest European operator of fixed lines with about 19 million subscribers.

Absent from the list of interested companies are Deutsche Telecom and France Telecom. Experts believe that these European telecoms have chosen to pursue other acquisition targets elsewhere in Europe and the Middle East . It is believed that Deutsche Telekom will target the 49% stake in Slovak Telecom in Slovakia . Deutsche Telekom already has 51% in the same company. France Telecom has expressed interest in the acquisition of the control stake in Bezeq, the Israeli telecommunications company.

Experts predict that the value of the assets of Turk Telekom is at its highest in the last four years. For 2003, Turk Telecom announced net income of 4.8 billion US dollars.

Source: Capital

BULGARIA: An Even Better Tax Regime from 2005 for Foreign Investors

The Bulgarian finance ministry proposed to amend the Corporate Income Tax Act and establish a better tax regime for foreign investors. The changes are expected to take effect on January 1, 2005. The better tax treatment of foreign investors involves retention by the corporate entity of otherwise due corporate tax.

Corporate entities become eligible to retain corporate tax when they have acquired assets as part of an initial investment in Bulgaria. To qualify for retention of corporate tax in the case of a purchase of fixed assets, the value of the purchase should be at least equal to the double size of the retained tax, i.e. a company will be allowed to retain 1,000 levs (about 500 Euro) in profit tax if it has bought fixed assets worth 2,000 levs (about 1,000 Euro). To qualify for retention of tax in the case of a purchase of intangible assets, the value of the purchase should not exceed 25% of the size of the initial investment, and at least 25% of the price of the acquired intangible assets should be financed by the company. There is one caveat: when the value of an investment project exceeds 100 million levs (about 50 million Euros), a company will be allowed to reduce or retain corporate tax only after the consent of the Commission for the Protection of Competition.

Coal mining, steel, synthetic fibers and auto and ship-building companies are not eligible to retain corporate tax.

If a company wants to sell the assets that qualified it for the tax retention, it will be required to reimburse the amount of the retained corporate tax.

The proposed changes will reduce corporate tax due from firms implementing investment projects valued between 100 and 200 million levs by 50 million levs plus 25% of the amount of the initial investment that exceeds 100 million levs. Projects worth more than 200 million levs qualify for a tax reduction of 75 million levs plus 15% of the amount exceeding 200 million levs.

Source: Dnevnik.bg

BULGARIA: One of the Lowest Profit Taxes in Europe - 12.5% - Coming in Two Years

The Bulgarian Finance minister Milen Velchev contemplates the possibility of lowering the corporate income tax to 12.5% in two years. The tax rate in Bulgaria may thus reach the level of Ireland's one, which is the lowest in Europe. Profit tax will be decreased by 4.5 percentage points to 15% for 2005, which will leave BGN 200 million (about 100 million Euro) in the corporate sector. The higher investments to be made by the companies will boost the real GDP growth by some BGN 700 million (about 350 million Euro). A unified tax rate of 23.5% was introduced for the corporate sector last year and the installments payable to municipalities were cancelled.

Source: American Chamber of Commerce online Newsletter 03.05.2004

SERBIA & MONTENEGRO: the First Free Zone in the Port of Bar Established under the New Law on Free Zones in Montenegro

The Port of Bar will be the first Free Zone in the Republic of Montenegro.

With the new Law on Free Zones under development, Montenegro will offer significant stimuli for business development to investors:

Both domestic and foreign legal and physical persons can participate in the Free Zone. Legal and physical persons that operate on the territory of the free zone will be able to hire foreign citizens. The Customs Administration will be responsible for issuing work permits. The goods exiting the free zone for circulation on the territory of Montenegro will be subject to tax and all other import limitations.

The Montenegrin government contemplates the establishment of more free zones in Montenegro. The Law on Free Zones anticipates the establishment of sub-zones.

Source: www.seeurope.net

SERBIA AND MONTENEGRO: Positive Message to Investors - Serbia Reaches a Credit Deal with the IMF

The Serbian government has reached a preliminary agreement with the International Monetary Fund on the release of credit worth 140 million dollars in June 2004.

The agreement sends a positive message to potential investors. “I think we have reached a good agreement which will be positive news to all potential investors. That is what they have been waiting for, to see whether this government will reach agreement with the Fund,” said Miroljub Labus, who heads the economic think-tank turned-political party G17 Plus.

Serbian Finance Minister Mladjan Dinkic expects the country's economy to grow by around 6 percent year-on-year in 2004.

Most economists had forecast growth of 4.5 percent for Serbia this year, but Serbian officials said such forecasts would have to be raised following much stronger than expected industrial production figures.

Latest figures put Serbian industrial growth in March at 17.6 percent.

Source: www.seeurope.net

SERBIA AND MONTENEGRO: Some Excise Duties Abolished under a New Law on Excises

Under the recently adopted Law on Excises, the excise duties on certain domestic products and other fuels will be abolished.

The following excises will be abolished: excise on domestic juices and soft drinks, heating oil, jet fuel and gas for airplanes, motor oils and lubricants, petroleum for lighting, liquid petroleum gas, butane gas, car gas, and ethyl alcohol, i.e., ethanol.

The excises on all other types of fuel, alcoholic drinks (except on domestic brandies), imported juices and soft drinks will be increased. The excises on whiskey, gin and cognac will be increased by 30% while the excises on other alcoholic drinks will be increased by 25%. The excises on imported juices and soft drinks will jump by 3 Dinars. The excises on all types of motor gasoline and diesel fuels will be increased by 3 Dinars per liter, whereas the retail price of these products will be defined by the Petroleum Industry of Serbia and other companies.

The excise on imported cigarettes classified under “group A” will be higher by 3 Dinars; “group B” – higher by 1 Dinar, and “group C” – higher by 5 Dinars. In addition, the excise duty on coffee will equal 40% of the coffee’s value rather than the present fixed amount that does not depend on the value and quality of the coffee.

Source: www.seeurope.net

R. MACEDONIA: Investment Opportunities in the Tobacco Sector

Foreign investment opportunities exist in the tobacco sector in R. Macedonia where bankruptcy proceedings are currently contemplated for the tobacco plants AD “Niko Doaga” from Krusevo, “Talja Bikova” from Gevgelija and TK “Boro Petrusevski-Papucar” from Kumanovo.

The tobacco plant from Prilep and “Jugotutun” from Sveti Nikole will avoid bankruptcy if in 30 days they succeed in making a business plan and developing a strategy. The tobacco plant from Prilep seeks a strategic investor, while “Jugotutun”, although privatized already, negotiates at the moment with a domestic investor for a take over.

Source: www.seeurope.net

R. MACEDONIA: Business Opportunities in Real Estate

Macedonia has embarked on a program of privatization and economic development that has created an array of investment opportunities. Property investors and developers should look at the fast-emerging Macedonian real estate market, clarified the chartered surveyor Owain Llywelyn, Director at Lambert Smith Hampton in Cardiff, Wales. These opportunities contrast starkly with the over-heated investment market in the UK where yields of between 4-10 % prevail compared to 30 % in Macedonia."

During the past three months Llywelyn has been providing valuation advice on a number of commercial property interests in the country.

Following meetings with the country's Prime Minister and minister of economy, Llywelyn said opportunities are proving of great interest to Welsh investors and developers.

Source: www.seeurope.net

ROMANIA: Sell off Strategy for Another Two Power Distributors Approved

Romania’s government approved the sell off strategy for another two state-owned power distributors, pushing ahead the privatization of the Balkan country power sector. The two power distributors to be put on sale are Electrica Oltenia and Electrica Moldova. Electrica Moldova claims 1.29 million customers, while Electrica Oltenia - a portfolio of 1.34 million customers. The two Romanian power distributors cover 17% of the country’s customers.

In the first phase of the privatization, the state has offered controlling stakes to strategic investors. The second phase of the sell off process envisages a buyer-initiated share capital increase of 51%. No deadline for the completion of the deal has been announced yet.

A consortium led by Bank of America Securities will cover consultancy activities for the deal.

Italy’s ENEL submitted a binding offer for the acquisition of a majority stake in two other Romanian electricity distribution companies, Electrica Banat and Electrica Dobrogea.

Source www.seeurope.net

ROMANIA: New Law on Capital Markets

On May 29, 2004 the Romanian Government adopted the new law on capital markets - a prerequisite for closing European accession negotiation Chapter 3 “Freedom To Provide Services”. Under the law, The Bucharest Stock Exchange (BVB) and over-the-counter market RASDAQ will merge.

The new exchange will retain BSE’s name. Companies eligible for listing on the merged entity BSE will have to have share capital of at least 1 million EUR and a history of at least 3 years in business.

Source: www.seeurope.net

ROMANIA: Investment Success Story in the Banking Sector

HVB Bank Romania was the most profitable branch of the German group in 2003, for the second year in a row, with a 40% profitability rate under Romanian accounting standards and with a 47% profitability rate under international accounting standards.

HVB Bank Romania last year logged net income worth 468 billion ROL (almost 12.5 million euros), up 87.2% from 2002.

Source: www.seeurope.net

ALBANIA: Government Adopts Memorandum for Promotion of Foreign Investment

Albania has adopted, in principle, a memorandum of understanding with the International Financial Corporation (IFC) to launch the "Advisory Service for Foreign Investments" project with support from the International Monetary Fund (IMF) and the World Bank. A study conducted with international donors would assess administrative barriers to investors and offer legislative amendments to improve the business climate. The government says promoting foreign investment is an economic priority.

Source: Balkan Times

ALBANIA: Government Endorses Privatization Strategy for Insurance Company

The Albanian government endorsed the privatization program for the Insurance Institute (INSIG) and forwarded it to the Albanian Parliament for approval. The privatization program calls for INSIG to be sold in two phases. The first phase foresees the selection of financial investors, who will be offered a 40 percent stake in INSIG. International financial institutions will be considered as financial investors. The second phase foresees the selection of a strategic investor that will be offered at least a 51 percent stake in INSIG for a controlling share. The strategic investor should be an insurance company, which will be selected as result of an agreement between the Albanian government and the financial investors, following a 12-24 month time period from the date of selection of the financial investors. INSIG was created in 1991 after the dissolution of former Institution of Savings Branches and is the only state-owned insurance company operating in Albania. Liberalization of the insurance market began in 1999, and several private insurance companies have been licensed for operation in the insurance market.

Source: Albanian Daily News

KOSOVO: UN to Establish Privatization Agency to Boost Economy

The United Nations Mission in Kosovo (UNMIK) announced plans to establish a new entity to manage the privatization process. Michael Steiner, the head of UNMIK announced that a Kosovo Trust Agency will be created to oversee the privatization process in order to stimulate investments into the economy. The Agency will have a Board of Directors made up of 3 UNMIK representatives and 3 local representatives, including at least two from the government.

Source: UNMIK

TURKEY: Turkish - German Chamber Of Commerce and Industry Inaugurated

Turkish Prime Minister Recep Tayyip Erdogan has said, ''I invite German businessmen to make more investments in Turkey.'' Erdogan expressed pleasure with developing Turkish-German relations and stressed that the two countries were going towards a strategic partnership.

The Turkish-German Chamber of Commerce and Industry established jointly by the Union of Turkish Chambers and Commodity Exchanges (TOBB) and the Union of German Chambers of Commerce and Industry in Cologne was inaugurated by Turkish Prime Minister Erdogan and German Chancellor Gerhard Schroeder on April 27, 2004.

Erdogan stated that Turkey should attach more importance and give priority to inflow of foreign capital, privatization and employment. Bureaucratic hurdles before establishment of companies had been reduced, Erdogan said. Erdogan pointed out that efforts continued to rehabilitate the investment environment. ''We are determined to continue structural reforms. To this end, we have formed a structural reform road map for 2004. We aim to ensure a sustainable public finance, adjust banking sector with international norms, and pave the way for private investments. We know that we still have deficiencies. But, we prefer to overcome these deficiencies instead of ignoring them as we do for political reforms,'' Erdogan added.

Erdogan recalled that inflation rates in February and March 2004 were the lowest in the last 20 years and said that inflation rate reduced to a single-digit figure in those months for the first time in 20 years.

Source: Turkishpress.com

TURKEY: Investors’ Interest In Turkey Reaches Peak Point

Turkish Finance Minister Kemal Unakitan said in April, 2004 that interest of foreign investors in Turkey reached a peak point.

Unakitan met with foreign investors during meetings arranged by the international finance institution Merrill Lynch. Unakitan reported that the investors he met told him that they considered betterment in Turkey's macro-economic indicators as very positive. Unakitan said that there was intensive interest particularly in companies like Erdemir, Telekom, and Petkim.

Source: Turkishpress.com