Lessons and certain inquiries related to selling of steel plant

On the basis of tender documentation on search for strategic partner for Smederevo Steel Plant and information published at press conference of the Government of Serbia after failing several times in negotiations with Esmark, conclusion imposes that the Government was right to refuse the offer, because it hasn't satisfied requirements that were familiar to participants from the draft contract (guaranteed working capital the least 100 million USD).

Conditions from tender documentation and criteria were prescribed in details or related to established goals of privatization, although probably much better scenario would be if in certain segments they were additionally precise from the beginning (e.g. in regards to amount of contractual penalties). It is also noticeable, that during negotiations, certain conditions were mentioned that are not being stated in the documentation (e.g. in regards to keeping of employees or amount of investments), as elements for evaluating quality of bids.  

Conditions for leading these negotiations were clearly very unfavorable towards Serbia, because only one valid offer was submitted. It can be reasonably assumed that there could have been more interested parties if the information that could be interpreted as being in favor of Esmark compared to other potential bidders, hasn't been publicly stated before the public call. Indeed, it is also possible that this firm wouldn't answer the call if it wasn't encouraged through communication with officials to do so. Besides, maneuvering space for negotiations was additionally narrowed due to provisions of the Stabilization and Association Agreement, that forbid state aid in this branch, as well as due to negotiations on IMF arrangement, where decreasing of state aid was one of the conditions.

By refusing to accept the offer, Government wanted to avoid the risk of decreasing working capital of the steel plant, and possible loss of more than 100 million USD. However, according to Transparency Serbia (official chapter of Transparency International) the Government still owes the public clear reasons that could possibly justify recent and further investments or covering of expenses of work of this enterprise, that are several times the mentioned amount.

Transparency – Serbia

Belgrade, 24 February 2015