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Jelena Gazivoda, Senior Partner, and Nikola Vukotić, Partner at Jankovic, Popovic & Mitic Law Firm

Serbia – Challenges And Expectations

Law Firm “Jankovic Popovic Mitic” has over a quarter of a century’s worth of experience. Senior Partner Jelena Gazivoda and Partner Nikola Vukotić talk about the hot topics and challenges they most frequently face with regard to most complex projects in public-private partnership (PPP), Serbian real estate market and clients investing in the Serbian energy sector

So far the Commission for Public-Private Partnership (PPP) has issued favourable opinions for 48 projects, fewer than 10 of which have started – mostly local projects in the field of scheduled carriage of passengers, public lighting, local transport infrastructure and utility services. 

Two very complex and financially weighty projects initiated by the city of Belgrade and the state give hope that things will change.

As a law firm with considerable experience, which problems do you most frequently encounter with public-private partnerships, where the private sector takes on much of the risk?

– The main issues with implementing PPP are the following:

• lack of awareness of the importance and complexity of PPP on the part of the public partner, which gives rise to misunderstandings between the public and the private partner at the onset; poor preparation of projects by the public partner, which causes several months of delay in the procedure;

• the unwillingness of the public partner to guarantee completeness and correctness of the data it provides to its private partner relating to the PPP project;

• insufficient harmonisation of regulations applicable to PPP, which carries the risk of insufficient legal security;

The legal framework regulating real estate has changed considerably in Serbia, which has facilitated transactions. But investors are deterred by the continued existence of property rights from the socialist period and by the fact that restitution has still not been completed

• lack of understanding that each project is individual and that the risks inherent to the specific project will be unavoidably ‘mirrored’ in the relation between the public and the private partner, which is in practice frequently overlooked by proposing contract models not necessarily appropriate for national circumstances and for the particularities of the specific project;

• lack of continuous institutional support to a project so that a “social contract” is not ensured; poor risk distribution between public and private partner;

• lack of appropriate security instruments for payments due to the private entity, which makes many projects potentially non-bankable;

• and lack of understanding that a relationship established to last for 50 years has to be based on flexibility which should not and must not endanger the lawfulness or the principle of ‘value for money’, yet should enable these extremely complex contracts of enormous value to remain in force.

You also advise your clients on buying and selling all kinds of properties. Investment in real estate in Serbia has its advantages but has disadvantages as well. How do you assess the Serbian real estate market?

– The real estate market in the Republic of Serbia is not too different from markets in other countries, especially those of the European Union. Apart from economic market factors, which are the most influential, the legal framework regulating real estate has also changed considerably in Serbia, facilitating transactions.

Changes that have significantly improved the real estate market and can be classified as legal factors include improvement of regulations governing planning and construction, advancement of the mortgage law, enabling and clear legal regulation of various types of transactions resulting in acquisitions of property. Owing to these changes, the real estate market in Serbia has finally started to pick up, for both residential and office buildings.

The real estate market has particularly been affected by amendments made to the planning and construction regulations which have facilitated the process of obtaining building permits, the greatest problem previously faced by investors in Serbia. These amendments adopted in the second half of 2015 have brought about a significant improvement of Serbia’s ranking on the World Bank’s Doing Business list, which will undoubtedly attract foreign investors in the future.

NIKOLA VUKOTIĆ
NIKOLA VUKOTIĆ

The negative factors impacting the real estate market are currently unresolved property relations from the past, a poorly developed public notary system and the slowness, lack of updatedness and uncertainty of the public real estate register. Historically unresolved legal property relations, with constant friction between restitution rights and rights arising from privatisation contracts, additionally aggravated by the demands of dissatisfied workers, have still not been resolved.

The fact that Serbia still has some types of property rights from the socialist period, such as a right of use, and that restitution has still not been completed, causes legal uncertainty which deters investors. Moreover, a public notary system for legalising property-related documents was introduced over the past two years, giving public notaries the discretionary right to decide in which cases to refuse to legalise such documents.

Public-notary practice is not standardised, with notaries sometimes acting completely contrary to one another. Legal uncertainty is also aggravated by issues relating to the real estate cadastre. Unstandardised practice, unclear regulations and slowness of the cadastre have cause private users, administration and judiciary alike to agree that it is imperative to continue working on improving the operation and efficiency of the cadastre.

In 2016 a modern legal framework was adopted, which should enable further implementation of many initiated projects in line with international standards

In recent years you have had many clients in the energy sector. This is an underused potential in Serbia, but to what extent does this make your work even harder?

– Projects in the energy sector are an opportunity for the development of Serbia and are interesting, dynamic, challenging and demanding for a number of reasons. Serbia is quite a dependant on imports of certain energy sources but also has much-unused potential, particularly in the field of renewable energy sources. Limited energy reserves and an increasing demand make projects of this kind, a must.

The Energy Law is largely harmonised with the EU acquis, specifically with the “Third Energy Package”, and has set requirements and time limits for harmonisation with Community law, primarily in the field of market liberalisation and unbundling of energy activities until recently performed by entities holding a certain monopoly on the market. Since 2015 the energy market has been significantly liberalised, not just with regard to regulatory requirements but also to complex transactions which have enabled implementation of the regulator’s requirements, and were both interesting and challenging pioneer projects that became a basis for national practice.

In 2016 a modern legal framework was adopted which should enable further implementation of many initiated projects in line with international standards; this is extremely important as energy projects are expensive projects, as a rule, funded through project financing.

Expensive and technologically complex projects where energy production is the result of other non-energy activities remain a particular challenge for all those in the energy sector, and therefore for us dealing with energy law as well, where we regularly come across disharmonised regulations and often face serious obstacles in the delivery of the projects.

Comment by Zoran Panovic

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