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Amicus
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(9/27/07 7:53 am)
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Kosovo Demands Independence to Attract Investors
By Monica Ellena
Sept. 26 (Bloomberg) -- Outside Kosovo's capital, Pristina, the province's two biggest power plants sit atop enough soft, brown coal to fuel them for 300 years. Yet blackouts darken the city almost every day.
After years of neglect during the wars that ripped apart Yugoslavia in the 1990s, engineers at the state power company toil constantly to keep electricity flowing from the generators, the newest of which is 24 years old.
``It is a day-by-day, hour-by-hour struggle,'' says Lorik Haxhiu of the Ministry of Energy and Mining, who is in charge of Kosovo's energy strategy.
Prime Minister Agim Ceku is counting on independence from Serbia to attract investors who will rebuild the plants and the economy of Kosovo, administered by the United Nations since 1999. Enel SpA, Italy's largest utility, and Germany's RWE AG are among the companies interested in building a 3.9 billion-euro ($5.5 billion), 2,100-megawatt power plant near the coal fields.
The U.S. and European Union favor independence for Kosovo, eight years after the North Atlantic Treaty Organization bombed Serbia to end a crackdown on the province's Albanian majority. Serbia, backed by Russia, has offered autonomy.
``Because of a lack of status, we are unable to take loans to invest here,'' Ceku says at the government building in Pristina, across the street from the 15th century Sultan Mehmet Fatih Mosque. ``We can't use the money from privatization. Investors are not willing to come until final status is solved.''
Serb Opposition
Oliver Ivanovic, a Serbian member of the provincial parliament, says the legal framework already exists to attract investment. Independence will increase tensions between Serbs and Albanians, making international companies less likely to invest in Kosovo, he said. Ivanovic favors EU-supervised autonomy.
``Everybody among the Albanians expects independence to be a miracle, like immediately after the status changes we will have money flow in here,'' Ivanovic said in North Mitrovica, a Serbian enclave. ``That's not going to happen. It will be exactly the opposite.''
While the Kosovo Trust Agency, established by the UN, has sold 332 million euros of assets, the proceeds are being held in escrow until Kosovo's status is resolved. Some of the province's biggest assets remain unsold.
Who's Responsible?
The Trepca mines illustrate the legal issues. Kosovo has been unable to sell the collection of mines and smelters partly because Athens-based Mytilineos Holdings SA holds a mortgage on the assets as the result of a 1997 agreement with Yugoslavia. The mines hold more than 7 million tons of lead, zinc and silver ore, and employ about 1,000 people, down from 22,000 before the war.
``There is the UN administration, but elected local institutions and foreign companies do not understand who is responsible for what,'' says Mimoza Kusari-Lila, president of the American Chamber of Commerce in Kosovo.
Kosovo's uncertain status is especially problematic for projects such as roads, airports and power plants that require international funding, says James Oates, a senior adviser at CA IB International Markets in London.
``The government of Kosovo can't really deal with supranational, international institutions until their status is sorted out,'' Oates says.
Kosovo's economy shrank 1.5 percent in 2005, according to the World Bank. The International Monetary Fund forecasts 3 percent growth this year.
Cigarettes, Phones
With unemployment of at least 35 percent, according to EU estimates, youths loiter on Pristina's potholed streets and fill its cafes.
In the market, hawkers sell cigarettes and mobile phones from car trunks. Among sacks of peppers, watermelons and cucumbers, young people wait to be hired for temporary work.
``Independence will bring us jobs,'' says Ilir Bajrami, 26, as he watches over the half-stocked shelves of the grocery where he works one day a week.
Some investors are interested in tapping Kosovo's consumer market. While the province has only 2 million people, there is no competition in most industries, says Gail Warrander, a former London lawyer who now advises foreign investors in Kosovo.
Internet Millionaire
Akan Ismaili, a college dropout, understood that and became a millionaire by bringing the Internet to Kosovo.
Ismaili founded Ipko.net in 1999 with the help of Cisco Systems Inc. and the International Rescue Committee. In 2006, he sold 75 percent of the Internet service provider to Telekom Slovenije d.d. in a deal valued at 19.5 million euros.
``Once the status is resolved, we're going to see more investment coming in,'' Ismaili, 34, says over the din of a generator that powers Ipko.net's computers during blackouts.
Still, peace remains tenuous. NATO forces, including 5,000 U.S. personnel, remain in the province. Two people were killed Sept. 24 when a bomb destroyed a shopping mall in Pristina.
The EU has called on Albanians to reach a negotiated settlement with Serbia, warning that a unilateral decision may unleash ethnic tensions.
Four corporate groups are following the talks as they wait for the Ministry of Energy to open bidding for the Kosovo C power plant, now scheduled for December. The bidders include ventures led by Enel, Germany's Energie Baden-Wuerttemberg AG and U.S.- based AES Corp., as well as a solo effort by RWE.
The project provides the opportunity to develop lignite reserves and hydroelectric resources at low cost, says Marco Arcelli, Enel's business development director in Eastern Europe.
Kosovo C may help ``find an economic solution before a political one,'' because it is so large that it will export power to Serbia, Albania or Macedonia, Arcelli says.
At the mines, Haxhiu is focused on harnessing the energy in Kosovo's 14.7 billion tons of coal.
Bucket excavators and ditching machines bore into veins of lignite that stretch for five kilometers (3.1 miles). The mines will fuel the new power plant, ``and Kosovo's economic growth,'' Haxhiu says.
To contact the reporter on this story: Monica Ellena in London at mellena@bloomberg.net .
Last Updated: September 26, 2007 10:56 EDT
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