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SERBIA: Brewery's Privatization Threatened by Dispute

by Eric JanssonFinancial Times
March 28th, 2005

BELGRADE, Serbia and Montenegro For reformers, the privatization of the Serbian brewery Beogradska Industrija Piva would be an important step in opening up the country to wider international investment. But for defenders of ancestral property rights, it would be "a continuation of communist plunder."

Divergent opinion is nothing new in the Balkans.

Observers of Balkan politics are accustomed to traveling back decades, sometimes centuries, to find the roots of a contemporary conflict.

This time, however, it is also true of Balkan business, and opponents of the privatization are determined to make the proposed deal as uncomfortable as possible for potential bidders.

They include two of the world's biggest brewers, London-based SABMiller and InBev of Belgium, which have until Wednesday to submit bids to take a 51.3% stake in BIP. Both have been warned off by the family that owned the brewery before the communists nationalized it in 1945.

Serbia is the only country in the region yet to deal with restitution of seized companies to the original owners, a fundamental market reform.

The sale would be a significant achievement for Serbia's reformers, who aim to lure more multinationals into a market already home to big investments by Interbrew, Altria Group Inc.'s Philip Morris, British-American Tobacco and U.S. Steel. Restitution was not an issue in those investments.

The buyer acquiring BIP and its popular BG brand will take control of an 8% share of Serbia's growing beer market.

But for InBev, SABMiller or any of the five smaller companies known to have prepared bids, a deal could lead to a bitter legal struggle with families fighting to regain the property of their ancestors.

Potential investors must take into account events that go back to the end of World War II when Yugoslavia's communist authorities seized the Belgrade brewery, along with other sizable privately owned companies and then fast-forward to 2000, when reformers toppling the regime of Slobodan Milosevic promised denationalization and the restitution of seized companies to their original owners.

It appears to have been an empty promise. With the owners of property confiscated six decades ago in legal limbo, investors in Serbia's privatization process could also find themselves in this position.

Bogdan Veljkovic, whose family owned 42% of the brewery before 1945, describes privatization before restitution as "a continuation of communist plunder."

Veljkovic, a retired Wall Street banker who returned from exile in 2000 to become a leading campaigner for denationalization and restitution, says the privatization of BIP could prove an important test case for his movement.

He has written to the potential buyers warning them that acquiring BIP could trigger lawsuits in the U.S., where he is a citizen, and in the European Union, where his sister carries a French passport.

"The willful purchase of any arbitrarily confiscated and thus illegitimately acquired asset is of a penal nature according to international law," Veljkovic wrote, adding that his lawyers in the U.S. and EU stand prepared to act.

Two years ago Veljkovic's family succeeded in blocking the attempted privatization of a prized parcel of Belgrade once owned by their ancestors. But it is not clear whether their new threat seriously jeopardizes Serbia's effort to privatize BIP. State guarantees built into the process theoretically insulate buyers from risk.

But foreign investors say Serbia's failure to enact denationalization and restitution swiftly is holding back economic development.

Worst hit is the property market, one of eastern Europe's most expensive despite the fact Serbia is one of Europe's poorest nations.

Reluctance to enact land reforms in urban areas, where most land remains state-owned, distorts the market, says Natalia Kaneva, Belgrade director for Colliers, an international real estate agency.

The government's reluctance to act quickly may be explained by the estimated total value of properties confiscated in 1945, which Mladjan Dinkic, the finance minister, says could be as high as $150 billion.

Vojislav Kostunica, Serbia's prime minister, says restitution is imminent. A draft law requires Serbs to file claims for ancestral property no later than June 2006.

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