If operationalized, the Sovereign Fund will be the biggest economic reform in Kosovo since the end of the war in 1999. This Fund, which was launched in May 2023, is expected to have a direct impact on the work of public enterprises, the Kosovo Agency of Privatization, the capital market and in other sub-sectors such as public procurement.

However, until the day when we expect to see substantial changes in the economy of Kosovo, we have to wait a lot. In the most optimistic version, after the approval of the Law on the Sovereign Fund, two
more years should pass until the Fund is fully operational and begins to have an impact on changing the way public enterprises are managed.

Although the Fund has officially been launched, the law has not yet passed the Assembly of Kosovo. The procedures for the passage of this law in the Assembly, if it is not decided to follow the accelerated
procedures, will take time until autumn. In addition, the process of evaluating the assets of public and social enterprises will take a long time, before they are transferred to the sovereign fund. The capital market is part of the draft Law of the Sovereign Fund, but it is thought that it will be operational after a few years. Mentor Hyseni, leader of the team of experts who worked on the concept of the Sovereign Fund, said that the capital market is expected to be functional only after 10 years, when the investments in the development of public enterprises are completed.

Public Enterprises

The main changes are expected to be in the way public enterprises operate. The Sovereign Fund will be formed as a joint stock company, based on the law on commercial companies. The main shareholder of this “super enterprise” will be the state of Kosovo. The Assembly of Kosovo is expected to have the main role (shareholder), who will elect the Supervisory Board. The Supervisory Board will choose the executive board, which will be headed by the head of the Sovereign Fund.

Public enterprises will continue to have their respective boards, but they will report to the Sovereign Fund and not, as they do now, to the monitoring unit of public enterprises that is part of the Ministry of Economy. One of the main changes is expected to be the possibility to finance capital projects of public enterprises. In the Sovereign Fund, the profits that public enterprises will have will be accumulated, creating an investment fund. This fund will then be distributed to public enterprises. For example, public enterprises will apply to the Fund (parent company) with capital development projects. The Fund will then decide which projects will be financed from the accumulated profits of public enterprises.

For example, from the profits of KEK transferred to the Fund, they will be able to finance any capital project in other TrainKos enterprises. Thus, TrainKos will be able to start taking over the rail transport market. According to the leader of the team of experts for drafting the concept document for the Sovereign Fund, Mentor Hyseni, this method of financing has been evaluated as an opportunity to modernize public enterprises, improve the services they offer to citizens and will influence them to be competitive in the market.

In the first phase, it is planned that six public enterprises will pass under the Sovereign Fund: KEK, Telekom i Kosova, Posta e Kosova, Infrakos, Trainkos and Trepca. Before these enterprises pass under the Sovereign Fund, a detailed analysis of these enterprises will be made, including an assessment of their assets. This is one of the challenges of the Sovereign Fund, since so far no professional and real assessment of the value and assets of these enterprises has been made.

Another challenge for the functioning of the Sovereign Fund is related to the article of the draft law for this fund, which foresees that the Fund and enterprises operate with special procurement rules, outside of the Public Procurement Law. Mentor Hyseni, leader of the expert team, has said that the operation of public enterprises outside the procurement law is the only way for them to become competitive in the market. As he has argued, the Law on Public Procurement and especially the lengthy procedures for examining complaints have shown that it is impossible to realize capital projects in a short time, which are vital for companies, such as Telekom i Kosova or even KEK, that are faced with competition from the local or regional market on a daily basis. However, professor of economics, Sejdi Rexhepi, has expressed his reservations about this reform, as according to him, this increases the risk of misuse in the field of procurement.

Social enterprises

Part of the assets that are currently managed by the Kosovo Privatization Agency, which are part of social enterprises, are expected to go under the Sovereign Fund. Since we are dealing with social enterprises, the government has not yet determined how it will take ownership of these assets. There are currently several options on the table. The first is their expropriation. Another way is the government’s commitment to cover the debts, claims and compensation of 20% to the former workers of these enterprises. The latter option is seen to contain more risk, as the eventual claims of debtors may be higher than the value of those assets. Some of the examples that have been used by past governments for social enterprises have been mentioned, such as Trepça or the former Renaissance building that is now owned by the Kosovo government.

Impact on the private sector

The Sovereign Fund will have a direct impact on the private sector as well. In the draft law on the Sovereign Fund, it is foreseen that the fund will have support opportunities for private enterprises that will be certified as “champion enterprises”. Champion enterprises can be, among others, those that have at least fifty (50) regular workers and that demonstrate the best practices of corporate governance. There will be a new Agency that is expected to be established that will be responsible for supporting exports and which will decide which enterprises will be champions. The Sovereign Fund can buy shares of private companies inside and outside Kosovo.

The danger

One of the main risks of this fund could be the eventual political instability. Based on experiences from the past, Professor of Economics, Sejdi Rexhepi, said that the Fund is in danger of failing if a full consensus is not reached with the opposition parties, since in the event of a change of power in the coming years, any political party may decide to return this fund to zero, as has happened in the past with major policies and projects that have been stopped by parties that were in opposition at the time of their initiation. Mentor Hyseni, from the Sovereign Fund, has said that the demands and rational comments of the opposition and other interest groups will be heard so that they are incorporated into the Law on the Fund. He took as an example the fact that the group of experts took into account the comments of the experts in the draft law and included them in the current draft.

This editorial was written within the Tuesday Salon organized in cooperation with The Friedrich-Ebert- Stiftung, Prishtina Office (FES Kosovo).