Report 1:
Why Bosnia; Exodus; protests; Scandal. Report 2:
Impunity, manipulation, activism Report 3:
Aluminij conglomerate; Corruption at Gikil. Report 4:
Political charades; militarization of police.. Report 5:
Pride in Sarajevo Report 6:
Migrants stuck in BiH on the way to Europe
To contact Peter
in response to these reports or any of his articles,
On July 10, the day I left Bosnia for home, Aluminij, the
once-powerful economic motor of western Herzegovina, shut down. This
bauxite-to-aluminum smelting plant, founded in the 1970s, once
employed 5,000 workers and was part of a thriving economic triangle
between the port of Ploče
in Dalmatia, the aluminum processing factory in Šibenik (also in
Dalmatia), and Mostar.
Unlike some other powerful Herzegovinan concerns, Aluminij came back
from near-death after the 1990s war, but its future is seriously in
question and it will never be what it was.
The story of Aluminij illustrates the wreckage and corruption
involved in all larger publicly-owned companies in
Bosnia-Herzegovina. It is a special kind of corruption pertaining to
the operation of the powerful political parties and their
functionaries. The following description of embezzlement and
carelessness could apply to dozens of other companies in the
country, regardless of geography or ethnicity.
Aluminij was part of the happy story of western Herzegovina during
the best days of Tito's socialism, from the 1970s going into the
1980s. Then, the company employed thousands of workers and its
economic ripple spread out to support farms, daycare centers for the
children of the workers, hotels, restaurants, and vacation spots.
Aluminij received tons of bauxite ore via the nearby Dalmatian port
at Ploče.
Mostar was peaceful and people had jobs.
All that changed in the early 1990s. As the war broke out in spring
of 1992, first Serbs attacked Mostar, and then Bosnian Croats
(backed by Croatia) fought pro-government and Muslim forces. The
city was divided between east and west, and Aluminij was shut down
and plundered. However, soon after the end of the war the local
Croat nationalist infrastructure, governing west Mostar under the
auspices of the Croat nationalist/separatist HDZ party, arranged to
revive the plant. This took place, as did many economic and
political developments in that part of the country, with the
guidance of the Croatian government. Croatia's President Tudjman
arranged for Mostar's wartime mayor, Mijo Brajković, to become
general director of the plant.
In 1997 the Šibenik-based aluminum re-processing plant TLM invested
$9 million in Aluminij to create a smelting hall there. The citizens
of Šibenik were glad to have this vast source of pollution leave
their town—and the Croat citizens of Mostar were glad to have the
jobs. I write "Croat citizens," because the company—controlled by
Bosnian Croats since the war—discriminated against its former
Bosniak employees and very few were rehired.
I should note that Mijo Brajković
is a rabid Croat nationalist and separatist who once asserted that
Bosnia-Herzegovina was a historical aberration that had no sense in
existing. This put him directly in line, ideologically, with the
retrograde World War II Ustasha enthusiasts who advocated for the
annexation to Croatia of as much of Bosnia as possible.
The $9 million investment from Croatia made that country a 12% owner
of Aluminij, with another 44% owned by the Federation of
Bosnia-Herzegovina, and the rest, another 44%, owned by small
holders, many of them workers at the plant. Aluminij produced raw
aluminum out of bauxite and sent it to TLM for "re-processing," or
"rolling," into aluminum sheet and other manufactured materials. So
at the end of the last century a well-functioning economic triangle
had been set up, as mentioned above, between Mostar and Dalmatia.
Aluminij constituted a majority customer of the port at Ploče.
But economics, corruption, and carelessness conspired to wreck the
plant. The first big problem was the cost of electricity—and until
this summer, Aluminij was consuming as much as 20% of
Bosnia-Herzegovina's electrical usage! Before the war, Aluminij had
been a subsidiary of Bosnia's energy conglomerate, Energoinvest,
which was well-employed domestically and abroad, and in a
comfortable position to subsidize the plant. But after the war, not
so.
Thus over recent years Aluminij ran up debts that it could not
repay, or that its managers did not bother to resolve. This, while
the company was paying its ethnically homogenized workers more than
3,000 KM in monthly wages (roughly $2,000), easily three times the
national average. The high pay kept Aluminij's 900-odd workers quiet
as other large regional companies, such as the Soko aircraft
manufacturer, were biting the dust.
The government of the Federation provided generous subsidies from
its budget—that is, from the entity's taxpayers—to keep Aluminij
functioning. Subsidies in recent years reached as high as 285
million KM (roughly $190 million). Meanwhile, economic practices of
the plant's managers were anything but practical. One recent
analysis read thus: "The entire story of Mostar's Aluminij after the
war is a story of murky actions of the highest ranking officials and
members of the administration of the company, a series of political
personages, on one hand, and the attempts to ensure cheaper
electricity for the 'thirsty' process of electrolysis, on the
other."
With the HDZ running Aluminij via its functionary Mr. Brajković,
and with great subsidies coming in from the Federation—and to some
extent from the government of Croatia as well, for political
reasons—Aluminij came to be sarcastically known as "HDZ's
bankomat (ATM)." Company directors received enormous bonuses and
salaries, and enjoyed an opulent lifestyle. This, and the high wages
of the workers, was perhaps supportable in the 1980s, but not in the
past generation, when the price of aluminum has fallen
significantly.
Along with poor economic practices, this led to the downfall of the
firm. For years Aluminij agreed to damaging contracts of various
types, contributing to the company's mounting deficit. One such deal
involved the recycling of steel from a defunct factory, valued at 46
million KM. Aluminij's manager, however, let the material go for 6
million KM.
By this year, Aluminij owed nearly 400 million KM and local
electricity-producing companies were refusing to sell the plant
electricity at any price because of the debts. And while economic
policies worked to ruin the company, managers were happily
embezzling what they could. As long ago as 2014, financial police
addressed several reports on these practices to the Canton
prosecutor, who ignored the reports. The financial police had named
48 company officials suspected of illegal actions and "abuse of
position" (corruption).
Not the least of these was Mr. Brajković
himself. He
bought an apartment in Mostar for 13,000 KM, and then, with 420,000
Deutschmarks (about $280,000) of Aluminij's funds, traded it for a
fine three-room flat in Zagreb. After this, by the time of his
retirement he collected some 700,000 KM in "manager's awards,"
severance pay, and luxury items such as jewelry, Swiss watches, and
perfume.
Thus with mounting debts, higher-priced electricity, and reduced
demand for aluminum, Aluminij closed this July. This put 900
employees out of work. Around the closure, recriminations have been
fired back and forth between Croat nationalist leaders and
Federation officials, among others. Most upset, naturally, were the
workers who faced an uncertain future. There was talk about reviving
the plant one way or another, but in no case would that include
re-starting the smelting operation. Only processes depending on gas
will be able to be employed.
Amidst the uncertainty about the future of the now-dormant company,
workers began to stage protests around Mostar. These are primarily
local Croats who, for many years, had been bribed by their political
leaders via the unrealistically high wages mentioned above. The
workers and their families and now ethnically homogenized Croat
communities constituted a crucial loyal voting body that kept the
HDZ in power. And the HDZ, for many years, has been led by Dragan
Čović.
Čović was a manager at Soko before the war, and general director of
that company for a time afterwards.
The story of Soko and Čović is a more involved and sordid one, which
I won't go into in depth here. But suffice it to say that not only
did Soko fail and Čović thrive, but the newly minted tycoon
(complete with controversial villa) ultimately gained the position
of foremost leader of the Bosnian Croats—especially those
concentrated in western Herzegovina. He has operated at the pinnacle
of a nationalist, separatist, plundering apparatus and has, for more
than one non-consecutive term, occupied the state-level Bosnian
presidency as its Croat member.
Čović has been all but untouchable in the eyes of his flock of Croat
supporters—until the fall of Aluminij. It's not that ordinary people
did not know how he got rich over the years, participating in raking
off funds donated by the Croatian government and in various other
schemes. They knew, but they were preserving their own privilege by
keeping quiet. Now all of a sudden, abandoned Aluminij workers have
been blocking the highways and chasing after the tycoon, yelling, "Čović,
thief!", because they consider him to be ultimately responsible for
the downfall of their company.
Analysts have said various things about this interaction.
Commentator Gojko Berić
was hard put to refrain from sarcasm, observing the opprobrium of
those same employees who had nothing to say when their Muslim
co-workers were abandoned after the war. Dragan Markovina noted the
failure of class consciousness on the part of the Croat workers,
which led to the absence of solidarity from other workers around the
region when this could have been helpful. And others have questioned
the future of the HDZ itself as an effective player in national
politics. But Bosnia's Croats—like the Serbs and Bosniaks, rounded
up in political ghettoes—for the most part do not see the way out of
the trap of ethnic homogenization.
In recent days, as it happened, the news came out that for now,
Aluminij will retain nearly 400 workers, and will provide severance
pay to another 500. It may turn out that the retained workers will
have to work a couple of months without pay to subsidize that
severance pay.
There are a couple of overriding political/economic dynamics at play
that have led Aluminij to its present disgrace and, by extension,
that have kept Bosnia-Herzegovina one of the poorest countries in
Europe since the end of the war. The most obvious of these is the
strankokratija, the "party-ocracy." It is the political parties
that run the country, and all but one or two of the smaller ones
operate on the impulse of profiteering. Yes, ordinary people vote
for the same corrupt parties over and over again, but they have
little choice. As long as the Dayton constitution remains in place,
enabling the ethnic-based parties to rule, honest actors cannot gain
a political foothold.
And the mode of rule is such that the parties name their faithful
operators as directors of the state-owned companies, and with the
results such as those described above, it's all downhill from there.
The managers look to line their own pockets; the party leaders take
a cut; and the country goes to bankruptcy.
An insightful article recently said that one can't blame "wild
capitalism" (divlji kapitalizam) for what's going on in
Bosnia, because the transition from a controlled economy to a "free
market" one has not been undertaken. The article noted that there
are still some 550-odd state-owned companies with so much debt that
privatization is hardly an option. Yet, on the other hand, as the
article points out, in a sense the state-owned companies have been
definitively privatized—into the hands of the ruling political
parties. And they are the worst kind of privateers.
The article quoted a Sarajevo-based economics professor as saying
that Aluminij is the embodiment of a completely deformed system in a
society where the public companies have long ago become just a
source of plunder for the political parties: "The public companies
are essentially in the private ownership of the political parties
and whoever is in power manages them. That is, in all aspects of
business from employment to investment to borrowing, the parties
decide."
This criticism supports the idea that real privatization would be
the right step—as long as the state companies were put into the
hands of responsible managers whose priorities were the health of
the company and the economy. The only other possibility would be for
the state, that is, the parties that run the government, to shape up
and behave honestly. No one can assert that that is going to happen.
A couple hundred thousand recent emigrants have vividly illustrated
what they think about that. And as for the idea of honest
privatization, well, that looks like a bit of a long shot as well.
*
A year ago I wrote about the Lukavac-based company GIKIL under the
heading "Toxic
Capitalism in Bosnia."
There, I discussed the criminal irresponsibility of one of many
foreign-owned and administered factories in Bosnia, particularly in
the realm of environmental irresponbility. As I described, last year
GIKIL, a coke-producing plant near Tuzla, committed at least two
horrendous environmental crimes, once spilling tar into the nearby
river, and once letting loose hundreds of cubic meters of ammonia.
The 2018 story illustrated a scenario of careless, sometimes
complicit local administrators and greedy international operators.
There's more to the story. With regard to GIKIL, that greed came
into high relief this summer with the Lukavac arrest of billionaire
Pramod Mittal, until recently chairman of GIKIL. Mittal was arrested
in late July with two fellow Indians nationals and two Bosnian
directors in the company. They are suspected of "organized crime and
abuse of power" for having embezzled millions of KM from GIKIL.
Pramod is the brother of the London-based steel magnate Lakshmi
Mittal, chief executive of ArcelorMittal, which owns a controlling
interest in the Omarska mine near Prijedor, and in the steel plant
in Zenica. Worldwide, that company employs some 300,000 workers and
brings in $30 billion annually. And brother Pramod, owner of
Global Steel Holdings (GSHL),
is not so bad off either. He was able to blow $82 million on the
Barcelona wedding of his daughter in 2013—the second most-expensive
wedding in history.
The Canton prosecutor in Tuzla has accused Pramod Mittal of raking
off some 21 million KM (roughly $14 million) to private accounts,
through shady deals between 2003 and 2015. Prosecutors suspect that
the money was funneled to
GSHL without any documentation or justification of the expense.
GIKIL is an important company in Lukavac, where it employs a
thousand workers. That has not stopped the avaricious Pramod from
poisoning those workers and the local environment. And his record in
other parts of the world where he has holdings, including Nigeria,
Bulgaria, and Liberia is just about as dismal. One article describes
Mittal and his company as having a "record of social
destruction...Its actions in Nigeria, Libya and Bulgaria over the
last five years illustrate a total institutional disregard for the
company’s employees and their communities, as well as for the law
and the national economies in which they operate. The record
includes lengthy pay arrears of up to seven months, leading to
numerous worker suicides. The company is also known for
cannibalising equipment and exporting it.”
And for that matter, Pramod Mittal has not been so conscientious in
his home country, either. There, he got into trouble for borrowing
money to buy materials for a new factory in Bosnia, and depositing
that money in off-shore accounts. In trouble to the tune of $300
million, Pramod was bailed out when big brother Lakshmi paid off the
bill. Not a big deal for someone valued by Forbes at over $17
billion.
The billionaire Pramod and his two Indian cronies were set to be
held in jail for the standard month-long investigative period, but
they ended up cooling their heels for only about a week. By the end
of July he was free, having paid bail of a million euros—and as
guarantee, another 21 million KM to cover the amount he was
suspected of having embezzled. But Zuhdija Hasanhodžić, former
director of a local partner company of GIKIL, now in bankruptcy, was
not satisfied. He said that there's a variety of other things that
Mittal did to hurt GIKIL, separate from the 21 million KM
embezzlement.
Hasanhodžić points out that he had tried to call attention to
Mittal's criminal ways as early as 2011, and that GIKIL was
operating in the red for most of Mittal's term, excluding two or
three years. He also asserts that this kind of laxity could not have
been possible without the tacit approval of local authorities who
were on Mittal's payroll.
It begins to sound a bit like Aluminij. Hasanhodžić accuses Mittal
of stealing more than 100 million KM overall—and he is not
optimistic that even the 21 million KM just fronted by Mittal will
do GIKIL any good. First, the court process against Mittal has to
run its course, and that can take ten years—if Mittal even bothers
to return to Bosnia.
GIKIL is not in as bad a state as Aluminij, but it will take some
serious good management for it to recover and stay in business.