Published in Nacional number 769, 2010-08-10

Autor: Plamenko Cvitić

Ina's lawsuit threatens top Serbian ranks

INA HAS DEMANDED the return of petrol stations and compensation for damages following the 2003 sale of the Beopetrol oil company to Lukoil, as Beopetrol was founded from the assets of Croatian companies

Serbian Premier Mirko Cvetkovic was head of the Privatisation Agency in 2003, and in 2008 as head of the government he decided to extend Serbia's guarantee to Lukoil for another five yearsSerbian Premier Mirko Cvetkovic was head of the Privatisation Agency in 2003, and in 2008 as head of the government he decided to extend Serbia's guarantee to Lukoil for another five yearsThe lawsuit in which INA is demanding the return of petrol stations and compensation for damages in Serbia, or the annulment of the privatisation of the company Beopetrol has only recently become a hot political issue in the neighbouring country. While the entire case has been followed with a certain dose of nonchalance in Croatia, primarily just reporting on the Serbian news, the implications of INA's lawsuit in Croatia is becoming more dramatic with each passing day, as the epilogue could be one of the most embarrassing affairs in Serbian politics. If INA wins any of the lawsuits, that could mean the political end of Serbian Premier Mirko Cvetkovic.

A ruling in INA's favour would mean that during 2003, despite numerous warnings, the Serbian state sold the oil company Beopetrol, comprised of INA assets, to the Russian oil company Lukoil, and in so doing gave Lukoil a written guarantee that the Serbian state would cover all the costs in the event that INA ever decided to request a return of its assets. Right up until the early 1990s, INA was very present in Serbia: in addition to 167 petrol stations, it had 11 warehouses and a dozen other facilities throughout Serbia.

In addition to Belgrade, INA had business centres in Novi Sad, Kraljevo, Jagodina, Nis and Pristina. Despite the clear ownership, a decree by the Serbian regime at the time transferred all those assets to the newly established company Beopetrol, which the country decided to privatise ten years later. At the time of this controversial privatisation of Beopetrol, today's Premier Mirko Cvetkovic was head of the Serbian Privatisation Agency. His involvement in the sale of Beopetrol did not end there: in October 2008, after being at the helm of the government for three months, the five year state guarantee to Lukoil expired, and the Serbian government passed a top secret decision to extent the state guarantee for another five years, to 22 October 2013.

This decision by the Serbian government remained a top secret until only days ago, which is not much of a surprise. On the one hand, the Serbian Premier and his cabinet did not want their citizens to realise just how controversial the sale of Beopetrol really was and just how much pressure Lukoil extended on Serbia to protect its purchase and investments in Serbia. Another secret was their wish to avoid - if INA were to sue and win - paying out damages of a hundred million euro out of the Serbian national budget due to some poor political decision.
In short, if INA decides to take the case to court after 19 years, the Serbian government will be facing three very uncomfortable problems. The first is financial. Instead of the assets the Serbian government first transferred to Beopetrol and later sold to Russia's Lukoil, INA could win damages of at least 200 million euro. In addition to compensation for the seized 167 petrol stations, the total amount will also include lost revenues and high interest rates.
This money would have to be paid by the Serbian state, and it will not take the Serbian citizens much time to realise that persons responsible for the total costs are Premier Cvetkovic and his cronies. News of yet another lost lawsuit and multi-million euro damages that the Serbian taxpayers will have to cover will only further anger the citizens who have been angry with their government since this May, which international arbitration ruled Serbia to pay 36 million euro for the "Satelit" scandal. This was a long scandal that began in 2005, when the Serbian state and military leaders secretly bought a spy satellite from the Israeli company ImageSet to spy on Kosovo from the air. When the state received the bill for the first instalment on the deal signed by then Defence Minister Prvoslav Davinic, the Serbian state refused to pay the massive bill. The case first when to court and then to international arbitration, and the epilogue was very simple: Serbia has to pay.

The third reason for Premier Cvetkovic to be worried is the fact that a ruling in favour of INA would set a precedent that would negatively ring out among all the former, current and future investors in Serbia: each one will have to question whether or not Serbia sold them assets they were not the formal owners of, and whether the possibility of lawsuits and damages exists. That would definitely turn off any cautious foreign investors from Serbian privatisations.

TOMISLAV DRAGICEVIC was CEO of INA when Serbia sold Beopetrol to Lukoil, and in the early 2000s, INA signed several corporate contracts with BeopetrolTOMISLAV DRAGICEVIC was CEO of INA when Serbia sold Beopetrol to Lukoil, and in the early 2000s, INA signed several corporate contracts with BeopetrolFOR ALL THESE REASONS, the Serbian state leadership has already been leading a propaganda war in the media close to the government: just before the key, final hearing in which the case of INA against the Serbian government and the competent institutions to be held at Belgrade's Commercial Court on 17 September, they are attempting to minimize or relativize the possible outcome. Some of the actors, such as former Serbian Privatisation Minister Aleksandar Vlahovic has already been making bombastic comments to the press, such as "INA won't get a single euro", while the media close to the government have been publishing headlines such as "INA to come out short-handed" or "INA's lawsuit legally unfounded". The entire propaganda machine, it would appear, has two goals: first to calm the Serbian public, while the second is much more dangerous: such statements are sending indirect messages to the Serbian justice system on how it should rule in the INA case.

However, according to Nacional's source, the Serbian government leaders are very aware of the fact that this not so subtle pressure on the judiciary will not close the case. In the case INA loses the lawsuit in the Belgrade courts, it is almost certain that the return of INA's assets in Serbia will ultimately go before an international court, perhaps even the court in Strasbourg.
Nor should it be ignored that INA's lawsuit and request for a return of its assets have been ignored by the Serbian state for a full 19 years, but in the meantime, the Hungarian company MOL has become part owner of INA. This company is certainly not going to give up possible damages easily, and it cannot be excluded that higher politics get involved in the entire case, both Hungarian and of the EU.

THOSE FAMILIAR with the situation believe that the Serbian state has only one real option: to accept some form of negotiations to reach a settlement, or to leave the case for international arbitration to resolve. Indications of this can be seen in the very poor and sometimes contradictory arguments aimed at contesting INA's claims in Serbia: while some Serbian analysts favour international arbitration, others claim that the INA case should be resolved within the framework of the succession agreement, some claim that INA's lawsuit has no grounds, while others yet propose the situation be resolved through political dialogue. On the other hand, it is believed that the Serbian arguments would be even weaker had the INA management not entered into business relations with Beopetrol in the early 2000s. Since then, INA and Beopetrol have signed several contracts, and those familiar with the situation claim that in this way, INA recognised Beopetrol's legal legitimacy. As such, Serbia's main argument will be the fact that INA operated with a company which it claimed did not exist. More cynical analysts have even stated that the final resolution could come from talks between Russia's Lukoil and Hungary's MOL, but in that case, Serbia would again find itself in a position of paying the bill.

THE WHOLE STORY began in September 1990, when the Croatian state became the owner of the public enterprise Ina-Zagreb, and part of the newly formed public enterprise was the company Ina-trgovina that was made up of nine then enterprises situated throughout the republics of the former Yugoslavia. When it become clear that the federation was about to fall apart, the workers and managers of Croatian and Slovenian companies in Serbia began organising referenda to decide on separating out from the existing companies. Even though these separations were illegal in the situation while Slobodan Milosevic was planning a war and creating a centralised state, no one opposed the "spontaneous" workers' decisions to break off ties with the leadership of their companies seated in the so-called separatist republics. And so, already in December 1990, the company Ina-Belgrade was registered with the Belgrade Commercial Court to which, after similar referenda, the branch offices in Novi Sad, Kraljevo, Svetozarevo, Nis and Pristina were annexed.

Since 1992, the newly formed company absorbed several other smaller companies and was renamed Beopetrol with its seat on Nikola Tesla Boulevard in Belgrade. Its assets included 190 INA petrol pumps, commercial spaces, warehouses, apartments and numerous cisterns, with an approximate value of $20 million. For a full decade, Beopetrol functioned as a completely independent company, using all the pumps and assets taken from INA. However, on 29 July 2001, the Succession Agreement for the former Yugoslavia was signed in Vienna and was soon afterwards ratified by the Federal Assembly of SR Yugoslavia. One of the provisions of the agreement includes the obligation of returning assets to owner. Montenegro did this, by returning the company Ina-Trgovina to Croatia. The Serbian authorities did not follow Montenegro's example, and in mid 2002 instead decided to sell Beopetrol.

VAGIT ALEKPEROV, CEO of Russia's largest oil company Lukoil, acquired Beopetrol, Serbia's second largest oil company for 210 million euro in 2003VAGIT ALEKPEROV, CEO of Russia's largest oil company Lukoil, acquired Beopetrol, Serbia's second largest oil company for 210 million euro in 2003DURING 2002, when the Serbian authorities announced the privatization of Beopetrol, INA again filed a lawsuit, and warned that the privatisation would be contested. For a time, there was even the idea of a settlement in which INA and Beopetrol would establish a joint company. However, none of this changed the position of the Serbian authorities, who intended to privatize Beopetrol, regardless of these serious complaints. From today's perspective, it is interesting that even then, several serious Serbian reporters assessed after examining the INA and Beopetrol business documentation that INA's chances of regaining its assets were high. They even published headlines such as "Serbia sure to lose lawsuit" and the like. Obviously, the Serbian authorities are getting more and more nervous and the media pressures have increased in the month and a half leading up to the final hearing scheduled for Belgrade in mid September. However, no court ruling will reduce Cvetkovic's exposure and responsibility in the INA case: if INA loses, it is almost certain that it will file for damages against Serbia before an international court and on the international political stage.

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