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How much logic and information is there about selling Port Novi Sad

The news that one financial offer for purchase of the Novi Sad Port was declared successful, indicates that the process of selling this company will be soon completed. However, statements of the State Secretary Dragan Stevanović opened the question on the logic of the state conduct in this case. From his statement the citizens found out that the initial price of around 8 million euros was offered (previously the initial prize was twice as high), and that investments in next 3 years will “probably be higher than 15 million euros” (14,9 million was the minimum according to tender documentation), of which 5 million will go to port infrastructure. He explained that the Port currently has transshipment which is half less than its capacity, and that in the company 150 people work and that the past 4 years were profitable. He added that the next owner of the Novi Sad Portis within the DP World Group, the third largest port operator in the world, and that it would be their first exit to the Danube, which has great importance for Serbia.

On the question why would the state go for privatization of the Port Novi Sad, given that the company is profitable, he points out that if the company has profit does not mean it works properly. “Port is outdated, technologically devastated”, Stevanović said, adding that the Port “requires serious investments and only from own funds, that is not accomplishable, no matter the profit.”

The bankrupt is the only thing that could happen to Port Novi Sad if there was no this privatization.

Numerous negative comments about this privatization on public resources came from the wrong assumption that the company which brings profit is not eligible for selling. Profitability of the company is not the reason that it sells, but is the factor which should influence the determination of the minimum acceptable selling price. Is this the case here, it’s hard to tell. On the website of Ministry of Economy, several documents 10 years old were published, as well as the public call, in which there are no details about year income. There is also the statement that “the fair market price” of the company (which was not offered in the previous call) is higher than 15 million euros. If the fair market prize is that far from the one which is achieved on the marker, then something is not correct with evaluation experts/method of the estimation or with the conditions under which the sale was advertised.

The statement of the State Secretary inevitably encourages curiosity in the readers. Namely, if the buyer found the calculation to invest 5 million euros in port infrastructure and 10 million euros in accompanying contents, and to pay another 8 million euros to became the owner of the Port Novi Sad, is that investment profitable to the state during it was the owner of the company?

Namely, as the State Secretary of the Ministry of Economy stated, there was the possibility for those capacities to double. The circumstance that the company had no own capital does not mean that it could not take the loan for which the state would guarantee.

Unlike many other loans in which from the start was certain that the guaranteed loan would be charged from the state, here was the realistic possibility to charge the loan from company’s income. Of course, the business of the company is a complex matter, so many factors unknown to the public could affect on assessments and decisions of the market participants. 

For example, investing in the Port is probably more profitable to some company that normally carries that kind of responsibility, than to the state, due to the knowledge of the market and customer needs, more profitable arrangements for purchasing the equipment, the experience of the workforce, and administration etc. However, the fact remains that the state representatives did not provide a reasonable response to the question about why is this type of sale better that state investment. Otherwise, in one of the previous statements, the same State Secretary stated that the Port “according to the Strategy of Ministry of Construction, requires investment of 4 million euros per year, and for that the state has no funds.”

Such an explanation is even more necessary for one additional reason – due to the fact that there is only one offer, which is not far from the initial prize. If no one wanted to offer the prize higher than half of the evaluated price of the Port, that can be the result of the unreasonable high estimated prize, even it can be the indication that the conditions were excessively restrictive.

Indeed, when we look at the conditions, we can see that notanyone with 8 million euros and the possibility to invest 15 million euros more could purchase the Port Novi Sad. The bidder could be only the company that has been performing the port activity continuously in the last 10 years as the major activity, which had the business capital of at least 20 million euros in 2017, and in 3 previous years has the transfer of 1,4 million tons. In this way, potentially interested customers who are not currently doing the transfer of the goods are eliminated, as well as those who have entered the port activity in the last 9 years, also the port companies that have scope of business similar to one that has the bought company, or smaller one. Choosing the customer this way can only have some justification when it comes to possible competition between companies from this industry. 

Several months ago, Stevanocić stated that it is expected “that 3 world companies, which were interested even before tender – Dubai Pors, German Renus and American Valona will apply for the call”. However, that was not the case, even in a failed tender last October, not even now, and it showed that the approach was not correct.

This sale can also be seen in the context of the announced amendments to the Law on Free Access to Information of Public Importance. Namely, according to the most controversial solution from the current draft of the amended law, citizens of Serbia would be left with no possibility to seek information from state-owned companies at all.