Miners. | Photo: Atdhe Mulla.

What the Trepca law tells us

The former head of the ICO’s economic department discusses the reasons why the new law on Trepca does nothing for the mining giant and humiliates Kosovo’s parliament.

On October 7 Kosovo’s parliament passed a law on Trepca. I have two comments, one on Trepca and one on the way in which the law was approved. The issue involves also the relationship between Kosovo and Serbia, but you will see that this question is not nearly as important as the other two.

What is Trepca? It is four main things. First, it is a company that owns licenses over most of Kosovo’s mineral wealth and the pits and underground galleries to dig part of it. Second, it is a company that uses a fraction of those reserves: a company, in effect, that sits on those reserves and prevents anyone else from exploiting them. Third, it is a legal entity that has large liabilities, to both commercial creditors (mainly foreign) and Kosovo’s citizens (for the pollution it produced, which is hazardous and must be cleaned up for reasons of public safety). Fourth, it is a welfare programme, which guarantees relatively high pensions and transfers to its past workers and many current idle ones.

The current government, the previous ones, and many other people think that Trepca’s mineral reserves are very valuable, and could generate a lot of employment, exports, and royalties, and appreciably accelerate economic growth. Let’s assume that this is true, and let’s assume that these reserves are worth more, after the cost of digging them, than Trepca’s debts. This is not a safe assumption, I fear, but it is what the government says.

If so, then, what would a wise government do? It would waste no time to begin the full exploitation of the reserves on which Trepca sits. How can this be done? There are two main questions here.

The first is whether to invest in Trepca, so as to give it the means to dig and sell more minerals, or else to take the licenses away from Trepca and give them to another company. This must depend on whether Trepca can be restructured, and the main issues are its debts (which could eat away the investment) and its function as a welfare programme (which are a both a financial burden and a management one).

The second question arises if the conclusion is that the current Trepca cannot be restructured. Then the government should take the licenses away from Trepca, and give them to another company that is able to use them to the full. The main question here is whether the new company should be state-owned, private, or a mixture of the two. In pure theory, there is no difference: because the profits that the government would draw over the years from a state-owned Trepca are equal to the sum of the price paid by the private investor to buy Trepca and the royalties paid for every kilo of extracted minerals. In practice, there is a lot of difference: because we can assume a private investor to be more efficient than Kosovo’s government in running Trepca; but we can also assume that the private investor will manage not to pay to Kosovo’s government the fair price of Trepca and a fair royalty. (And mixing private and public ownership combines both sets of risks, but somewhat reduces each.) So, there are risks on each side of the dilemma, and a wise government would weigh both and then decide.

On both issues there is no obviously superior alternative in my view. Any choice would be fine, as long as it is based on solid information, is made explicitly, and is pursued coherently.

So, what choices have Kosovo’s government and parliament made when they passed the law on Trepca? They have made no choice at all. This is the main problem of this law: it does nothing. This, in my view, is no less than criminal. Because Trepca has been working at below 10% of its capacity for two decades by now; and because a plan on what to do about it was promised, and is being studied, since 2005 (see also pp. 70–74 of this paper).

When I worked in Kosovo I did try to push the authorities (the government and the privatization agency) to do something about Trepca. But the then energy minister, Dr. Justina Shiroka Pula, produced a plan that simply lacked any serious basis. She came to present it at a public meeting in my office, and was unable to answer the most basic questions about it. The plan was just a piece of paper with words written on it.

The law that has just been passed is so empty that it suggests that the government’s reflection on Trepca has not made much progress. All this law does is two things. It shifts the good parts of Trepca from the privatization agency to the government, and, by leaving Trepca’s debts in the hands of the privatization agency, it makes it less likely that they will be fairly repaid.

The reason why this law was passed is that Trepca risked being liquidated, because the company is bankrupt since 2005. In general, when a company keeps losing money and becomes unable to pay its debts two things happen: it stops trading, because continuing would only produce more losses and more debts; and its assets are sold, so that someone else can start using them (hopefully better) and creditors can be repaid (at least in part) with the price collected by selling the assets. This should have happened in 2005. But UNMIK placed Trepca under a temporary moratorium, to allow the few months that were needed to draw up a restructuring plan for Trepca. The plan was never drawn up, but the moratorium was always extended. I think that Trepca is the longest insolvency moratorium in history. EULEX’s judges always extended it, wholly illegally (see, again, pp. 70–74 of this paper), but evidently now they are having doubts. Hence the government’s rush to separate Trepca’s assets from its debts, so that even if the moratorium expires the assets remain in place.

But these are all secondary matters. The real problem is that for eleven years Kosovo’s institutions have been unable to produce any idea about how to use of Kosovo’s main material asset in order to solve Kosovo’s biggest problem, unemployment. This is the mark of a profoundly inept and irresponsible political class.

Let’s turn to the second problem, which is that the Trepca law came into existence in the space of 24, or maybe 36 hours. It was drafted by someone. It was presented to the government, approved on the same day, and sent to parliament. On the next day parliament approved it twice, in the two required readings, and made it a law.

Parliament is not a voting machine: it is an organ that represents popular sovereignty and should discuss policy. Indeed, democracy is often called ‘government by discussion,’ as opposed to government by dictate. Indeed, Kosovo’s laws require draft laws to be sent to parliament two weeks before the first reading, to allow parliamentarians to inform themselves and reflect on the proposed law, and then require the second reading to be held no sooner than another two weeks, to allow enough time for debate, in parliament and in the public sphere. The way in which the Trepca law was approved is a farce, which humiliates Kosovo’s parliament and mocks the democratic process.

*Andrea Lorenzo Capussela was the head of the economic department of the International Civilian Office in Kosovo from 2008-11.

A version of this article appeared in Tuesday’s edition of Koha Ditore. This is the original, published with the author’s permission.

19 October 2016 - 10:59

Andrea Lorenzo Capussela

19/10/2016 - 10:59

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