Broken Wings of Galeb

Galeb Group President Radoslav Rade Veselinović

The Privatisation Agency has annulled the privatisation of the Zavarivač Company, took over both the capital and shares of the Galeb Group and left the company RSD 572 million in debt. The state of Serbia and Prime Minister Vučić have been constantly pleading with foreign investors to invest in Serbia, offering them a €10,000 incentive for each new job they create. Given that, it becomes big news when a foreign company employs hundred or so workers while, at the same time, and as a result of negligence and asset seizing, a good Serbian company had to lay off 700 people. Another 500 could be laid off soon too if that the state administration and courts continue behaving in the same manner.

We are talking about a well-known company called Galeb Group, based in Šabac, whose anguish began after acquiring the Zavarivač Company from Vranje. The whole acquisition process was conducted by the Privatisation Agency that closed last year.

“Up until that point, Galeb Group had no major problems whatsoever. Our business was, as usual, we were developing, regularly paying our taxes, which amounted to over €5.3 million annually, and salaries to our employees,” says Galeb Group President Radoslav Rade Veselinović. “The privatisation was carried out according to the law. We bought the state’s share in the company in the amount of 40.2% and 23% of the shares from small shareholders at the same price per share.

In total, we paid €1.12 million. When, in early 2009, we finally took over the company, we found out it was all a big fraud. Zavarivač’s financial reports that had been presented to us were forged to cover up €2.8 million of debt and €905,000 in uncollectible receivables. The company’s assets were inflated to the value of €3 million, as were the inventory of finished products and raw materials by €1 million.”

Regardless, the president and the management of the Galeb Group decided to do a “clean-up“ in Zavarivač. They transferred valuable equipment from Šabac to Vranje and they needed cash to launch production and cover other costs.

Zavarivač is now a company under restructuring, has a huge debt, owes 33 outstanding salaries to 250 of its employees and qualifies for bankruptcy

Earlier, Zavarivač had received a loan from the Development Fund but, after the company’s financial records were properly audited, the balance proved to be unsatisfactory, and the Fund offered to grant a loan to Galeb with the intent of investing in Vranje. Galeb was given a loan with Zavarivač’s assets as the collateral and other companies from the Galeb Group agreeing to be guarantors.

“Our loan was approved on condition that, apart from allowing Zavarivač’s assets to be mortgaged, other companies from the Galeb Group business system had to act as guarantors. We agreed to this because we were the proprietors of Zavarivač,” Veselinović explains. “We started to pay outstanding salaries and bills and boost production. We didn’t fire anybody and even wanted to hire young engineers. The loan money was spent entirely on Zavarivač and we have auditor’s report to prove it.”

Galeb also agreed to be the guarantor of a €300,000 loan that Zavarivač had taken directly from the AOFI. Following the Privatisation Agency’s terminating the privatisation, the AOFI demanded from Galeb, a privately owned company, to pay back the loan that had been spent entirely on Zavarivač, a state-owned company.

In the meantime, Galeb’s management had drummed up new business for Zavarivač abroad, reorganized the company and, as a result, the company was out of the woods. What happened next was a series of deceitful events, with even trade unions involved, and strikes. The general consensus was that the brains behind these events were outside the company.

And then came a shock – the Privatisation Agency terminated the privatisation of Zavarivač following a request by certain employees, members of the company’s trade unions. This happened on 7 February 2011, while Mirko Cvetković was prime minister, and it culminated with the Privatisation Agency’s deciding to strip Galeb of the shares that the company bought from the state and small shareholders. The company had paid RSD 3,000 per share for the latter.

“Their explanation was absolutely unacceptable. They told us they had taken away those shares from us so that they could sell Zavarivač again. We paid €423,000 for the shares of small shareholders and they were all registered to our name at the Central Registry. We have been trying to recuperate these assets since 2011,” the President of the Galeb Group explains.

Subsequently, Zavarivač was given the status of the company under restructuring. However, the state transferred all of the company’s debt and loans to the Galeb Group, i.e. the guarantors, including the RSD 250 million loan from the Development Fund despite the fact that there was proof that every loan that Zavarivač took and the Galeb Group guaranteed for was spent on Zavarivač alone. Also, all the equipment that Galeb temporarily gave to Zavarivač was frozen and the company has been using it for the past six years without any compensation whatsoever.

“Once this was done, the Galeb’s complete operations were jeopardized. We are paying back the RSD 250 million loan, although that is Zavarivač’s obligation. If the state took away Zavarivač and our shares from us, why didn’t they do the same with the company’s debt? Rather, they froze our bank accounts,” Veselinović declaims. “They are preventing us from taking back our equipment, saying that it is now being used by the workers. That’s none of our business. As far as we are concerned, Zavarivač is now in the care of the state but the equipment belongs to us!”


If the state can give thousands of euros to foreign investors for each new job they create, I hope they are going to give us back what is ours in order for us to keep our existing workers

Veselinović adds that the Government did eventually recognize the error, and, on 2nd February 2012, adopted a resolution recommending that the Development Fund transfer the RSD 250 million loan from Galeb to Zavarivač.

“I couldn’t tell you why or because of whom the Fund never adhered to this resolution. In the meantime, Zavarivač’s liabilities towards the Galeb Group only grew to reach the amount of RSD 572 million. This is a huge amount of money. In 2011, we had 1,320 employees, we were acquiring European markets and, if the state hadn’t done this to us, today we would have had 2,000 employees. The direct damages that the Galeb Group suffered as a result amount to approximately €6 million while the indirect damages stand at over €30 million. We have been cooperating closely with the EBRD, which co-owns one of the Group’s companies, but we cannot participate in tenders because our bank accounts are frozen,” President Veselinović explains.

There are many versions of this corporate scandal and the construction of the South Stream pipeline, which was supposed to start in 2012 is often mentioned in context. Many saw Zavarivač as one of the main contractors. Our interlocutor says that, back in the day, he did not believe in those stories but today it seems that Zavarivač was taken from the Galeb Group so that unknown parties can set up a new company with Zavarivač, win South Stream deals and make handsome profits. However, Zavarivač is no longer needed.

The Galeb Group and its president have filed several lawsuits in Serbia, fighting for their assets, for their bank accounts to be reactivated and for their liabilities settled. So far they have not spoken publicly about this, but they did compile the Zavarivač files. Veselinović adds:
“This is a well-documented story about the state trying to impede Galeb’s growth. The files are intended for the state, investigative and judicial authorities, the media, and EU representatives and institutions. At the same time, they are dedicated to our workers and my family. We wanted to share the files with the participants of the Kopaonik Business Forum but we were asked not to.”

Veselinović is also considering an option of seeking justice outside Serbia.

“I still have faith in our institutions and courts and I hope that the Government and Prime Minister Vučić will find a fair solution for the Galeb Group. So far, they haven’t been of much help, but they haven’t done anything either. We have 500 employees, we pay our financial obligations on time, we export our products to 28 countries, and we have been fighting and working despite our growth’s being thwarted. If the state can give thousands of euros to foreign investors for each new job they create, I hope they are going to give us back what is ours in order for us to keep our existing workers and create new jobs,” Veselinović says.