Investigations 14 Oct 11

Kosovo Factory Sale Broke Privatization Rules

A once flourishing car parts factory in Pristina appears to have been sold at a bargain price to people under a fraud investigation – violating the country’s rules on privatization.

Balkan Insight

Kosovo’s Privatization Agency, PAK, broke two key rules in the sale of the state-owned Suspension Factory to Devolli Group, one of Kosovo’s biggest and most influential firms, Balkan Insight can reveal.

According to PAK rules, the agency cannot sell state assets to individuals under criminal investigation - and a minimum of three bidders must take part in the process.

But the sale of the factory on the outskirts of Pristina in September 2010 took place three months after police from the EU rule of law mission, EULEX, raided Devolli Group offices as part of one of the highest profile anti-corruption investigation staged in Kosovo.

The raid formed part of a probe into an allegedly corrupt mobile phone contract between the Devolli Group and Post Telecommunications of Kosovo, PTK.

Devolli’s owners, brothers Blerim and Shkelqim Devolli, and the company director, Ismet Bojku, were due to appear in court on Thursday on fraud charges. The judge has now postponed a decision on whether to hold a full trial or drop the case until October 27.

Real estate experts meanwhile have told Balkan Insight that the site alone of the factory – which was sold for 2 million euro – was worth more than twice that amount.

The privatised company was registered under the Devolli Group at the Business Registration Agency at the Ministry of Trade and Industry in May 2011, after PAK gave the group the go-ahead to buy the firm in October 2010.

PAK accepted an offer of 2 million euro the only offer submitted nearly three months after EULEX police opened its investigation into Devolli and its owners.

EU police raided Devolli offices on July 15, 2010, with an authorization provided by a EULEX judge and under the supervision of the Kosovo Special Prosecutor.

The Devolli Group’s owners and the director, Bojku, are suspected of negotiating “harmful contracts” with the PTK, which led to the launch of Kosovo’s third mobile phone operator, Z Mobile, which Devolli owns.

In July a EULEX prosecutor filed an indictment against the Devolli brothers, Bojku and the PTK head, Shyqyri Haxhaj, seeking 20 years’ imprisonment.

This is one of the highest profile corruption cases to have reached the courts in Kosovo.
Former Kosovo MP Driton Tali, who sat as an independent until last December’s general election, estimates that the contract that the PTK signed with Devolli Group has lost the PTK and the taxpayer revenue worth 250 million euros.

This week, Croatia Telecom, one of the potential bidders for the purchase of the PTK, said they were reviewing their participation in the sale as result of the court case.

In the document describing the rules of the tender for the sale of the New Enterprise Suspension Factory, obtained by Balkan Insight, Article 3 “prohibits participation in a bid to acquire a social enterprise of any persons convicted of a crime committed since June 1990 or who are subject to criminal proceedings”.

It adds: “Any bid submitted by a person not eligible to bid will be disqualified automatically, regardless of whether such a bid is in accordance with the set terms and conditions specified in these Rules of Tendering.”

PAK rules on privatisation were issued following adoption of a Law on the Privatisation Agency of Kosovo in 2008.

Under this legislation, the board of PAK is required to “set out transparent and uniformly applied rules governing the bidding procedures” that “ensure fair competition of bidders”.

The law further stipulates that PAK’s Board is legally accountable for the agency’s compliance to these rules.

Devolli Group director Bojku told Balkan Insight said he would not comment on the purchase of the factory, or on whether PAK should have stopped the sale as a result of the ongoing investigation. “You should contact the company lawyer,” Bojku said.

We were not able to contact the company’s legal representative, Valon Basha. However, the Devolli Group’s lawyers did send Balkan Insight a letter this week maintaining that PAK rules ban only individuals under investigation from taking part in a privatisation – not companies, and that the factory in question was purchased by the Devolli Group.

According to a close reading of the rules, however, PAK defines a person to include “natural persons, unincorporated associations or corporate bodies”.

The company lawyers also said the firm had not broken the law, a claim which Balkan Insight is not making against Devolli.

Ylli Kaloshi, PAK spokesperson, said the Interior Ministry vets the backgrounds of all bidders in privatizations and if the data do not reveal criminal procedures that are ongoing, they give the sale a green light.

“In this case it was not proven that there were criminal proceedings against the bidder, so PAK continued with the sale,” Kaloshi said.

Kaloshi added that even after a bidder is declared successful, PAK may not authorize the sale if any court decision is pending against him or them. “In this case, there was no prohibition by the court,” he added.

He declined to address the question of why PAK had not stopped the sale when only one firm had entered a bid, instead of the three required by the agency’s rules.

PAK’s decision to go ahead with the sale even though only one bidder submitted an offer may also have led to it receiving less than the market value for the asset.

Real estate experts told Balkan Insight that the final sale price for the firm was well below what might have been expected.

Based on the factory’s location at the crossroads of a series of major roads, and on its size, the site alone could have fetched 5.1 million euro on the open market, Halil Sulejmani, owner of the Visi real estate agency, estimated.

“The buyer bought it [the site] at a very low price because the real price [of such a site] in the market is much higher,” he said.

Albulena Azemi, from Zogu real estate, also said the land appeared to have been sold for well below its true value.

In its heyday in the 197s and 1980s, the suspension parts factory produced 3 million items a month for blue chip automobile firms such as VW and Peugeot.

The factory was the only one in the Balkans to produce suspension for cars such as Golfs, Peugeots and Zastavas.

It then employed about 1,700 workers and - unusually for Kosovo - did not rely state subsidies.

Ramush Berisha, a workers’ representative, says the sale of the company has been an “unprecedented scandal.

“We thought our institutions would protect the country’s wealth but this factory has not been sold, it’s been given away,” Berisha said.

The 920 remaining employees insist that the land alone is worth far more than the 2 million euro price tag.  They are claiming ownership of more than seven hectares of land, the last part of the former factory that has not been privatised.

Bojku of the Devolli Group says he has met the workers several times. “Their arguments about the value of the company are mere nostalgia,” he said. “It's much better to invest as little as two euro and revitalize an enterprise than for it to remain in ruins,” he said.

However, it is not yet clear what Devolli intends to do with the site.

At the same the factory was privatised, PAK also sold the factory’s adjacent Administration Headquarters for 5.1 million euro.

The Administration Headquarters, which is registered as a separate business, is now owned, according to official records, by Euro-Nex, owned by Elvis Goga, who appears to have no links to Devolli.  

But others listed as “authorised persons” for the business, a term which refers to senior managers, are high-ranking officials in the Z-Mobile mobile operator, which Devolli Group owns.  

When this newspaper inspected the business register earlier this month, it listed Z-mobile’s legal officer, Valon Basha, marketing manager Fjolla Rexha, Burim Alija and Nita Krasniqi – also employees of the telephone company - as the “authorised persons” for the Headquarters.

Official business records, which we again consulted this week, showed that just Basha remained as an “authorised person” for the Headquarters firm.

Milot Gjikollli, Z-Mobile’s manager, told Balkan Insight that he did not believe his four colleagues had bought the Headquarters. He did not offer any additional explanation as to why they were listed as managers.

Concern over the sale of the factory is not new. In June 2010 a report by Kosovo’s Auditor General uncovered irregularities in relation to the sale of the factory in terms of how the sale was advertised.

The report noticed a difference in the size of the land on offer in the public announcement and the amount listed in brochures provided to bidders.

“Different land surfaces for these enterprises were presented in newspaper advertisements and memos of information,” the auditors’ report said.

“The noticed deficiencies related to the privatisation process in general are very serious and drove us to a conclusion that there is a weak control within PAK,” the auditors concluded.

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