June 16, 2024
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Serbia: Privatization of NIS – 15 years later

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The privatization of Naftna Industrija Srbije could be assessed today, 15 years later, from several aspects. Firstly, it was non-transparent and part of a broader economic-political agreement at the state level, which, on its own, is not good. The brighter side of the story is the evident development of this company, which can be seen with the naked eye. The picture would be much worse if it had remained under state control,” says Nenad Gujaničić, chief broker at the investment firm Momentum Securities, commenting on where NIS stands today, more than a decade after Gazprom Neft took over 51% of the capital of the Serbian state-owned oil company in February 2009.

Could NIS survive in this business even without privatization? Under what conditions?

NIS would certainly survive in the market, but under the control of party officials, it would be challenging for priorities to focus on investing in the company’s development. Moreover, we can witness that the state is not adequately managing even the 30% ownership it currently holds. I believe the situation would be much better if, as the largest minority shareholder, it effectively monitored the company’s operations and contributed to its more efficient functioning.

Is the Serbian state, as the second major shareholder, actively involved enough in the management and development strategy of NIS, not only for energy security but also to achieve better business results?

Although this is not widely discussed in public (except for the appointment of state members to boards), the state’s neglect regarding its property is likely the main drawback of this corporate story. However, NIS is not an exception. We have seen similar situations, for example, with Komercijalna Banka, Energoprojekt… where there is no strategic orientation towards maximizing the value of state-owned assets. Thus, the state only sporadically deals with NIS, as it did last year when, due to high profits, it secured a donation of 60 million euros from the company – at the expense of the interests of minority shareholders and the possibility of a higher dividend.

The Russian majority owner constantly announces new investments. How important is this for the company’s development? Where is NIS today compared to companies in the oil sector in the region?

The oil business belongs to a capital-intensive industry and requires continuous substantial investments for a company to remain competitive in the market. Projects such as the modernization of the Oil Refinery in Pančevo or Deep Processing were inevitable to ensure that the company did not fall behind. We can see an example from the neighbouring country (INA) where conflicts among dominant shareholders lead to stagnation and the company falling behind. In terms of competition, it can be said that NIS currently does not lag far behind regional leaders (MOL and OMV) and is certainly in a better position than the Croatian INA.

Since the beginning of the energy crisis in 2022, the state has been setting fuel prices. How does this affect the operations of NIS and other participants in the market of oil derivatives in Serbia?

If there were reasons before, the current state regulations in this field are unnecessary. In general, NIS is harmed by price restrictions and diesel export bans, although it is acknowledged that it has benefited from the fact that small oil companies (gas stations) have been effectively pushed out of the diesel market, allowing NIS to increase its market share.

In your opinion, what should NIS do in the green energy transition to remain competitive in the region?

NIS, as a minority partner with Gazprom Energoholding, has undertaken investments in the TE-TO Pančevo, representing one of the largest investments in this field, not including the refinery modernization itself and the Deep Processing Project, which has yielded final products meeting higher ecological standards. These serve as good examples of strategic investments contributing to the green transition.

Gazprom has increased its dividend payouts to 50% of profits, whereas for NIS, that figure has remained at 25%. How do you comment on this?

Unfortunately, for NIS shareholders, the company has not embraced a higher dividend payout ratio adopted by Gazprom several years ago, both for itself and its subsidiaries. This could significantly improve the position of minority shareholders. However, given that this scenario did not unfold after the record year in 2022, it seems unlikely to happen in the future. As mentioned, this topic has never garnered interest from the largest minority shareholder (the state), not even last year, as the government opted for a quicker realization of the expected higher amount through a donation.

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