Government Raising Excise Tax on Tobacco But Helping Enfeebled Agroduhan

By 17 February 2020

As Novac/Danko Sucevic writes on the 17th of February, 2020, it's easy to dislike when Croatian taxpayer money is spent on buying ancient planes, for self-important government figures to tour other countries, paying off redundancies in government and public services, and local government units. Each of these topics is something we can and should discuss, but the topic of helping out Croatian tobacco manufacturers is rarely a subject we tackle, at least in public. Let's look at the enfeebled Agroduhan's story.

On Friday, it came to light that the Ministry of Finance was submitting a proposal for a regulation to raise excise duties on tobacco and tobacco products, and to put it the public debate, and that the Croatian Government had, despite that, decided to help the Agroduhan company from Slatina, which produces tobacco, claiming that it contributes about 30 percent to the total Croatian tobacco production.

It is a company that is by no means whatsoever beginning to pay back a massive 12 million kuna from the pre-bankruptcy settlement back in 2014 to CERP, the Restructuring and Sales Centre, so why did the government decide to help the company out a little more?

According to the government's explanation, because Agroduhan had promised to find private investors by the end of 2021, it would recapitalise it because the threat of the collapse of that company would lead to ''… extremely negative consequences for the Croatian economy, especially the agricultural sector, with the expected collapse of family farms and continued emigration from rural settlements.''

Many readers now wonder how it is that they've never heard of this important enterprise, on which the Croatian economy and an enormous amount of the agriculture sector depend, and is the biggest barrier to emigration from rural settlements. You don't have to wonder because it's just not true. In 2018, Agroduhan had about a hundred employees and 45 million kuna in revenue. That's not even enough to make it the biggest company in Slatina. From Slatina, two companies made it to the list of the 1000 largest, and neither of them are Agroduhan. These are Marinada in 276th place with 360 million kuna in revenue and almost 400 employees, and Drvo-trgovina in 945th place with revenues of 110 million kuna and 165 employees.

From the government's statement on Agroduhan, one can indirectly conclude that it's a loan that will allow for recapitalisation from which this loan and the original debt of 12 million kuna will then be repaid. There are two serious problems with this plan. The first is that the plan also includes CERP participating in the recapitalisation with the already mentioned troublesome 12 million kuna, and the second is that they already tried to carry out Agroduhan's recapitalisation a year and a half ago without any success whatsoever.

What has now apparently changed for Agroduhan's recapitalisation to be worthwhile and expected to succeed cannot be read in any way from the government's reasoning. Probably because nothing has changed and it is actually a service to a party colleague with who knows what political background, but we're just taking a stab in the dark there, of course.

Let's be very un-Croatian now and leave politics aside for a second, the whole story makes no business sense either. According to the latest available financial statements, Agroduhan has been operating at a profit for at least the last five years and has more assets than it has liabilities. To be precise, Agroduhan's total liabilities are approximately 54 million kuna and its total assets are 110 million kuna. Most of this is tied up in land and buildings. It should be no problem for a company with such assets to fund ten million kuna with any bank or find a worthwhile investor. Could it possibly be that someone, somewhere in this saga isn't telling the truth?

The legitimate theme which runs through all Croatian business sagas (just look at Agrokor, for a start) is the extent to which public affairs can be privatised or otherwise left to the market. What part of the health sector, the education sector, pensions, and even the police and military can be privatised? Must forests and waters be nationalised? Rail, roads, airports, oil, gas, electricity, bread and milk... But looking at this example of Agroduhan, it is obvious that such topics in Croatia are drowning in murky water.

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