This article will focus on the experience in practice and the evolution of privatizations of state and socially owned companies in Serbia in the period of transition and will assess the boundaries of arbitrability of disputes that arise out of the termination of privatization agreements. The term arbitrability will be analysed from a broader perspective, as opposed to the traditional and commonly used meaning of this term - whether a certain dispute is suitable for arbitration. There is no doubt that privatization disputes are arbitrable in terms of commercial arbitration – it is an asset related dispute, a dispute on rights parties can freely dispose with, for which there is no exclusive jurisdiction of Serbian court. In fact, many of these disputes have been brought before and resolved by commercial arbitral tribunals. The question is if these disputes are exclusively reserved for courts and commercial arbitration and is there an option for foreign investors to bring these disputes against states in investment treaty arbitration.

Starting from the 2000s there was a major wave of privatizations in Serbia. Up until 2015, Serbia enacted several privatization laws and many amendments over the years. A special state authority – the Privatization Agency was established for this purpose with a wide range of authorities when it comes to privatizing companies, conducting and supervising the privatization process up to the termination of privatization agreements. As most of the privatizations were completed by 2014, the Privatization Agency ceased to exist.

Turning back the clock and looking at what has been done in the past allows us to have a better perspective of the current situation and consequences that could be expected. This also allows us to distance ourselves from the local legal regime and to focus on international legal standards that protect foreign investors. The purpose of this paper is to assess how these standards apply to terminated privatization agreements. It could be that a time has come to seriously consider the fact that a flood of investment arbitrations may be well on its way.

Let us begin with some statistics.

Up until 2011, a total of 2,385 socially owned companies were sold for a total of EUR 2.63 billion. The value of the investments that were agreed under the privatization agreements was EUR 1.13 billion and of the social program EUR 276.68 million. The number of employees was reduced for 410,000, i.e. over 60% in the period from 2002 to 2011, and in average 45,000 working positions disappeared a year. From the beginning of privatization process until 2011 around 630 privatization agreements were terminated. There has been a total of 6 arbitration cases before the Foreign Trade Court of Arbitration with the Serbian Chamber of Commerce, and a number of ICC arbitrations with the subject matter related to privatization.

In order to assess the applicability of international standards for protecting foreign investors, we should start from the main obligations of investors according to privatization agreements and privatization laws, and consequently the main reasons that were used for the termination of privatization agreements.

Traditionally, the main obligations of the investors were: to pay the purchase price, invest the agreed amount and honour the investment schedule, and comply with the measures for protecting employees contained in the social programme (that was an integral part of every privatization agreement). The investor was also supposed to provide bank guarantees securing the performance of the agreement and to refrain from the further sale of shares and the sale and encumbering assets of the privatized company above the threshold provided by the agreement (usually 10% of the total value of assets).

One of the most controversial obligations from the social programme was to "maintain the continuity of production and operations", while the agreement itself usually contained a similar provision that "the buyer undertakes to make best effort to conduct business activities in accordance with the proposed business plan, to maintain current production volumes without reducing existing capacities".

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⃰Independent attorneys at law in cooperation with Karanović & Nikolić.