The Voiding of Privatization of the Federation Railway Company

Thursday August 22nd, 2013
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The FBiH government should void a partial privatization of the Federation Railway Company – proposed an audit company Revicus in its Report on the Audit of this Privatization.

Željeznice FBiH

A share of 8.184 percent of ownership in the Federation Railway Company went for vouchers whose market value was 175,000 KM at the time. (Photo CIN)

By: The Center for Investigative Reporting
A part of The Railway Company of the Federation of Bosnia and Herzegovina was privatized illegally along with a series of procedural errors found independent auditors. They have recommended the authorities to void the privatization process, put accept its consequences – the amount of the privatized capital that is recognized by the court.

The proportion of the private and state capital in the company is still unclear even though 12 years have passed from the privatization which would be best to void, reads the Report commission by the FBiH government on the company’s privatization which a Zenica-based auditor Revicu has done.

The report was sent to the government last August. The only specific action since then were meetings between the representatives of the government, the company, the agency for privatization and Revicus.

The FBiH Ministry of Traffic and Communication was supposed to inform the government on the auditor’s recommendations, but the government officials say that this has not been done because of the dire situation in which the entity Railways are and the political rifts within the government.

The auditors have detected a number of problems and omissions that have been done during the illegal privatization of which the Center for Investigative Reporting (CIN) wrote in 2007. They have suggested possible solutions of the ownership tanglement.

Federation Railways Company was established in the beginning of 2002 after the merging of Sarajevo BiH Railways and Mostar Herceg-Bosna Railways, which were partially privatized the year before.

The FBIH Agency for Privatization allowed the privatization to go on even though the companies have not furnished it with the proof of their ownership of real property as called for by the FBiH Law on Privatization and other privatization bylaws.

The plan of privatization was to separate the infrastructure (rails and signalization) from the Operator (passenger and freight trains) and privatize 49 percent of the Operator. The state would keep in its ownership the infrastructure and the possibility to rent it to all interested operators.

However, the privatization of Mostar and Sarajevo companies was done before the Law on the Privatization of FBIH Railways defined the key terms for privatization such as: railway company, railway operator and infrastructure.

Neither the privatized companies nor the FBiH Railway Company were divided into the operator and the infrastructure which made it unclear who was the owner of the capital in the newly established company and what was the proportion of the private and public ownership.

The report continues that this state of affairs has opened a way for both the Privatization Agency and the Shareholders to pass decisions in 2004 and 2005 which had changed the percentage and the proportion among the owners without any real basis.

The consequent privatization of the FBiH Company in 2005 was conceived with the intention of incorporating the capital that was earlier privatized into the new company, i.e. to formally privatize something that had already been privatized at the time of the existence of the separate railway in Mostar and Sarajevo, according to the report.

Revicus’s report also reads that such a decision to privatize the FBiH company should be made void. Its recommendation to the government is to do a new registration or a new incorporation of the single company, but with a view to possibly compensate the shareholders.

New railway company should be registered as a hold of two separate companies: The Infrastructure and the Operator, because only in that way could be planned the possible privatization of the Operator.

The auditors recommended to the authorities that, regardless of the flaws of the current privatization, the auditors should recognize the current ownership over the capital structure in which 91.816 percent belongs to the state and 8.184 percent is privately held because this is a realistic amount and the proportion of the structure of the capital as is registered at a court, reads the report.

Published Aug. 22, 2013.

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The Center for Investigative Reporting in Sarajevo (CIN) work is available for free to all organizations that credit CIN as their source and link to www.cin.ba.

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