Interest starts to stir PRIVATISATION: Foreign investors are gambling on regeneration, says Eric Jansson. - The Financial Times Special Report

Ferronikeli until recently lay broken and mostly abandoned. The battered mining and smelting complex in central Kosovo was a prime example of how disinvestment and war can bring heavy industry to its knees.

Quartered in offices with broken windows, a postwar executive board continued to meet but found little business to conduct.

Kosovo's international administration took this and other "socially owned" companies - defined under Yugoslav law as the collective property of workers - under trusteeship. In this post-Yugoslav arrangement, Ferronikeli's managers were compelled to seek permission for even minor transactions, such as the sale of scrap metal from the factory yard.

Now, suddenly, the grim situation is about to change. Kosovo's privatisation authorities this month finalised the sale of Ferronikeli to Zurich-based International Mineral Resources (IMR)/Alferon, part of Eurasian Natural Resources, one of the world's largest mining and metals groups. Foreign investors are ready to seek profits in the renewal of Kosovo's industrial base.

The deal - with a sales price of Euros 30.5m linked to a Euros 20m investment commitment - is Kosovo's largest privatisation. The sale comes shortly ahead of other big sales, including the Rahovec winery and vineyards, Peja Brewery and IMK pipe factory.

IMR/Alferon promises to reactivate at least 1,000 jobs while stimulating new business in a host of sectors linked to mining and metals. The earlier sale of another metals complex, the Llamkos galvanised steel plant, already shows this can work. The Llamkos sale yielded just Euros 4.2m initially but has since brought Euros 28m in capital investments to Kosovo, according to the Kosovo Trust Agency (KTA), the body in charge of privatisation.

The Ferronikeli sale places the KTA "firmly on track" to meet its target of selling "90 per cent of the value" of companies slated for privatisation by the end of 2006, says Joachim Ruecker, KTA chairman.

When Mr Ruecker, the German heading up economic reconstruction for the UN mission in Kosovo (UNMIK), set this sales target last year, it appeared unrealistic. Kosovo's internationally managed privatisation process, launched in 2002 but stalled almost from its inception, had barely begun to move by early 2005. But since Mr Ruecker took over, it has accelerated rapidly, so far bringing total sales to Euros 240m.

The privatisation chief says an executive decision made by UNMIK, granting the KTA the right of eminent domain in the province, has allowed the agency to press forward with sales. Previously, a host of practical and legal complications, often on ownership, caused delays.

The delays proved costly, depriving Kosovo's traditional industrial base of new investment over several years and contributing to a widespread perception among investors that the province has little to offer.

For example, Claudio Viezzoli, western Balkans director at the European Bank for Reconstruction and Development (EBRD), says the bank initially saw few opportunities, although it was among the first investors to arrive, 15 days after the war ended.

"We had the impression that all the large companies were either being dismantled or cannibalised, which in part is what did happen," he says.

UNMIK's decision to grant eminent domain to the KTA, however, opens the way for large projects, such as a potential Euros 50m investment Mr Viezzoli says the EBRD is now considering at Pristina Airport - ownership of which is contested by Serbia's military.

Yet UNMIK's "clever mechanism", as Mr Viezzoli calls it, only sidesteps the fundamental question dogging privatisation in the province. The very ownership of Kosovo itself - and with it the companies registered there - remains the subject of bitter dispute between leaders in Pristina and Belgrade.

Kosovo Albanian elected officials, all secessionists, sit on the KTA board where they are outnumbered by international officials. They say "the internationals" are selling off companies too slowly and too cheaply.

Bujar Dugolli, minister of trade and industry, acknowledges the Ferronikeli sale as a success. But he argues that Mr Ruecker and his UN colleagues should do more, transferring privatisation controls to Kosovo's democratically elected leaders and releasing privatisation revenues from UNMIK-controlled escrow accounts. Mr Dugolli proposes "unblocking the privatisation fund and loaning part of it to commercial banks" to stimulate economic growth.

As long as the UN seeks a mediated settlement, and as long as Serbian negotiators assert Belgrade's rights over companies in Kosovo, Mr Dugolli can probably expect to wait.