24.12.2015.

Communication

Ministry of Defence, which on behalf of the Government of the Republic of Serbia co-ordinates and monitors the operations of defence industry enterprises in majority state ownership, exerted in the past period maximum commitment in solving the perennial problems in the company "Zastava Arms" in Kragujevac, as well as in creating conditions for the improvement of business operations of the said company. This is reflected in the following:

- This company has outstanding liabilities towards the state creditors, particularly the liabilities arising from taxes and contributions of RSD 7.95 billion, and toward the Development Fund in the amount of RSD 1.28 million, according to data as at 30 November 2015. The Serbian Government has made efforts to settle the debts incurred during the period of sanctions and in the period after the NATO bombing to government bodies, public enterprises and local government through their conversion into share capital of the listed creditors in those companies, including the "Zastava Arms" Kragujevac. In this regard, the Government of the Republic of Serbia, by its conclusion of August 2013, adopted the Programme of financial consolidation of the companies of the Serbian Defence Industries (SDI) with majority state-owned/ social capital which, among other things, provides for the conversion of the debts of that company into the capital of creditors, as well as the write-off of certain debts. To achieve the full effect by this measure of the Government, it was necessary that the SDI companies start with regular settlement of their obligations arising from taxes and contributions, which would enable the full achievement of the desired effect of the conversion. "Zastava Arms" started with regular settlement of liabilities arising from taxes and contributions only from November 2014, while a part of the creditors has not made a decision yet on accepting the implementation of the conversion of their claims against that company. The Ministry of Defence, together with other line ministries of the Serbian Government is determined to carry out this process to the end.

- Ministry of Defence, through the activities of international military-technical cooperation, achieved significant results in creating conditions for entering new markets in order to increase the level of employment of the capacities of the Serbian Defence Industries as a whole, and especially for the company "Zastava Arms" which reached a record employment capacity for a longer period of time partly thanks to these activities of the Ministry of Defence.

- Bearing in mind the high competition in the world market, the Ministry of Defence repeatedly met the requests of that enterprise to postpone the delivery of armament for the needs of the Ministry of Defence and the Serbian Armed Forces, at the expense of realization of the contractual obligations towards foreign partners.

- Although in the previous period there was a restriction on new employments at public funds beneficiaries, including the "Zastava Arms" company, the Ministry of Defence, given the unfavourable age structure and purposes of the implementation of contracts for foreign partners, supported the requirements of the company for additional employment, on the basis of which the special Commission of the Serbian Government approved the employment of 423 persons in 2015.

- Recognizing the need to develop new products in order to survive in the market, while keeping in mind the limited resources of the "Zastava Arms" company itself to finance the development projects, the Ministry of Defence has funded the development of 30 mm automatic cannon for several years, as well as the development of technology for the production of parts of weapons based on composite materials.

The requirements of one of the unions of the company for the provision of grants by the Government of the Republic of Serbia which would be used for investment in technological upgrading of capacity are unrealistic and inappropriate to the modern market-oriented way of conducting business. It is realistic to provide more favourable credit lines in relation to market conditions, bearing in mind the importance of these companies. For this purpose, the Government of the Republic of Serbia has carried out consolidation and reorganization of the Serbian Bank to enable SDI companies to obtain commercial loans for the purchase of machinery and, equipment and modernization of the production process, under favourable conditions. The procedure of approving loans by the Serbian Bank to individual companies, including the "Zastava Arms", is in progress, wherein it is planned a total of EUR 12 million to be approved to these companies by the end of 2015.

Bearing in mind the fact that the contract for foreign buyers was terminated for obvious internal flaws in the organization of pistol production, views of a representative of one of the union organizations in the enterprise, as well as the General Manager, are objectionable in the part that relates to justifying these failures by lack of government investment in technological renewal of the production capacities, since the specified item was produced very successfully within the existing technological capacity. By order of the Supervisory Board, which consists of the representatives of the Ministry of Defence and the Serbian Armed Forces, there was conducted a procedure of determining the responsibility for the failures that led to the termination of the contract for delivery of pistols to foreign buyers, followed by disciplinary punishment for 15 persons.

In the forthcoming period, the Ministry of Defence will continue to implement active measures aimed at long-term viability of the business operation of the "Zastava Arms" company, and they will include increasing the accountability and efficiency of the management, reduction of the operating costs and investment in developing new products and technologies.

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