US embassy cable - 04ZAGREB1297

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, Econ/Privatization 
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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