What exactly is the Sovereign Fund?

These days the issue of the Sovereign Fund has been reactivated, following a relatively long silence since its initiative.

The Sovereign Fund's founding conference was held on May 7th. Public consultations on the Bill for the Sovereign Fund have already ended and will soon be adopted in Government.

The Sovereign Fund is estimated to be the largest economic project ever in the country. Prime Minister Albin Kurti, with part of his staff, these days have begun to get more distracted by this Fond, have participated in the presentation of the Sovereign Fund to representatives of organisations and businesses, while Besnik Pula, chairman of the Commission for drafting concept-documental for the Sovereign Fund, through public presentations (interviews on the media in the country) has promoted this association by distributing and making public details about the salary that the Fund will have, about its expected management and organisation, its competencies and its functions as well as about the activities of private businesses with this Fund.

But what will be the main role of the Sovereign Fund?

Faithful Pula has announced that this Fund will operate as a corporation owned by the Republic of Kosovo and not as public agencies or other independent entities. He has added that companies that will be passed on to this Fund would have to meet certain criteria such as loss and management of credit levels, as well as have a strategic commercial plan.

The Sovereign Fund will operate as a corporation, registered as a stock society owned by the Republic of Kosovo, will not be a public agency or other independent entities. Several companies and criteria for the types of companies that can pass to the Fund have been proposed in the concept of documents. The first condition is for the company to have commercial character, to operate in a market. There are also the criteria for performance of companies, required in minimum companies to avoid losses, manage credit levels and have a strategic” plan, he said on one of the country's televisions Thursday.

According to Professor Besnik Pula, public companies that will be passed under the management of this fund will initially undergo a restructuring process, and some of these companies have already begun restructuring. According to him, the main companies that will pass to this fund are KEK, Telekom, Post and Infrakos.

The “provides for companies to pass a restructuring process before crossing the Fund. Some companies have begun restructuring and are profitable, for example KEK and Telekom are in good condition and profitable. Companies like Infrakos are in more serious condition and need investment”, he has indicated.

Faithful Pula, chairman of the Working Group for drafting the final draft of the document's Constitution for the Founding of the Sovereign Fund and professor at Virginia Tech University in the US, simultaneously adviser to Prime Minister Kurti for International Economic Relations, in a long-standing interview previously given to the Economic Bulletin, since at the initiative of this Fund, has said that our “Model (of the Workers Group) envisions that the Sovereign Fund will operate as corporate, thus an account society, with strategic interdependence but full operational independence from the Government. It will be under full ownership of the Republic of Kosovo and supervised by a professional board appointed by the Parliament.

First, according to Besnik Pula, the Fund will address a fundamental problem in the form of organising public enterprises in Kosovo. This problem is the lack of the mechanism for the state of Kosovo to effectively play the shareholder's role. Kosovo public companies, especially those at the central level and who have commercial characters in their activities (such as KEK, Telekom, Posta, Trepca etc), have explained Besnik Pula, nominally working and acting as independent corporate units. They, in effect, are firms that must prove commercial success in the market. But, instead of this orientation, we have seen the development of a pathological relationship between shareholders and companies in question. Kosovo is the owner of public enterprises, but those companies act like they're without owners. This has resulted not only in poor financial performance, lack of strategic planning, commercial failures and asset devalving, but also in mismanagement, misuse and exploitation in forms of the most unscrupulous for personal gain from certain political and parapolitical clans.

Meanwhile, companies look to the state only when they're at the brink of collapse, when they lack the means to investment basic labor, and especially when their crates are so empty that they can't even cover workers' salaries. Thus, the state of Kosovo does not exercise the shareholder's post, but is called to play the role of creditors and caretakers whenever companies have jobs that are bad. This is the pathological relationship in question. This then continues the cycle of mismanagement, devalvation and misuse, while instead of benefits, for the state of Kosovo these companies are fiscal burdens, Mr. Loyal Chicken.

The Sovereign Fund addresses this structural problem by establishing an entity that has no other mandate but to play the shareholder's role and represent directly and without mediating the financial interest of the state of Kosovo. So “avoided the role of passive shareholder, while it is not expected that the shareholder's role will be played by any office in any ministry, nor by any minister, who ultimately cannot have that kind of mandate because their mandate is political.

The Fund will be a specialised financial corporation, managed in professional form, which will have a major role in representing and pursuing this financial interest, on behalf of the state -- that is, in the name of general public interest, economic development, and in ensuring the fiscal sustainability of the state” -- explains the faithful Pula.

According to him, the Fund is not meant to be a government budgetary entity, nor does the government agency, but an autonomous financial corporation, which manages investments and assets. The composition of these assets starts with public companies, but it doesn't end there, because the Fund with investment strategies will be able to expand and diversify its portfolio both in sectoral terms and in the kind of assets it invests. These investments will be based on development orientation that the Government defines, but implemented according to investment strategies designed by the Fund itself. Second, Pula says that “with our projections the Fund can play a powerful role in the expansion of the country's financial system.

According to him, the Fund can directly stimulate the issue of valuable letters, such as shares and debt (bonds), based on major Kosovo companies.

This is then estimated to pave the way not only for the lure of a broad base of foreign investors in Kosovo companies, but also for the overall construction of the corporate sector in Kosovo, including the private one and especially the one based on exports”, has clarified further in the interview for the Economic Bulletin, Besnik Pula.

Third, according to him, the Fund, in addition to increasing the possibility of generating domestic and foreign investment in Kosovo, creates a leverage for increasing Kosovo capital participation in international financial markets. During the presentation of the Sovereign Fund, which took place these days, before representatives of organisations and businesses (the presentation was made by the leaders of the concept-documental working group for the Sovereign Fund, Professor Besnik Pula and the Commodinators of the Sovereign Fund, Rhezarta Plana), has been stressed that <x0-dondering with 24 thousand other assets will be carried by the government to this Fond.

“Objections, organisation and interconnection of private businesses with the Sovereign Fund were key issues addressed at the table. Public companies, along with 24 thousand other assets, will be transported from the government to the Fund, which will increase investment opportunities and improve their management even more. 170 countries of the world, about 200 of them, already have sovereign funds. The highest trend of forming sovereign funds is marked in the early 2000s. Two decades after, Kosovo will be part of most of the world and of the global train”, it said.