Privatization of Economy Act

8/8/2019 Privatization of Economy Act

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PRIVATIZATION OF ECONOMY ACT

(Revised text)


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Podgorica, December 1998

I. PREFACE

In global scales the system of individual society, with high technology and

integration, has demonstrated the superiority over the massive society. That

certainly does not mean that the first social relation is completely "sinful". Thematter is that in the relations of individual, information society, based on the

private property and market, on one, and civil democracy, on the other hand,

social wealth is created easier and various interests and social contrasts are

solved easier; the individual wins acceptance - over the massive.

In our society, the attempts are made to observe these regularities on global

plan in order to find the ways to reach the developed society. This is the

initiation of new relations and change of their position: of the poor and the one

"rich in privileges", position of owner, entrepreneur, market subject. The

attempt is difficult as it proposes replacement of non-ownership with

ownership, leveling with competition, unsuccessful with successful, ignorance

with knowledge, inactivity with work...

This is a hard way on which, as Goethe would say: The difficulties increase as

we approach the goal".

The way to the society of private property, market and civil democracy, in our

conditions, leads through privatization of socially owned property. That change

in basic production relation, by which the right of ownership is established,

should bring about the beginning of the reforms process in our society. That is

the fundament for creation of new relations in our country; they resemble the

relations in developed world, but still with numerous traits of "descending"

system, which has demonstrated all its inefficiency also in these expanses.

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In fact, creation of market democracy enables creating of fundaments for

comprehensive democracy in our environment. Thus, for example, instead of

programmes of some present parties, predominantly based on total divisions

(national, regional), modern, democratic society, integrated into the

international community, will be built on the programmes which provide:

security of private property, entrepreneurship, market and civil democracy.

Therefore, the period we are presently passing through should designate the

end of massive society and beginning of the individual one.

In these changes, property determines social system, as property is the basicrelation of every social system. It is the "core" of economy and legal system of

every state.

Property is primarily an economic notion and represents taking possession of

characteristics of the subjects; property is taking possession of characteristics

of production means (things), which are used for production of goods for

market. In this, taking possession should bring to belonging of an object to a

subject of possessing. This dynamic process of taking possession leads to

belonging of object to a proprietary subject. Therefore property, in economic

respect, is taking of a possession, what is designated in law by the notion

possession (ownership). Or, property, in economic respect, is the property of

goods designated to market and it is the precondition of market economy. In

reality, the goods are sold on the market "which determines" - which goods

may be sold on it. That is why marketability is the characteristics of goods

which makes possible the existence: of one universal merchandise by which all

other goods may be expressed , respectively for which all other merchandises

may be exchanged. The merchandise to which all the other goods may be

brought down, or exchanged for is money. In this, legal notion of ownership is

"the absolute power of the owner" (subject of the right of property) over the

subject of ownership. The right of property, as a right of one holder, reflects his

private interest. An individual, through the right of property and interest on

these grounds, becomes a basic subject of economic relations, and this way

also the basic subject of the society. Thus private property, through private,

individual interest, which has a great motivating strength, represents in market

competition a powerful starter of commodity economy. The competition "may

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not be achieved" without knowledge and entrepreneurial skills - what

inevitably leads to "unsurpassed development of production forces of the

society", respectively information society with high potentials for making

profit, respectively social wealth in general and civil parliamentary democracy.

Consequently, private property necessarily understands: establishment of

individual (individual's), instead of massive society, and personal freedoms and

democracy of the society as a whole. For that reason the end of massive society

and future of individual society is completely certain in global social scales. In

this the predominance of individual over the massive society gives incentive to

development of production forces and social relations which does not existwithout the development of science, art, etc. Therefore, free competition of

individuals stimulates development of private property, entrepreneurship and

total individual skills of human.

No matter how much this theoretical generalization might seem unnecessary,

this reminding is essential, since the right of property is a complex economic,

legal, sociological and philosophic question "consisting of" a multitude of

"tiny" and "large" relations which determine social relations in general. Thus,

in the society, in which legal regulation of right of property has just been

started, one should bear in mind that this is only the beginning of the

implementation of complex property relations on one, and regulation of social

relations founded on property right, on the other hand. So, in addition to

market, stock exchange, banking operations, it is necessary to regulate in a

new way the taxation system, which will enable the tax to become a public

property "surrounding" private property, attributing to it a completely different

meaning and significance, from the one private property had in past century,

the one we usually have in mind when discussing private property. Besides,

social-employment relation, for example, should be constituted through

collective bargaining as a contractual work relation immanent to market

economy. Subsequently, in its legal structuring and implementation, this

complex process will last long. (So, for instance in Italy, transformation of

state owned property took decades). This process requires a lot of both

theoretical and practical knowledge. It is necessary to study and understand the

comparative economic, respectively legal systems of commodity economy.

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II PROPERTY IN COMPARATIVE LAW

Human rights and freedoms have been regulated by numerous international

legal documents. The right of property, in spite of explicit recognition by

Declaration on Rights of Human and Citizen (1789) and subsequent

declarations, conventions and pacts, has remained insufficiently protected.

Otherwise, private property and its inviolability, was granted back in French

Revolution. Thus, according to section 17 of Declaration on Rights of Human

and Citizen "it is inviolable and sacred human right", protected so that a human

may not be deprived of such a right, except if that is required by public needs,

but even in that case only provided that the law permits it and with provision ofequitable and previous consideration". Subsequent international legal

protection of right of property was contained in numerous international

conventions and other documents of law.1 Such definition of right of property

was taken over in civil law codification.

We point out that the limitation of property "if required by public needs"

stipulated by mentioned Declaration on Human Rights, was given more

precisely and changed to some extent in subsequent international-legal

documents. By the protocol number 1 with European Convention, from 1954,

it is provided that: every physical and legal person is entitled to " enjoy

peacefully their property"; "nobody may be deprived from their property,

except in public interest and under the conditions defined by the law and

general principles of international law" (Section 1, item 1 of the Protocol).

In addition to the replacement of "public need" by "public interest", a new

institute of international law is being created - "general welfare".

1 * Universal Declaration on Human Rights from 1948; The First Protocol with European

Convention on Protection of Human Rights and Basic Freedoms from 1954; American

Convention on Human Rights from 1978, etc.

The right of ownership respectively property has not "been granted by any pact on human

rights" after the Second World War.

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International law, especially the practice of courts, has clearly defined the

notion of public interest, starting from the fact that an "equitable balance"

between the public and private interest should be reached. For that reason the

legislator "is entitled to assess what is in public interest, if that assessment is

not unreasonable - but "a reasonable balance between the private interest of an

owner and reaching of economic, social and other objectives of social

community".

In English law property "emerged in Industrial Revolution", which essentially

changes the production forces and relations. Property is in basic production

relation of industrial society. It is the condition of its development. Before theage which is rightly called "the industrial society", until 1760, in agrarian

society, farmers' rights were based on holding, not on the property over the

land.

Therefrom comes the English proverb "Holding is nine tents of the right".

Exactly the property in English law was constituted from the right of

possessing the land including the possession of other things.

Ownership (property) in English law is determined in legal theory as follows:

"Property is the totality of powers of rights, authorities, respectively the

right of use and disposal in compliance with law". (Pollock: First volume of

General Theory of Law).

In English Law, in theory property is classified as follows: immovable and

movable property, respectively real and personal property. Thus, in case of

dispute regarding the immovable property the court will do the restitution of an

chose (res) to the owner. However, in case of dispute over the movable

property the court will enable to the owner payment of its monetary value.

Immovable property is called "real estate". Nowadays it is identified in

English Law also as a "free property".

It is interesting that leased property is not treated as "real estate", but as a sui

generis form of movable property called "chattels". Therefore in classification

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of the property leaseholds are designated by notion "chattels real", different

from other forms of movable property called "chattels personal".

Consequently, the property is most frequently divided on real (immovable) and

personal (movable) one.

Personal movable property includes "choses in possession", what means

"items in possession" (personal car, garments, etc.) and "choses in action", the

notion which designates the rights (patents, cheques, bills of exchange, and

like).

In French Law property was clearly defined by Code Civil. Under the section

544 of Code Civil property is defined as a right of usufruct and disposing

of items in the most complete manner, provided that it is not applied

opposite to laws and regulations".

If, after 1789 until nowadays, the objectives and conditions of implementing

the rights on property have undergone the evolution, which is, at the same time,

characterized by a significant extension of the domain of application to the new

individual possessions and limitations trusted upon by the general interest, the

same principles expressed in Declaration of Human Rights have their full

constitutional meaning, both from the standpoint of basic character of the right

on property, the preservation of which represents one of the objectives of

political society, which is put into the same rank with freedom, safety and

resistance to pressures, also as regards the guarantees given to holders of this

right and prerogative of public power".2

Also: "If under the section 544 of Code Civil, each owner is entitled to usufruct

and dispose of the items in the most unconditioned way, that may be

implemented only provided that he does not transform it into the use which is

forbidden by the law and other regulations, or if it is of such a nature that it

detriments the rights of third persons..."3

2Decision of Constitutional Council dated 16th January 1982. Daloz 1983, note L. Amon

3 Decision of Civil Dept. KS III, number 128

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Protection of property and peaceful usufruct is complete, "and may be assigned

to the social community only with previous and just compensation in cases of

existence of public benefit, in harmony with the law. That was prescribed by

section 545 of Code Civil as follows: "Nobody may be forced to surrender his

property, if that is not due to the public benefit and under the condition of just

and previous compensation".

Similarly, the property is guaranteed "and its limitation performed" by public

interest in Swiss Law.

According to the Constitution of Switzerland:

1. The property is guaranteed.

2. In scope of their powers, the Confederation and cantons may, by means of

law and for sake of public interest, prescribe expropriation and limitation of

the property.

3. Just compensation is owed in case of expropriation and limitation

of property which is equalized with expropriation.4

Nobody may be deprived of property, except of in cases identified by the law.

Thus, in the Constitution of India principles on protection of property were

prescribed by the following wording:

1. No one may be deprived of the property, except on the basis of law.

2. The property may not be forcefully obtained or renewed, except in public

purposes and on basis of law which provides for obtaining and renewal of

the property for amount which may be fixed by this law or which may be

defined in harmony with principles and in manner identified by the law; no

such law may be disputed before any court, referring that this way

established or determined amount will not, in its totality or partially, be

given in cash".5

4 Federal Constitution of Swiss Confederation dated 29th May 1874 (with changes and

amendments until 1st April 1983).

5Constitution of India of 26th January 1950 (with changes and amendments by 1978).

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III. ACT ON CHANGES AND AMENDMENTS OF PRIVATIZATION

OF ECONOMY ACT

Privatization of Economy Act,6 has designated a continuation of the reform -

return to the property. Property is the fundament of social reforms. Also,

property is the corner stone of entrepreneurship and entrepreneurial economy

and civil parliamentary democracy. It is in the center of construction of the

society of new relations which has designated the end to a massive society. The

society of new relations, respectively information society, has designated thesunset of a massive society since it has "demonstrated" its superiority over it,

primarily by the development of social wealth and civil parliamentary

democracy.

Exactly, in legal regime of Privatization of Economy Act, significant, although

initial, results have been reached: the idea on privatization has been understood

and accepted, and so was the idea of entrepreneurship and market and civil

parliamentary democracy. Besides, management transformation has been

brought to an end, privatization of smaller part of socially owned capital

performed, state owned property identified, stock holding companies

organized as well as the companies with limited liability, private trade

companies etc.

Finally, the experiences were gained - both our own and analyzed privatization

experiences of the others.

Continuation of privatization process of the companies, presently transformed

into the share holding companies and companies with limited liability, will be

implemented in an organized mode, with equality of shareholders, social

impartiality, transparency and publicity of privatization process. To that end,

Act on Changes and Amendments of Privatization of Economy Act, constitutes

the new solutions with the objective of intensification, management, control

6Law on Privatization of Economy ("Official Register of the Republic of Montenegro", issue

23/96).

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and providing for the implementation of a complete privatization in

Montenegro. In order to provide for management, control and implementation

of privatization, the Government of Montenegro has established a Privatization

Council, which represents the interests of the Republic in privatization process;

it has the executive powers and is responsible for its work to the founder.

At proposal of Privatization Council the Government passes Annual

Privatization Plan the contents of which is determined by Act on Changes and

Amendments of Privatization of Economy Act.

The Decision on sale of shares is passed by the authorized body of thecompany, respectively fund, as provided by the Act and Privatization Plan, as

formerly prescribed by the Privatization of Economy Act. Consequently, the

decision making process on sale of shares is not altered but only upgraded: by

obligatory publishing of decision on sale of shares, obligatory directions by

Privatization Council and by prescribing the possibility of decision making by

mentioned authority, in case authorized bodies of the companies and funds do

not pass the decision on sale of shares in harmony with the Act and

Privatization Plan, or, if they do not respect the directions of Privatization

Council.

Privatization mode is presently designated by the notion - methods of

privatization. They may be, as provided also by former regulation: sale of

shares, sale of business assets of the company, issue of shares to the employees

of the company, exchange of shares for privatization vouchers, registration of

new shares by way of capital increase, exchange of debt for shares, joint

venture in which the company that is privatized invests business assets, by

combination of mentioned methods and in other way stipulated by this Act and

Privatization Plan.

In this,privatization is performed through public competition, public tender

or through public offer by employment of the following methods: sale of

shares, sale of business assets of the company and registration of new

shares by way of capital increase. Privatization according to method of

replacement of debt for shares or through joint venture is approved by the

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Privatization Council only in cases when the privatization procedure was not

possible to implement by application of other mentioned methods.

The mode of shares sale will be arranged by the regulation which will be

passed by the Government at the proposal of Privatization Council. This

provides legality, comprehensive regulation, creation of conditions for

management, control, transparency and publicity of economy

privatization process. Consequently, the conditions for legal development of

privatization process are created, with full control of privatization

implementing subjects,provision of the responsibility of process incumbents as

well as the publicity and transparency of their work. To that end the new formsof control are created by "control state subjects", Government, Parliament of

the Republic of Montenegro, as well as by all the citizens, future shareholders,

respectively owners of a part of socially owned capital.

By alterations of Privatization of Economy Act "the time limit" for issue of

free shares, respectively preferred shares to the employees "is extended".

Namely, the companies which have not issued free shares or the preferred

shares to the employees until the day of enforcement of this law, have to do so

not later than in time limit of 90 days as of the day of enforcement of changes

by mentioned Act.

After the issue of these shares the company will withdraw remaining shares in

a way stipulated by the Companies Act.

Furthermore, the changes of the Act define that all adult citizens of

Montenegro are entitled to free privatization vouchers, as prescribed by the

changes of the Act. Privatization vouchers are recorded by computers (they are

issued in non material form). The Republic of Montenegro issues privatization

vouchers so that every adult citizen (voucher holder) opens recording account

with Institute for Accounting and Payment and registers on it the value of the

voucher. The citizen, holder of privatization voucher, attains than the right to a

certain number of "points" which will be exchanged, in the procedure of public

bidding, for shares of the company which is privatized in framework of

Program of Massive Voucher Privatization which is public. Privatization Plan

consists of all the data significant for the citizens who will replace their

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privatization vouchers for the shares of the companies which are privatized.

The Plan especially consists of the following:

list of the companies under privatization and a part of share capital which is

privatized;

state owned shares which may be replaced for privatization vouchers of

citizens with a description of privatization method to be applied for the

companies in which the state has its shares;

number or per cent of shares sold by the Funds with a list of companies in

which they have shares and a description of privatization method which will

be applied; number or per cent of shares in every company which will be sold

(replaced) for old foreign currency savings of citizens who possess these

resources in the banks in the Republic;

number or per cent of shares in every company which will be sold to the

citizens who are entitled to denationalization of property.

The right of citizens on denationalization of the property will be stipulated by

special regulations on denationalization.

Consequently, Privatization Plan of capital of transformed companies is a

general document consisting of: shares in ownership of the state, of Funds

(socially owned capital), as well as the new shares issued according to

privatization methods prescribed by this Act.

These shares which are sold or exchanged in the companies under

privatization may be bought, not only by privatization vouchers, but also

by old foreign currency savings, financial resources, or, "they may serve

for compensation" for denationalization of citizens' property.

It is obvious that a large number of subjects will take part in the process of

privatization: adult citizens, holders of foreign exchange savings, holders of

rights to compensation for denationalized property, what makes this process

very complex. Therefore, in addition to complete arrangement of privatization

process, it is necessary to provide for application of rules of proceedings,

ensure management, control, transparency and publicity of the process.

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To that end, in order to stimulate the process of privatization, special

privatization funds may be established. The funds will be managed by

specialized private management companies for funds' management.

Privatization fund is a legal person in private property. For the beginning of

privatization funds' operation it is necessary to secure founding capital

amounting not less than DM 250,000. Privatization funds will use privatization

vouchers of citizens in the procedure of public bidding, in scope of the massive

voucher privatization program. Privatization fund has a special status provided

by this Law.

Capitalization of privatization fund is operated by "investment units" which

are issued to the citizens of the Republic in exchange for privatization

vouchers.

Fund participates in activities on basis of the programs for massive voucher

privatization: procurement of shares in the companies in exchange for

privatization vouchers given to it by their owners. This bidding process covers

exchange of privatization vouchers for "investment units" of privatization fund,

and than exchange of privatization vouchers for shares of the companies which

are privatized according to Privatization Program, on auction. Consequently,

privatization funds should protect the interests of owners: by procurement and

sale of shares in the companies which are included in Program of Massive

Voucher Privatization, with complete implementation of rights of all the share

holders, and creation of possibilities that the companies which are in its

portfolio, offer their shares on the stock exchange or extra stock exchange

market. This will enable creation of conditions for transforming the

privatization funds into the investment ones with share capital which will be

listed at some relevant stock exchange.7

Privatization funds are managed by the companies for funds' management.

Company for funds' management may be every specialized domestic or foreign

corporation which has the experience in managing the investment funds. Also,

7 Dr. Erwin Geiger: Materials on Privatization Investment Funds and Companies for

Privatization Funds Management, BARENTS

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the companies for management of funds should also meet some other

requirements like: founding capital, specialized personnel, business plan for the

period of three respectively five years, and like.

Company for funds' management may not start operating before obtaining the

permit on meeting of all the requirements defined by a special regulation.

In addition to massive voucher privatization, another predominating method of

privatization is: sale of state owned capital to a strategic investor by a tender.

Namely, part of state owned capital will be privatized through a sale on a

public tender.

The procedure of tender sale is prescribed by special regulations. Tender sale is

a method of privatization of state owned capital, respectively the capital of the

company under privatization. In other words, public tender represents public

collecting of bids from potential buyers of the company, in accordance with

regulations, objective and transparent rules and conditions of sale. Privatization

Council nominates competent, skillful members of negotiating team, who are

well acquainted with conditions on the market and possibilities of the company

to sell on domestic and foreign market; the members are "objective and

independent" and they do not have proprietary rights in the company which is

being sold, they are no kinsmen of buyer, nor may they be buyers on a public

tender. With this objective negotiating teams engage foreign and domestic

consultants (expert assistance), as a professional assistance in implementation

of sale of the company by public tender.

Consequently, the changes and amendments of Privatization of Economy Act

should enable creating of fundamental conditions aimed to implementation of

complete privatization, respectively right of property and social reform in

which: right of property, entrepreneurial economy and civil parliamentary

democracy will represent basic social relations. In that process of reforms,

property is the basic term of reference. That is why the way to the right of

property has been "further constructed" by this Act and we believe that now it

is sufficiently clear to bring one to the destination determined as - right of

property. Exactly, on the way towards the property by the changes of the Act

the following is especially achieved:

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1. The conditions are created that the initiated privatization methods are

applied also in cases when the statutory time limit for them has elapsed

(right of the employees on free shares and shares under the preferred

conditions);

2. Management and control of privatization process is precisely defined,

primarily by establishment of Privatization Council and Parliamentary

Commission which should contribute to transparency and publicity of this

procedure;

3. The prerogatives for legal implementation of privatization techniques are

created by binding the Government to regulate them by special regulations(public bidding, public offer, dematerialization of privatization vouchers

and equities, etc.).

4. Two predominating privatization methods are regulated - sale of state

capital to foreign investor, with full transparency and publicity, in

accordance with prescribed regulations and massive voucher

privatization.

5. These two privatization methods (sale of state capital to foreign investor and

massive voucher privatization) enable the companies to obtain the owner.

Massive voucher privatization enables all the citizens to become owners, to

trade with vouchers, and more rapidly than the others, this privatization

method leads towards the development of capital market and allocation of

right of property. Development of market capital, not only the right of

property leads to a more efficient economy. Only on the market of capital,

by procuring and sale of shares "the property has the prospects" to reach a

good entrepreneur. That is why the property, entrepreneurship and market

are interrelated and they represent a condition of efficient business dealings

which, further enables creating of a wealthy society.

"Numerous limitations lie in ambush on the way of success", towards the

efficient economy. Privatization of economy of Montenegro develops in

unfavorable conditions and with numerous limitations: isolation of the

economy, lack of capital, "massive society consciousness", interests based on

various privileges, relationships in the federation, and like. We should also add

that private property, per se, does not lead to efficient economy, that is

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achieved only in the conditions of market, respectively entrepreneurial

economy.

However, the consciousness about the limitations in which property and total

social reform are developed, in our conditions, creates new social obligations

aimed at the same time to "eliminate obstacles" to a highest extent possible,

and to implement the reform.

PRIVATIZATION OF ECONOMY ACT

(REVISED TEXT)

I GENERAL PROVISIONS

Subjects

Article 1.

Companies transformed into joint stock companies and limited liability

companies, in compliance with Property and Management Transformation Act

("Official Gazette of the Republic of Montenegro", issue 2/92 and 27/94),

Development Fund of the Republic of Montenegro, Old Age and Disability

Law on Privatization of Economy ("Official Gazette of the Republic of

Montenegro", issue 23/96 and /98).

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Insurance Fund of the Republic and Employment Agency (hereinafter: funds)

effectuate privatization of capital, subject to conditions and procedure

prescribed by this Act.

Privatization

Article 2

For the purpose of this Act privatization means change of ownership of

transformed socially owned capital of the company and of capital transferred to

funds, as well as change of ownership over the state owned capital.

Privatization Council

Article 2a

In order to manage, control and provide for the implementation of privatization

the Government of the Republic of Montenegro (hereinafter: Government),

establishes Privatization Council (hereinafter: Council).

The interests of the Republic of Montenegro, (hereinafter: Republic) in

privatization procedure are represented by the Council.

Sphere of action, composition and other issues regarding the work of the

Council are regulated by document on establishment, which will be published

in the Official Gazette of the Republic of Montenegro.

Resources for operation of the Council are provided by the Budget of the

Republic.

Privatization Plan

Article 3.

Privatization is performed in conformity with Annual Privatization Plan

prescribed by the Government, at the proposal by the Council; Privatization

Plan will be published in mass media.

Privatization Plan especially consists of:

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1. objectives of privatization, mode and closer terms and time limits for their

implementation;

2. list of companies included in Massive Voucher Privatization Programme

and per cent of share capital in every company which will be privatized;

3. list of companies the shares of which will be privatized by employment of

other methods, with description of the method for every company;

4. number or per cent of state owned shares which will be sold, with

description of privatization method for the companies in which the state

owns the actions;

5. number or per cent of shares which will be sold by the Funds, with

description of privatization method to be applied for all the companies fromthe list in which the Funds have their shares;

6. number or per cent of shares in every company which will be exchanged for

old foreign currency savings of citizens of the Republic whose old foreign

currency savings are in the banks in the Republic, as well as for

denationalization.

Privatization Plan for 1999 will be passed within 30 days as of the day of

coming of this Act into force.

Privatization of all transformed companies in the Republic is performed in

compliance with Privatization Plan.

Every six months the Council submits to the Government the Report on

implementation of Privatization Plan.

Restitution

Article 4

Privatization of agricultural land for which the shares were issued under the

special law is performed in compliance with special regulations.

Article 5.

Deleted.

Article 6.

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Provisions of this Act are also applied to public companies and companies

which manage the property of general interest, if not regulated different by

special law.

II PRIVATIZATION OF CAPITAL

Decision Making

Article 7

Decision on sale of shares is passed by competent authority of the company,

respectively fund in conformity with law and Privatization Plan.

Decision on sale of shares is published in mass media.

In making decisions from paragraph 1 of this article, companies and funds have

to comply to instructions (lines of direction) of the Council.

If the competent authority of companies and funds does not make a decision on

sale of shares in harmony with law and privatization plan or does not comply to

the instructions of the Council, the decision is made by the Council.

1. Conditions, methods and procedure of sale of capital of the company

Privatization methods

Article 7a

Privatization methods are:

sale of shares;

sale of business assets of the company;

issue of shares to the employees of the company (as provided by article 8 of

this Act);

exchange of shares for privatization vouchers (as provided by article 9 of

this Act);

subscription of new shares by capital increase;

replacement of debt for shares;

joint venture in which the company under privatization invests its business

assets;

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combination of methods from items 1 to 7 of this paragraph, and

other modes established by this Act and privatization plan.

By application of methods from the paragraph 1, items 1, 2, and 5 of this

article, privatization is performed by public auction, public tender or public

offer in harmony with law and privatization plan and other regulations passed

by the Government, at the proposal of the Council.

Privatization by application of method of replacement of debt for shares or

through the joint venture is approved by the Council only in cases when the

privatization procedure was not possible to conduct by other methods fromparagraph 1 of this article.

Privatization of company by public tender will be implemented in an open and

competitive procedure.

Mode of selling shares through public auction, public tender or public offer,

will be stipulated by regulation to be passed by the Government, at suggestion

of the Council.

Article 8

The company which has not issued free or privileged shares to the employees

until the day of coming of this Act into force, in conformity with this Act is

liable to issue free shares to the employees in amount stipulated by law in time

limit of 90 days as of the day of coming of this law into force.

The employees who purchased shares on installment plan under the privileged

conditions, before the enforcement of this act, may abstain from purchase,

provided that they keep the right to:

obtain a portion of these shares free of charge (three out of every ten they

purchased), as well as a certain number of shares which will depend on

length of employment in the company, in harmony with law;

obtain additional number of these shares proportionate to the amount the

employee paid for shares (in relation totally paid amount/nominal value of

shares).

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The company will withdraw the shares which remained after the issue of shares

to the employees from the paragraph 2 of this article, in harmony with

Company Act, ("Official Gazette of FRY", issues 29/96 and 29/97).

Mode of implementing the rights from this article will be defined closer by

regulation to be passed by the Government, at suggestion of the Council.

Privatization vouchers

Article 9Adult citizens of the Republic are entitled to obtain free privatization vouchers

(hereinafter: privatization vouchers).

Citizen from paragraph 1 of this law is a person who has turned 18 conclusive

with 31 December 1998 and who has had a dwelling on the territory of the

Republic for at least one year prior to this time limit.

On basis of privatization vouchers the citizens attain a right to a certain number

of "points" which may be replaced for shares of the companies which are

privatized in scope of the massive voucher privatization programme, in rate

which will come out of public auction in scope of the massive voucher

privatization programme.

Privatization vouchers are recorded by computers.

Non-materialized privatization voucher, from paragraph 4 of this article, is a

declaration by emitent recorded in Central Register, by which the emitent takes

upon himself to perform towards the holder his duties emerging from

privatization voucher recorded in Central Register.

The rights emerging from non-materialized privatization voucher from

paragraph 4 of this article originate with registration in Central Register and are

transferred by transfer to another account in Central Register.

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Privatization vouchers may not be transferred, except to family members and

privatization funds established in conformity with article 16 of this law.

Family member for the purposes of article 7 of this law are: a spouse, children,

adoptees, parents, parents of the spouses, spouses of the children,

grandchildren, and brothers and sisters if they live in family union.

Citizens and privatization funds, from paragraph 7 of this article, are entitled to

exchange their privatization vouchers for shares at only one public auction, and

if they do not do so, their vouchers will become worthless.

Citizens and privatization funds from paragraph 7 of this article, will obtain

written certificate on value of their offers on public auction, as well as a

certificate on obtained shares after processing of the offers.

Way of procuring, distribution and other conditions of issue and use of

privatization vouchers, will be defined by regulations to be passed by the

Government, as the suggestion of the Council.

Procedure of replacement of privatization vouchers for shares and their transfer

is monitored by a professional coordinating body, established by the Council.

Shares which are sold or exchanged

Article 9a

Privatization Plan will determine the portion of shares to be privatized in every

company in which the Republic and the funds have their shares which will be

sold.

Domestic physical persons and privatization funds established in conformity

with article 16 of this Act may bid or participate in public auctions in other

way, in scope of Massive Voucher Privatization Programme.

Shares which are sold or exchanged in the companies that are privatized, may

be purchased by monetary resources, privatization vouchers, old foreign

currency savings as well as by conversion of domestic and foreign debt.

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Purchase of shares by old foreign currency savings will be defined by the

regulation to be passed by the Government, at the proposal of the Council.

Register of Shares

Article 10.

Companies are bound to keep the Register of Shares in conformity with the

law.

The companies are bound to submit data from Register of Shares to Central

Register.

Central Register is kept in the Ministry of Finance.

Central Register is kept in form of a unique data basis, consisting of the

conditions of all the shares of the companies.

In Central Register the data on shares of the companies, data on their delivery

and other data significant for shareholder are recorded as follows:

number and date of registration of shares in register;

firm and headquarters of the company;

series and control number;

data on authorized contact person;

nominal value of single share;

number and level of exchanged shares;

series and control number of exchanged shares;

emission (founding share of first emission, respectively shares of the

following emissions);

rights and liabilities emerging from share;

records on basis of sold shares and records on new owner, respectively share

holder;

mode of sale (monetary resources, privatization vouchers, old foreign

currency savings as well as conversion of domestic and foreign debt), and

data on emissions of shares which will follow.

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Recording in Central Register is performed on basis of data from the paragraph

2 of this article.

Structural part of Central Register is a file, which consists of the

documentation on registration, respectively sale of shares as well as respective

analytic-book keeping records in harmony with regulations.

Register and filed original documents on registration and sale of shares are kept

as a documentation of permanent value.

Keeping of Central Register may be delegated by the contract to the National

Bank of Yugoslavia - Agency for Accounting and Payment or to another

organization qualified for these operations.

Contents and mode of keeping the Central Register and de-materialization of

shares will be defined by the regulation which is to be passed by the

Government, at the proposal of the Council.

2. Conditions, methods and procedure of capital of funds sale

Funds

Article 11

Funds are bound to offer for sale the shares they have in companies which are

being privatized, also including the shares the funds will procure after passing

of this Act, in following mode:

for the companies which are privatized through Massive Voucher

Privatization Programme, Development Fund of Montenegro will offer all

shares it has in all those companies in exchange for privatization vouchers,

and in harmony with Privatization Plan;

for the companies privatized through Massive Voucher Privatization

Programme, Republic of Montenegro Old Age and Disability Insurance

Fund and Employment Agency may offer a certain number or per cent of

shares they have in those companies, at the latest until the adoption of

Privatization Plan;

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for the companies privatized by application of other methods than the

Massive Voucher Privatization Plan, the funds will offer a certain number,

or per cent of shares they have in those companies, in conformity with

Privatization Plan.

Funds and companies which are being privatized will undertake necessary

actions, in accordance with law, to have the shares of these companies obtain

equal rights with rights of other shareholders.

Shares of Republic of Montenegro Old Age and Disability Insurance Fund and

Employment Agency in companies which are being privatized are the shareswithout right to vote until the sale or exchange, in conformity with this Act and

Privatization Plan.

After coming of this Act into force the funds:

may not procure or subscribe shares in the company which is privatized in

conformity with this Act;

may not sell, exchange or in other way approve the right to other fund as

regards the shares they hold in the company established in the Republic.

Article 12.

Deleted.

Article 13.

Deleted.

Article 14

Deleted.

Article 15

Deleted.

Privatization Funds

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Article 16.

In order to give incentive to privatization process special privatization funds

may be established (hereinafter: privatization funds); they will be organized

and managed by specialized private management companies.

Specialized private management companies are entitled to apply for obtaining

the permit for establishing of privatization fund, if they meet the requirements

set forth, including the minimum of capital amounting DM 250,000.

Privatization funds are established as legal persons in private property, inconformity with this Act.

Privatization funds will use privatization vouchers of citizens by participation

in public auction in scope of Massive Voucher Privatization Programme, as

provided by article 9 of this Act.

Operation of privatization funds will be regulated in conformity with

international norms on investments protection, with the objective of protection

of investors' interests.

Closer conditions for obtaining from the Government the permit for operation

of privatization funds, mode of performing the control, mode of founding,

business dealings and transformation of privatization funds will be defined by

regulation to be passed by the Government, at the proposal of the Council.

Special-Purpose Resources

Article 17

Resources obtained by sale of state capital, in conformity with this Law, at the

proposal of the Council, are used for the programmes of interest for the

Republic.

Resources from paragraph 1 of this article are kept on a separate account of the

Republic.

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Resources from paragraph 1 of this article that are the property of the

Government directly are becoming part of the Budget of Montenegro.

Control

Article 18

Control of the mode and procedure of change of capital ownership by sale of

shares is performed by the Agency of Montenegro for Economic Restructuring

and Foreign Investment, at the proposal of the Council.

Agency of Montenegro for Restructuring of Economy and Foreign Investments

also performs professional-consultative activities for the needs of the Council.

Article 18a

The Parliament of the Republic of Montenegro may create a commission for

monitoring of publicity and transparency of privatization procedure.

Document on establishment of commission form paragraph 1 of this article will

stipulate the scope of activity, composition and other issues significant for

work of this commission.

Apposite application

Article 19

Provisions of this Law regarding the shares will be appositely applied also to

the portions.

III PUNITIVE PROVISIONS

Sanction

Article 20

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A fine amounting from thirtyfold to two hundred and fiftyfold of the minimal

earning in the Republic will be pronounced against the company against the

company or fund, if:

it does not issue gratuitous shares in the time period prescribed on article 8

of this Law;

it does not keep the register of shares or does not submit data on those

shares to Central Register (article 10);

in process of privatization it sells the shares without right to vote (article

11).

A fine amounting from twofold to fifteenfold of the minimal earning in theRepublic will be pronounced against person in charge in the company or fund

for the offences defined by Paragraph 1 of this Article.

State owned capital

Article 21

In the companies in which the state-owned capital has not been identified and

assessed by date this Act came into force, identification, assessment and

transformation of that capital into shares will be performed in conformity with

provisions of Property and Management Transformation Act ("Official Gazette

of the Republic of Montenegro", issue 2/92 and 27/94), within 60 days as of

the date of coming of this Act into force.

Article 22

Deleted.

Subordinate legislation

Article 23.

Regulations for the implementation of this Act will be passed within 30 days as

of the day of its coming into force.

Termination of validity

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Article 24

Validity of provisions of Article 7 Paragraph 2, Article 42 Paragraph 3, Article

43 and chapter "VI Gratuitous transfer of capital by vouchers" and Articles 61,

62, and 63 of Property and Management Transformation Act ("Official Gazette

of the Republic of Montenegro", issue 2/92 and 27/94) terminate as of the day

of coming of this Act into force.

Coming into force

Article 25

This Act comes into force on the eighth day after publishing in the "OfficialGazette of the Republic of Montenegro".

S U M M A R Y

1. Economy of Montenegro privatization project is, so far, the greatest and

most complex activity, leading towards a total change of social relations in the

Republic. The project proposes the changes, primarily of the basic production

relation. For this reason the subjects involved in this project are numerous: all

adult citizens of Montenegro, economic subjects, financial institutions, state

authorities, foreign legal and physical persons, etc.

The complexity of the project requires comprehensive information, new skills,

efficient management, total control and responsibility for its implementation.

Due to its great importance, complexity and taking over the responsibility,

project management is delegated to Privatization Council. For that reason, the

Privatization Council is also the executive authority in charge of project

implementation. The Council, under the leadership of Prime Minister, with

participation of a certain number of members of the Government of the

Republic of Montenegro, president of Chamber of Commerce, president of

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Independent Trade Unions, managers and professionals, takes over the

responsibility for implementation of the economic privatization project.

The Privatization Council is accountable for its business to the Government of

the Republic of Montenegro; the Government of Montenegro takes over the

overall responsibility for the implementation of social reforms.

Managing of social changes by the Privatization Council also contains in itself

its control function over the business of numerous subjects in this project. The

function of control over the activities of all privatization subjects is also

performed by a special Commission of the Parliament of RM as well as byother state authorities dealing with legality control in the Republic.

2. Publicity and transparency are the necessary condition for the

implementation of economy privatization project in the Republic. In fact, total

publicity of business of all privatization subjects and transparency of the

process represent a special part of the project itself. They are provided

especially by: public auctions on occasion of sale of privatization vouchers,

respectively the capital to strategic investor; publicity of work of all

privatization subjects; publicity and obligatory publishing of decisions and

other acts passed in the process of project implementation, etc.

3. The resolutions on shares sale are passed by management authorities of the

companies, respectively funds, as also prescribed by former Privatization of

Economy Act. Novelty in relation to such a solution, is the right of

Privatization Council to make decision on sale of shares if the decision was not

made by management authorities of the companies, respectively funds.

Otherwise, the project of privatization of economy in Montenegro, keeps

recognized privatization methods (capital increase, sale of capital of the

company, and like) and decides on two predominating privatization methods:

a) privatization by privatization vouchers,

b) privatization of companies by sale of capital to strategic investor.

a) Privatization Vouchers

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In privatization of economy by privatization vouchers, the following is

especially achieved:

- equity of privatization. Each adult citizen of Montenegro obtains equal part in

socially and state owned capital so that he/she is entitled to equal number of

privatization points, respectively, privatization vouchers. Privatization

vouchers are dematerialized and are kept in special register for every adult

citizen of Montenegro. Thus, the Government of Montenegro, that is Ministry

of Finance, will open a special account for every adult citizen of Montenegro,

with Service for Settlement and Payment. On that account there will besubscribed equal number of privatization points, which the citizen will be able

to sell (exchange) for a respective number of shares from socially or state

owned capital of all the companies covered by the Privatization Program;

- equality of all adult citizens to participate in public auction, on which they

may purchase shares of all the companies with socially and state owned capital

encompassed by the Privatization of Economy Program. Accessibility of

capital of all these companies (good and bad) provides for the adult citizens a

dull equality in procurement of socially and state owned capital, the companies

"the way they are" in the economy of Montenegro;

- market evaluation of companies. The company is worth as much as it sells on

the market. Therefore, assessed values of the companies may represent only a

sui generis assistance for their sale, respectively, establishment of their market

value;

- introduction of external owners of the company. The owner, on basis of

his/her ownership rights, achieves the interests measured by the profit obtained

on the market;

- speed of privatization process;

- capital market development. All adult citizens are entitled to trade their

shares on stock exchange. They become the "incumbents" of entrepreneurial

ideas and those who implement them. Consequently, the market starts to

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evaluate their entrepreneurial skills; being the subjects on the market they

equally take over both rights and liabilities, both success and risk. Privatization

of economy by privatization vouchers has also got very significant

shortcomings:

- there is no engagement of additional capital (for current reproduction and

development);

- numerousness of subjects who have the rights and liabilities on basis of

privatization vouchers, makes this project vulnerable and complex.

With the objective of recognition of important advantages of economy

privatization, through privatization vouchers and decrease of shortcomings of

this privatization technique, it is, inter alia, necessary to regulate precisely

functioning of privatization funds in order to make incentives for privatization

by application of this method.

Privatization fund is a legal person with rights and responsibilities regulated

by the law. The Fund collects privatization vouchers from citizens and

participates in auctions for procurement of shares on the stock exchange.

Therefore, privatization funds protect the interests of owners of privatization

vouchers on occasion of vouchers of companies from Privatization Program

procurement. Privatization Fund is managed by the companies, and they may

be any specialized domestic or foreign corporation which meets the following

requirements: DM 250,000 of opening (founding) capital, availability of

specialist personnel in this field, precise business plan for period of 3-5 years,

etc. The company for privatization fund management may start operating after

obtaining the approval for business which consists of the statement that it

meets all the requirements for doing the business, stipulated by a special

regulation. This way the conditions for protection of rights of holders of

vouchers who trade them on the stock exchange through privatization funds

are created.

b) Sale of capital to strategic investor is the second predominating method of

economy privatization. Preciseness in privatization procedure established by

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this method coupled with its publicity and transparency safeguard the legality

and legitimacy of this method of economic privatization.

Special regulations stipulate the procedure of tender sale. Tender sale is a

method of state owned capital privatization, respectively privatization of

capital of the company which is privatized. In other words, public tender

represents public collection of bids by potential owners of the companies, in

harmony with regulations, objective and transparent rules and conditions of

sale. The Privatization Council nominates competent members of negotiating

team who possess the skills and who know well the conditions on the market

and the possibility of sale of the company on domestic and foreign market, whoare "objective and independent", and do not have proprietary rights in the

company which is on sale and who are not related to buyer, nor may they be

the buyer on a public tender. To that end the negotiating teams engages foreign

and domestic consultants (expert's assistance), as a professional assistance in

implementation of public tender sale of the company.

4. Project of economy privatization precisely regulates the contents and

character of Privatization Plan. The Project prescribes that the Plan of

Privatization of joint stock companies and companies with limited liability

(capital company) is a general document with a precisely defined contents. The

Plan of Privatization especially consists of:

- the list of the companies which are privatized and part of the share capital

which is privatized;

- state owned shares which may be exchanged for privatization vouchers of

citizens with a description of privatization method which will be applied for the

companies in which the state possesses their shares;

- number or per cent of shares the funds sell with a list of enterprises in which

they have shares with a description of privatization method to be applied;

- number or per cent of shares which will be sold (exchanged) for old hard

currency savings of citizens who have these resources on bank accounts in the

Republic, in every company;

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- number or per cent of shares in every company which will be sold to the

citizens who are entitled to denationalization of the property.

Right of citizens to denationalization of the property will be stipulated by

special regulations which regulate denationalization.

5. Project of privatization of economy in Montenegro, should be implemented

in conditions of significant limitations and risks:

- inappropriate legal-political conditions for its implementation. Adequate legal provisions should represent its support. However, significant number of

regulations in regime of which this project should be implemented is

inappropriate. Thus, for example, he regulations stipulating economic relations

with foreign countries, monetary policy, banking operations and united

Yugoslav market represent both by their contents and application an important

limitation for this project implementation, with minimal potentials for their

annexing, respectively, adequate application by he Federal State;

- long lasting isolation and devastation of our economy;

- acquired habits and consciousness from collective, respectively, arranged

economy. Habits and understanding that the state should provide for permanent

coverage of losses to the companies which do not make profit, respectively,

which may not secure successful business on the market and other risks and

limitations.

6. Post privatization period after the implementation of Privatization of

Economy Plan in Montenegro, will also bring numerous hardships. Post

privatization period will require for that reason necessary adoption of

significant project: development of entrepreneurship, employment of

technological redundancies or redundancies originating from winding up of the

companies, sound social programs, etc.

Documents

Privatization of Economy Act