Insajder reveals: The contract of management of the ironmongery available to public for the first time

The ironmongery Smederevo has been a property of the state since 2012, when it was purchased for 1 dollar from U.S. Steel, who fell back from Serbia when due to a crisis on the market they started to experience real losses. After that, a public call was announced for introduction of professional management, and the Contract for the provision of services and counselling was signed on 21st March 2015 by Peter Kamaraš, one the co-owners of HPK Management, Željko Sertić, the Minister of Economy at the time, and Bojan Bojković on behalf of the Ironmongery.

Right after the State representatives signed the contract with HPK, a question came up, whether the arrangement of this business was cost-effective, or more precisely how much is the engaged professional management costing the State and the Ironmongery Smederevo.

As clearly stated in the contract that Insajder managed to acquire, that business arrangement has foreseen a fixed and variable fee towards HPK Management. The contract guaranteed a fixed fee of 340 thousand euros monthly, regardless of the achieved results.

Besides that, they were also eligible for bonuses in every quartile that the ironmongery had positive business results in. The bonuses were amounted between 25 and 35 percent of the total revenue that the ironmongery earned in that quartile.

Also, there were some other special fees foreseen, depending on the achievement of certain targets.

That way, HPK had a right to additional 800 thousand euros in case of positive results for two consecutive months, and 700 thousand euros in case that volume of production reaches more than 375 thousand tons.

In the end, HPK also had a right to additional bonus “in case of successful conduction of privatisation within the period of five years”. HPK had a right to even 30 percent of the achieved price. As stated in the contract, regardless of the achieved price, the minimal bonus would be 10 million US dollars.

The firm of Peter Kamaraš HPK Management, that managed the Smederevo Ironmongery from March 2015 to the half of 2016, won a lawsuit against the ironmongery at the London Court of International Arbitration. As the Court of Arbitration concluded, the ironmongery is obligated to pay no less than 10 million dollars to HPK Management, which with interests and court expenses reached the amount of more than 12.4 million dollars due to the unlawfully terminated contract.

After the Smederevo Ironmongery and Chinese Hesteel signed the agreement on privatisation on 18th April 2016, based on which the Chinese firm purchased certain properties from the ironmongery, Serbia terminates the contract with HPK Management. The state referred to the violation of contract provisions, which at the time was not available to public.

According to the ironmongery assembly’s report, during which the contract was terminated, and which the newspaper Politika came across, as the reason for the termination of contract, stated was that the management led by Kamaraš did not fulfil the contractual obligation on the height of working capital, i.e. the lower limit of the money that should be at disposal.  

Also relevant for the ironmongery’s assembly were the short deadlines for payments based on the contract for the purchase of raw materials, which the ironmongery signed with Kamaraš’s firm Pikaro from Košice.

The contract, however, clearly states that the state didn’t prohibit Karamaš to do business with other firms related to him.

Kamaraš’s obligations

According to the Agreement on the provision of services and advice, Kamaraš, i.e. HPK, committed to the management of the ironmongery provided that there are always 80 million dollars at disposal. He was responsible to recruit counsellors that would enable that, and who would be paid by HPK from the reimbursements that the firm would be getting the ironmongery.

The contract was, as stated, supposed to be “a temporary solution until the process of privatisation of the ironmongery has been finalised”. It was time deposited to three years, with the possibility of extending the collaboration.

The termination of the contract was foreseen, among the rest, in the case that the engaged “professional management” does not fulfil any of its financially legal obligations.

 The state terminated the contract with HPK unilaterally in June 2016, after which mutual accusations followed in relation to bad business results and violation of the contract.

It has never been announced, however, how much the state paid the professional management and whether the arrangement paid off.

The only official source of this information is the appeal by Karamaš’s lawyers to the court in Washington, in which they request that the debt is paid by the state instead of the ironmongery. According to this document, Karamaš’s team was paid about 500 thousand dollars monthly by the state for the services provided, which is about 400 thousand euros.

Even though the state representatives claimed that Karamaš did not fulfil his share of obligations from the contract, the court in London decided that the ironmongery is obligated to pay 10 million dollars to HPK, which according to the contract is the minimal bonus in the case of successful privatisation.

Business decision under control and with the authorisation from the State

The contract stated that all decision related to the ironmongery must be approved by the State of Serbia, who kept the majority in the administration.

In order to ensure that, foreseen was a position of “director for relations with State authorities” who was also appointed by the State and who supervised Peter Karamaš and had to sign almost his every decision.

In the part related to the regulation of the managing director's powers, it is stated that his authorizations will be limited by “sub-signature of the director for relations with State authorities and organisations”.

The next part states that he will not actively participate in the management of the ironmongery, but that his rights, among the rest, will be considered as the right of veto.

Despite that, in the appeal to the court in Washington, HPK Management’s lawyers claim that Serbia “has constantly ignored the nominally autonomous status of the ironmongery” in order to achieve political and economic goals of the State, as well as that the Prime Minister of Serbia at the time Aleksandar Vučić “was involved in the management of the ironmongery, to its pity”.

“On such an occasion, during the crisis in October 2015 that happened due to the collapse of the price of steel and the discussion whether the ironmongery should temporarily be shut down, a member of the supervisory committee of the ironmongery, who was appointed by the State, confirmed that the State controls all the decisions related to the work of the ironmongery, pointing out that before anything is done, it must be discussed with the Government and Prime Minister”, is stated in the appeal for execution by HPK Management’s lawyers that Insajder owns.

Kamaraš claimed that Government’s decision to unilaterally terminate the contract was not in the accordance with that document, while the Government claimed the opposite. In that period, however, no one even wanted to publish the contract. They shifted the blame for bad business results from one to another. When he was signing the contract in March 2015, Peter Kamaraš himself announced that the Smederevo Ironmongery will by the end of the year be in a much better financial position. When the ironmongery started to have losses, Kamaraš claimed that the cause for that was the crisis that hit the world market of steel that year which is the reason he proposed the temporary shutdown of manufacturing, which Government declined.

The most drastic case of violation of public law

By signing the contract, all three signing parties bound to secrecy, even after it expires. In the clause 13 under the name “confidentiality”, it is stated that all the contracting parties are bound to treat all information in regards to the contract as top secret.

The contract, however foresees some exceptions as will, the situation in which any of the three parties may disclose an information that is considered confidential. Amongst the rest, as stated, that would be possible if it were to require an applicable right, for the purpose of handling the arbitrary process, if all three parties were to approve and if information leaked.

What can be concluded is that the Ministry of Economy, being aware of these regulations, could have shared the contract with the public or parts of it based on the Law on Free Access to Information of Public Importance. Namely, the applicable right for this contract is, as stated in the contract, is the right of the Republic of Serbia, and a part of that right is the above mentioned law.

The contract of management of the ironmongery was, in accordance with the Law on Free Access to Information of Public Importance requested by Transparency Serbia in the middle of 2015. And with a couple of solutions by Rodoljub Šabić’s commissioners, and also the stance of the protector of citizens at the time Saša Janković, the competent representatives of the State kept the contract in secrecy. Serbian public was that way, up until today, kept in the dark when it comes to information on what the Serbian side committed to, and what were the obligations of Karamaš’s firm.

In order to keep these regulations in secrecy, the Ministry of Economy paid 200 thousand dinars for the punishments of the commissioners. Željko Sertić, the Minister at the time, got into a verbal war with independent bodies in Serbia.

“I would break the law if I published the contract, and at that moment for any damage HPK would be able to sue the State”, Sertić said.

Also involved in the argument were Commission for the Protection of Competition, Ministry of Public Administration and the rest of Serbian Government, who ignored the decisions from the commissioners and the decisions by the ombudsman at the time Saša Janković, characterizing them as political.

Rodoljub Šabić, the Commissioner for Information of Public Importance, called that the most drastic case in 2015 “in which the information were denied not just to public, but to the Commissioneras well, in reference to the confidentiality of the document”.

Arbitrary decision

As Insajder previously published, Peter Kamaraš’s firm HPK Management, which managed the Smederevo Ironmongery from March 2015 to the middle of 2016, won a lawsuit at the London Court of International Arbitration against the Smederevo ironmongery in May this year.

Peter Kamaraš’s lawyers claim that the termination of the contract was conducted in an unlawful way with “fabricated reason for contract termination, and all that just so Serbia can avoid to pay the applicants of the request millions of dollars that should have been deposited based on the privatisation bonus as well as the management fees”.

Hesteel officially buy the ironmongery on 18th April 2016, and on the same day HPK Management sends a memo to the ironmongery in which they request the privatisation bonus to be deposited in the value of 10 million dollars. The bonus, however, was never deposited.

Due to that, Peter Kamaraš’s firm commences an arbitrary process against Serbia and the Smederevo ironmongery on 5th August 2016.

The arbitrary process was commenced on 5th August 2016, and was commenced by HPK Management, referring to the clause 17 of the contract with the ironmongery and the Republic of Serbia, in which it is stated that the London Court of International Arbitration will make decisions on any potential argument.

However, even though HPK has from the arbitrary court requested that the State of Serbia, as the owner of the ironmongery, along with the ironmongery pay the reimbursement, the court in London decided that the debtor is just the ironmongery.

Since they to this day did not receive the money, their lawyer Andreas Frišneht has last Monday at  the court in Washington submitted an appeal against Serbia and the ironmongery for the decision to be executed.