SERBIA: Brewery's Privatization Threatened by Dispute

BELGRADE, Serbia and
Montenegro - For reformers, the privatization of the Serbian brewery Beogradska
Industrija Piva would be an important step in opening up the country to wider
international investment. But for defenders of ancestral property rights, it
would be "a continuation of communist plunder."

Divergent opinion is
nothing new in the Balkans.

Observers of Balkan politics are accustomed
to traveling back decades, sometimes centuries, to find the roots of a
contemporary conflict.

This time, however, it is also true of Balkan
business, and opponents of the privatization are determined to make the proposed
deal as uncomfortable as possible for potential bidders.

They include two
of the world's biggest brewers, London-based SABMiller and
InBev of Belgium, which have until Wednesday to submit bids to
take a 51.3% stake in BIP. Both have been warned off by the family that owned
the brewery before the communists nationalized it in 1945.

Serbia is the
only country in the region yet to deal with restitution of seized companies to
the original owners, a fundamental market reform.

The sale would be a
significant achievement for Serbia's reformers, who aim to lure more
multinationals into a market already home to big investments by
Interbrew, Altria Group Inc.'s Philip Morris,
British-American Tobacco and U.S. Steel.
Restitution was not an issue in those investments.

The buyer acquiring
BIP and its popular BG brand will take control of an 8% share of Serbia's
growing beer market.

But for InBev, SABMiller or any of the five smaller
companies known to have prepared bids, a deal could lead to a bitter legal
struggle with families fighting to regain the property of their
ancestors.

Potential investors must take into account events that go back
to the end of World War II - when Yugoslavia's communist authorities seized the
Belgrade brewery, along with other sizable privately owned companies - and then
fast-forward to 2000, when reformers toppling the regime of Slobodan Milosevic
promised denationalization and the restitution of seized companies to their
original owners.

It appears to have been an empty promise. With the
owners of property confiscated six decades ago in legal limbo, investors in
Serbia's privatization process could also find themselves in this
position.

Bogdan Veljkovic, whose family owned 42% of the brewery before
1945, describes privatization before restitution as "a continuation of communist
plunder."

Veljkovic, a retired Wall Street banker who returned from exile
in 2000 to become a leading campaigner for denationalization and restitution,
says the privatization of BIP could prove an important test case for his
movement.

He has written to the potential buyers warning them that
acquiring BIP could trigger lawsuits in the U.S., where he is a citizen, and in
the European Union, where his sister carries a French passport.

"The
willful purchase of any arbitrarily confiscated and thus illegitimately acquired
asset is of a penal nature according to international law," Veljkovic wrote,
adding that his lawyers in the U.S. and EU stand prepared to act.

Two
years ago Veljkovic's family succeeded in blocking the attempted privatization
of a prized parcel of Belgrade once owned by their ancestors. But it is not
clear whether their new threat seriously jeopardizes Serbia's effort to
privatize BIP. State guarantees built into the process theoretically insulate
buyers from risk.

But foreign investors say Serbia's failure to enact
denationalization and restitution swiftly is holding back economic
development.

Worst hit is the property market, one of eastern Europe's
most expensive despite the fact Serbia is one of Europe's poorest
nations.

Reluctance to enact land reforms in urban areas, where most land
remains state-owned, distorts the market, says Natalia Kaneva, Belgrade director
for Colliers, an international real estate agency.

The government's
reluctance to act quickly may be explained by the estimated total value of
properties confiscated in 1945, which Mladjan Dinkic, the finance minister, says
could be as high as $150 billion.

Vojislav Kostunica, Serbia's prime
minister, says restitution is imminent. A draft law requires Serbs to file
claims for ancestral property no later than June 2006.

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