Irregularities exist in the privatization plan of what is one of Bosnia and Herzegovina’s most important companies: Aluminij d.d. Mostar, the massive manufacturing complex south of Mostar that accounts for about 10 percent of BiH’s exports.
Experts warn that the tender, which has unusual criteria and uses an unusual procedure, does not meet World Bank or other international standards, may not be transparent enough and may in fact be illegal.
Monday (April 23) is the deadline for companies to respond to the tender to buy 88 percent of the Mostar company.
Companies that have either submitted their bids, to or requested bid documents from, the Federation of BiH (FBiH) Agency for Privatization include Glencore International AG from Switzerland, ALRO S.A. from Romania, Ukio Bank Investment Group (UBIG) from Lithuania, United Company Rusal from Russia, Vedanta Resources from England, Mytilineos Aluminum from Greece, and a consortium including Feal Široki Brijeg from Bosnia and Herzegovina and four Croatian companies.
The Tender
The tender awards points to each bidder for certain criteria such as the price, employment plan, business plan and qualifications of the bidder. The bidder with the most points wins the tender.
The Mostar Aluminij tender gives an unusual amount of weight to bidders who have previous cooperation, existing relationships and current contracts with Mostar Aluminij, awarding up to 15 out of 100 points to these factors. These provisions effectively favor only a few companies because few of the bidders have these sorts of relationships. For instance, the tender specifically said the tender commission will consider ‘signed contracts for the period of the next three years’ which will benefit only current partners.
„It is important because of partnership relations. Because of that it is important that people who apply for the tender know what it’s all about, in order to be able to continue the process of development of Aluminij,” said Tončo Barbarić, president of management in the Feal group.
The tender also awards up to five points under the ‘qualifications’ category to companies that have operated in the BiH market for the last ten years.
Tender experts say odd tender criteria like these are often signs that the tender has been written for only one company and all other companies will be disqualified.
‘Most tenders are not open-ended, they predetermine one or two or possibly three buyers’ said Vladimir Gligorov, an economic expert with the Vienna Institute for International Economic Studies.
The tender only awards up to 35 points out of 100 points to consideration of the price offered for the company. This means a company with a lower offered price but close ties to Mostar Aluminij can still win the tender. Gligorov said a truly transparent tender would give all 100 points to the price criteria and that the rest of the criteria could be handled through requirements written into the tender. So instead of comparing investment plans between bidders, winners would be required to make certain investments. This is the approach recommended by the World Bank.
‘As a taxpayer you would be interested in the best possible price in cash because that is what is coming to you’ he said.
The Center for Investigative Reporting (CIN) in Sarajevo looked at a number of recent tenders including those for firms such as Energoinvest and Željezara Zenica. It could not find another case in BiH with such criteria nor could any source CIN contacted for this story.
‘[I’ve] never seen that in any tender I’ve been involved in’ said Olivier Boonen from the European Agency for Reconstruction, which is in charge of EU assistance programs for Southeast Europe.
Two companies benefit most from the current tender. Glencore, a Swiss company, has been working with Mostar Aluminij for many years and is now a shareholder in United Company Rusal, one of the likely bidders. Feal Široki Brijeg, which just bought Light Metals Factory (TLM) of Šibenik earlier this month as a member of a consortium of five companies also qualifies for the tender. TLM not only owns 12 percent of Mostar Aluminij but has been a vendor for ten years. TLM just signed a five year continuation supply contract making it eligible for extra points. An Aluminij spokeperson said it could not answer what other companies matched the tender criteria.
While the tender includes these rather unique provisions, other more common provisions are missing. There is no firm requirement that obliges the future buyer to keep all workers for the first three years, as has been common during other privatizations in BiH.
The Aluminij Union is aware of this fact. Mijo Marić, president of the union, claims that he and all workers would be happiest if this company never gets privatized.
‘The tender clause about keeping workers for three years is non-obligatory, but we will try to push it, we will do everything for that to come through, but nothing is 100%’ he said. Marić said workers are scared and concerned about their rights under a new owner.
Flawed Procedure
Even more unusual than the tender criteria is the tender process. The tender stipulates there will be multiple rounds of bidding with the first round involving ‘non obligatory’ bids.
Stijepo Andrijić, a professor at the University of Split and former director of the FBiH Agency for privatization, claims that during his mandate in the agency, something like that would not have been allowed. Andrijić said that because he tried to remove the politicians from the process of privatization as the law requires, he got fired in 2000.
Andrijić said the privatization law in Bosnia does not provide for a procedure with multiple rounds. Other experts say having multiple rounds defeats the purpose of having a tender.
‘This opening of bids a first and then second time leaves room for fraud’ Andrijić said. He said the bid system proposed does not minimize the possibilities for external influence.
‘It’s some kind of combination (of tender procedures)’ explained FBiH Minister of Energy, Mining and Industry Vahid Hećo referring to the multiple round bidding. ‘There will be three rounds if necessary. I am telling you nicely that the one who offers the most and produces aluminum will win.’
When asked who would qualify besides Rusal, Hećo indicated the Russian company Sual and the Swiss company Glencore. When told that all three companies had merged aluminum operations last month, Hećo said ‘I have no idea since this globalization came. Who knows who owns what.’
Hećo also dismissed the bid of Feal Široki Brijeg. ‘Feal has no chance. They are not manufacturers.’
Responding to Hećo’s comments, Tončo Barbarić, president of management in the Feal group said ‘I have no opinion on Hećo.’
Mostar Aluminij is the largest exporter in Bosnia—last year exports were valued at $240,000,000, accounting for about 10 percent of total exports. According to metal industry expert Waltraut Urban from the Vienna Institute for International Economic Studies, Mostar Aluminij ‘is very, very important. The most important exporter in the region… (Bosnia) has always been a metal working country. It could be an important core of a new metal cluster … It has the advantages of local skill, good location, and history.’
Mostar Aluminij directly employs 970 people, and indirectly supports over 20,000 people in the region. It has been a center of Bosnia’s economic life, and the future prospects are quite good. Because aluminum is lightweight, easy to ship, and has good recyclable qualities, demand is growing. Experts expect the aluminum industry to continue to flourish.
‘Aluminum consumption is growing at very healthy rates’ says Paul Robinson, the head of Crugroup, the world’s largest independent research house on aluminum.
Worldwide, aluminum plants are moving to areas of low labor and energy costs such as Nigeria. The cost of energy accounts for a third of the cost of smelting aluminum. But Mostar Aluminj is intriguing because it is close to Europe, has access to relatively cheap electricity, has cheap labor costs and is near the port of Ploče. It also has an aluminum smelter that can cost between one and two billion dollars to build.
