Dusan Djapic, member of the inner composition of the DSS Economic Council.
Most public companies had since the nineties been very respectable systems while today they are big unprofitable companies, operating with outdated equipment, surplus of employees and prices that don’t even cover operating expenses. The state with its price policy, which should first of all be in the function of development, should solve the serious social issues but loses on both fronts. Social policy must be made outside of public companies; it must be selective and be a concern for the state budget.
During the period 2001 – 2008 the organizational restructuring in all public companies was commenced, i.e. non-core activities were displaced from the companies’ operations and their number was increased by forming special companies in the fields of water management, forestry, energy, oil industry, roads and ski resorts, from 9 in 2001 to 17 in 2008. A change in legal form was carried out from public companies to closed shareholding companies. The Oil Industry of Serbia was privatized while the tender-based privatization of JAT Airways was unsuccessful. Against 2001 the number of employees went down by a third.
The key issues of public company operations:
1) unprofitability and inefficiency: public companies had in 2005 and 2006 alone operated with profit. However, since 2007, primarily owing to the lack of profit of EPS and PC Serbian Railways, the positive growth trend ceased and public companies had in 2008 shown a cumulated loss in the amount of RSD 371.8bn of which 82.5% is the cumulative loss of EPS and Serbian Railways. In 2008 the unprofitable companies were joined by two public companies that were previously profitable. JAT Airways with a stated loss of RSD 7.2mn and NIS, which had immediately after sale recorded a shortage of RSD 3.9mn. On the other side the most profitable is Telekom Serbia. The state operator had achieved almost the same profit like all other public companies together.
2) insolvency and high indebtedness: Public companies are constantly exposed to high credit risk (the majority only pays high interest on behalf of approved credits). Also, the due receivables are becoming a significant item in the assets of public companies, i.e. the rate of receivables from service users is unsatisfactory.
3) the surplus of employees and the inadequate qualification and age structure alongside the above-average salaries of employees in public companies against the Republic average. In public companies, the founder of which is the Republic, are engaged 104.349 workers or almost every tenth employee in the Republic.
Measures for consolidating public companies:
The reform of the public sector must be complex and integral for the goal of creating a cheaper and more efficient state, promoting competitiveness and creating an inventive atmosphere. The reform, alongside the corporatization of public companies also entails a change in city and construction land management, solving issues concerning social funds and restitution.
The solving of the problem must be approached systematically, i.e. the short, middle and long-term interests must be determined and only then come up with a development strategy for each individual company. We need to prepare the companies well because without improving performance and raising the general efficiency to the rate that is achievable without larger investments, we can hardly expect success in their ownership transformation. However, this success doesn’t depend just on preparations but also, what a country does to create more appealing conditions for capital investment. Experience shows that the exhibiting of positive effects of the privatization of infrastructure companies, we need, prior to privatization, to create the appropriate regulatory framework in the commercial branch as well as to restructure the public companies to a certain level.
Creating an adequate regulatory framework is of vital importance due to the fact that some activities (or parts of them) as part of the infrastructure have a character of a “natural monopoly”. The replacement of state monopoly with a private one, in case the state isn’t able to adequately control the monopolist (inadequate regulatory framework, lack of independence of regulatory bodies and corrupt government) – often has a series of unfavorable effects (price hikes, stagnation of availability and service quality) that compromise the very process of privatization, which in some cases, for instance in Latin America, led to renationalization of companies in the field of infrastructure.
The fact is by initiating the necessary infrastructure investments, raising the level of technical and technological capacity of public companies, reducing the number of employees to an optimal level, professionalizing the staff, having a market-based orientation in the sense of incorporating daughter companies that would provide services to all interested entities, introducing certain business standards along with appointing regulatory bodies for control, would all lead public companies (even without an ownership transformation) to a profit zone.
The reform of the public sector must be complex and integral for the goal of creating a cheaper and more efficient state, promoting competitiveness and creating an inventive atmosphere. The reform, alongside the corporatization of public companies also entails a change in city and construction land management, solving issues concerning social funds and restitution.
To start with an integral reform of the public sector, the state must previously or simultaneously provide the necessary preconditions:
1) make a portfolio of state assets and provide professional management over such assets, choice of a portfolio management through an open competition. In that manner, it will be provided for the state to attain a source income by renting its assets under market conditions, the process will be depoliticized, and be exclusively market oriented;
2) to make a central register of concessions and provide the full application of concessions over the exploitation of mineral an water resources, which will provide the source budgetary income;
3) to provide the establishment and work of independent, expert regulatory bodies, that would manage the creating, control and sanctioning of conducting economic frameworks of operations of public companies.
Starting from the fact that the IMF, as a key player in decision-making from the domain of commercial management in Serbia, is now once again asking of the government of Serbia a reform of the public sector and renewal of the privatization process of public companies, we need to make an emergency strategy for the transformation and reorganization of public utility companies. It would have to engross all their activities and define the types of privations that could be applied, whereby the manner of reorganization would have to be specific to each company within its activities.
