Cablegate: Croatian Progress On Privatization

This record is a partial extract of the original cable. The full text of the original cable is not available.

150958Z Jul 04

UNCLAS ZAGREB 001297

SIPDIS

DEPT. FOR EUR/SCE KABUMOTO AND EUR/ACE
DEPT. PLEASE PASS TO USAID (CONVERY)
USDOC FOR 4233/ITA/MAC/EUR/EERIS/CEEBIC
USDOC FOR 3150/USFCS/OIO/EUR/CEENIS/LMOLNAR/PBRADLEY
VIENNA FOR AGCOUNSELOR
TREASURY FOR TBF VIMAL ATUKORALA

E.O. 12958: N/A
TAGS: EAGR ECON EFIN ETRD EAID PGOV HR
SUBJECT: CROATIAN PROGRESS ON PRIVATIZATION

REF: ZAGREB 1080

1. Since assuming office in December 2003, the new
government of Croatia (GoC) has, on several occasions,
publicly repeated its commitment to rapid and
transparent privatization by 2006 of virtually all of
the approximately 1,100 companies in which the GoC holds
equity. This divestiture will contribute to meeting
European Union accession criteria, help reduce
outstanding state liabilities, and enhance the
competitiveness of the Croatian economy.
2. The GoC's strong commitment to privatization was
reflected in its acceptance of the conditions of new
agreements with the World Bank and International
Monetary Fund in June 2004 that stipulated a timeline
for divestiture of the GoC's portfolio by 2006.

3. The government is the majority shareholder in
approximately 100 of the 1,100 companies and is a
minority shareholder in the rest. To jumpstart the
privatization process in March, the GOC appointed a new
board and management team to oversee the process and
resumed the tendering of companies. Since then, with the
assistance of USAID-funded advisors, 10 majority-owned
companies have been tendered with two of the companies
receiving multiple bids from qualified investors.
Accelerated USAID assistance has been requested by the
GoC to meet its goals of tendering 3 to 5 majority-owned
enterprises and sell minority shares of approximately 40
to 60 enterprises per month.

4. To best meet the GoC's privatization targets, new
approaches are being explored to selling companies "still
within the boundaries of the current Privatization Law"
that will preserve a transparent and competitive process
but also enable a more rapid closure of transactions.
These include introduction of public auctions using the
Zagreb Stock Exchange for majority-owned companies as
well as establishment of Public Private Partnerships for
a limited number of transactions (see REFTEL).

5. By November 2004, the GoC hopes to sell its minority
share packages in some 200 companies and its majority
holdings in 15 companiesQincluding two large loss
makers. Given that most of the enterprises are
financially distressed, near bankruptcy and politically
sensitive, these are ambitious targets.

FRANK

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