Regulation on attracting direct investments - Tailor-made laws in the Western Balkans and Turkey

Regulation on conditions and manner of attracting direct investments (18/2018–4)

Government regulation

Substantive: investment in the tourism sector

Personal: investors

Territorial: national

Temporal: until abrogated or superseded

Adopted on 8 March 2018

Entered into force on 17 March 2018 (see here)

Government of Serbia: the Ministry of Economy passed this regulation. It was signed by Minister Goran Knežević.

Government of Serbia

A change brought about by the regulation is that national companies are given more subsidies to build or renovate hotels and spas. Previously, subsidies were mainly awarded to foreign companies (between 2006 and 2016, half a billion euros were spent on this area, and 90 per cent of this amount was given to foreigners). The benefit to businessmen close to the SNS political party who bought the Tonanti and Fontana hotels some months before the regulation, and the previous history of acquisition of these hotels, raised concerns about the regulation showing signs of being tailor-made (see here).

Tonanti was bought by Darko Djurović, son of Dmitar Djurović, former director of the infrastructure project Corridor of Serbia (see here). Djurović purchased the hotel from the company Alcantara Invest, co-owned by Aleksandar Papić, a businessman close to Minister of Police Nebojša Stefanović who had bought the hotel in 2015 for €750,000.

Fontana was bought in 2017 by Milan Vlaisavljević, owner of Vita Assistant and member of parliament for SNS in the Assembly of Vojvodina. Vlaisavljević acquired this hotel from Dragoljub Zbiljić, a businessman close to SNS and chairman of the company Energotehnika Juzna Backa. Zbiljić had bought Fontana in an auction in 2017 for half its market value after previous owners Vojkan Strugar and Dragan Milošević were arrested and declared bankrupt.

In 2005, a consortium formed by Strugar and Milošević bought 70 per cent of Fontana under a contract that obliged them to make an additional investment. To fulfil this part of the contract, they purchased property in the Jezero apartment complex in Vrnjačka Banja. In July 2006, the Privatisation Agency accepted the investment and was paid €2.3 million for it (see here). However, in 2006, Strugar and Milošević were arrested and spent two months in custody because of the privatisation. In 2007, the Privatisation Agency refused the investment and unilaterally rejected the contract. It accused Strugar and Milošević of not listing the Jezero apartment complex under Fontana. In December 2015, Strugar and Milošević won the legal dispute against the agency and were acquitted. Despite this, the state declared the company bankrupt in January 2016, which enabled the hotel to be sold at auction for a lower price (see here).

In both cases, the Tonanti and Fontana hotels were sold at auction for lower than market prices to businessmen close to the ruling party. The creation of the regulation has been interpreted by the press as illustrating a system of enacting legal operations to benefit those who are in power or linked to it (see here and here).

Government of Serbia

It was enforced

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Culture and tourism; Public finance

Direct beneficiaries are businessmen close to the ruling SNS party, who bought the Tonanti and Fontana hotels some months before from their previous owners. The previous owners were also close to SNS and had acquired the hotels in auctions for prices below their market value.

The new owners, Darko Djurović (son of former director of the Corridor of Serbia) who bought Tonanti and Milan Vlaisavljević (member of parliament for SNS in the Assembly of Vojvodina and owner of the company Vita Assistant) who bought Fontana, signed contracts with the Ministry of Economy at the end of 2018 and start of 2019. As a result, they were granted around €2.5 million from the national budget to renovate the hotels.

In 2018, Vlaisavljević was punished by the Anti-Corruption Agency for not giving up his manager rights at the company (see here). In October 2018, Minister Knežević signed a €1.4 million contract with Vita Assistant to reconstruct the Fontana Hotel (see here). According to the contract, the firm had to invest €7 million in the hotel, out of which around €1.7 million had to be its own money. The auditor’s reports submitted to the ministry indicate that Vita Assistant fulfilled this obligation (see here). However, data from the Business Registers Agency (APR) from 2017 to 2019 show that the company borrowed around €6 million from Unicredit Bank. Part of the contract with the ministry was also to hire 70 new workers by the end of 2018. The auditor’s report does not mention whether this obligation was fulfilled. According to APR, in 2018 the company had only 42 employees.

Djurović received about €1.1 million from the ministry at the end of January 2019 to renovate Tonanti (see here and here). At the time, the Crime and Corruption Reporting Network (KRIK) requested documentation from the Ministry of Economy about this action. The hotel was still under construction, and it is not known whether all the contract terms were fulfilled.

Companies that do not have close ties to the ruling political party because they cannot operate under the same business conditions

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Laws and by-laws are adjusted in the interest of a privileged group of people and not in the interest of all citizens. This leads to unequal treatment of citizens before the law.

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