Serbia to develop spa tourism

Serbia to develop spa tourism

According to some indications they may be, because next year private capital will be invested in these two towns to build spas in compliance with the European standards which then could surface as serious competition to “the queen of Serbian spa tourism” - Vrnjačka banja.

The beginning of 2007 will see the construction of a modern spa complex in Inđija. The municipal government and the Slovenian investor, “Terme Olimpija”, reached an agreement at the end of May, when the Slovenian company director Zdravko Počivalšek announced the investment to be € 25 million worth, and to include a center spreading on 5 000 sq meters, with open-air and roofed pools and a new 400-bed hotel, as well as wellness and congressional centers. The deadline for completion of construction works is two and a half years, while the completion of the thermal section of the future spa complex is planned for 2007.

“Terme Olimpija” in Podčetrtek is one of the most visited Slovenian spas, heavily invested in, mainly by the state­-run companies and funds, and transformed from a small thermal spring into a modern tourist, health and recreational-wellness center difficult to book a place in. Podčetrtek is just one of 20 villages that until fifteen years ago had only thermal springs to show for. These twenty villages nowadays, after the investment boom supported by the state development plan, account for 46 per cent of the total tourist visits to Slovenia. “Terme Olimpija” have 400 000 overnight stays a year, while “Terme Čatež” have a total equal to that achieved in the whole of Serbia – 800 000.

It is interesting to note that the location for the Inđija spa has been determined two years ago, when negotiations started with Slovenia’s spa tourism leader, “Terme Čatež”.

For the duration of these negotiations, “Terme Olimija” showed interest and after the new “Terme Čatež” management started to stall the signing of the agreement, the Podčetrtek company jumped at the opportunity and made a similar offer, but this time it materialized within 24 hours.

Počivalšek, the general manager, was happy with Inđija mayor Goran Ješić and the efficient municipal administration, as well as with the interesting location, half-way between Belgrade and Novi Sad, and expressed hope that the new spa will do well business-wise, without much concern over the competition.

Ownership

The competition, however, made itself heard not a month later. Banja Vrujci, near Valjevo, opened at the beginning of July for its summer season with pools and Jacuzzis on offer. This is also the summer section of the future recreational center, a balneal-climatology professor Milisav Čutović’s brain-child; the professor previously created the “Čigota” program on Zlatibor mountain.

Opening the pool season, Čutovič promoted the new spa project saying that it will encompass 9,5 hectares, modelled on modern European spas.

At the same time, it was announced that Jošanička Banja will soon come up with a tourist offer of health, preventive and sports and recreational tourism, based on Slovenian “Terme Čatež”.

Greenfield investments in thermal-wellness-spa projects will inevitably lead to the question of the difficult privatization of the neglected Serbian “spa-queens” from centuries past, today living on crumbling past glory. Answering that question will clearly show all the defects of Serbia today – incompetent management, unmotivated local governments, unclear ownership and lack of the system regulation.

Minister of Trade and Tourism Bojan Dimitrijević said on June 1 this year in Niš that “the state will not invest a single dinar in the development of spa tourism since all the spas will be privatized.” Explaining the decision to deny the spas any investment, the minister stressed that will be possible only after the privatization process has been completed. “What we can do now is build a quality infrastructure in the spas so that we can make them more attractive in the process of privatization.”

Destinations	Number of tourists
Serbia	1 988 469
Major centres	713 279
Spas	302 689
Mountains	400 670
Other tourist locations	508 229
Other locations	63 602

Incidentally, minister Dimitrijević said, at the 17th Spa Fair in Vrnjačka banja, that the Law on Tourism and the Development Agency will play a key role in attracting new investments. At the same time, he expressed his belief that Serbia’s spas will by 2015 develop in such a way as to achieve 2,5 million overnight stays, 40 per cent of which will be by guests from abroad.

It appears, however, that much more in terms of a system framework is needed than simply the law the minister mentioned. If, for example, Serbia were to take a leaf out of Slovenia’s book in preparing for the spa privatization, then at this stage at least two key system acts are missing – the Law on Spa Privatization and the Law on Concessions.

The municipality of Inđija faced the problems brought on by the lack of these laws while building a new spa based on Greenfield investments, and was forced to solve these problems by a “creative bridging”, after two years of failed talks with the state government. As for the ownership issues, Goran Ješić says he managed to persuade the municipal assembly deputies that it is best that the land not be sold to the investors, but that the municipality should enter a co-owning partnership with “Terme Olimija. “According to the contract, the municipality of Inđija will be a minority shareholder with 10 to 15 per cent ownership of the new spa. This is a much better solution as we are certain to make several-fold higher profit should we decide to sell in ten years, compared to what we would get today if we sold the land for a couple of hundred thousand euros”, Ješić said.

Siniša Perić, counsellor with the Ministry of Trade and Tourism, says that many problems can occur with the ownership in the process of privatization issue, since many of the Serbian spas house health centers. “Out of the total of 23 rehabilitation (RH) centers, five are slated for the first privatization phase: Vrmac (in Montenegro), Ribarska banja, Banja Koviljača, Zlatar and Vrnjačka banja. Privatization models have not yet been devised, however; we are on the lookout for a privatization counsellor-consultant who would produce a program and only then can we talk about specific data, estimated values, interests….”, Perić explained.

This preparatory phase should end by the end of the year, while there are no deadlines concerning the privatization of RH centers. One of the problems is the fact that some of these facilities were built using the Pension Fund (PIO) money. Ownership must be defined before privatization can take place.

Problems with concessions

The PIO fund managing board reached a decision at the beginning of June to file a lawsuits in a bid to protect its ownership over 28 facilities, mostly RH centers located in Serbian spas, in order to stop the privatization or at least be compensated for the invested funds. 

The managing board formulated its draft version of the Law on Fund Property back in December 2005, supported by the Ministry of Labour, Employment and Social Policy. However, when the draft reached the government, it disappeared from the radar. Meantime, the Ministries of Health and Economy have announced they were inviting candidates to apply for the position of privatization counsellor in the RH centers privatization process.

The government cancelled the so-called public property in 1995, introducing at the same time the state property. The Law on Means in State Ownership did not interfere with the PIO Fund property, indirectly acknowledging this institution’s right to own the property the establishment of which it funded. However, the Fund is warning that in the eleven years since, there has been a clear desire to evade a definition of the Fund’s property.

In that sense, the December law offers the inventory of the Fund’s entire property. Goran Lončar, the Fund Director, hopes that this legal act

Destination	Total nightings
Serbia	6 499 352
Major centres	1 309 767
Spas	2 012 318
Mountain resorts	1 765 962
Other tourist centres	1 243 853
Other locations	167 452

might be considered in the Parliament during the autumn session.

As far as the “purely” tourist part of the spas goes, all the main hotels have already been privatized, with the exception of the hotel company in Banja Koviljača, due to unclear ownership. “What we have privatized in spas to date makes up for 16 per cent of the total value of sold property in Serbia’s tourism and services. That amounts to seven million euros, while projected investments in all the privatized companies stand at 10 million”, Perić said.

Will the new Law on Spas affect the level of investment, and to what degree? Perić thinks that the Law will not represent an obstacle. “The laws do not attract investors, that is purely a phrase people use. In this law, we have used the European regulations standards as much as we could. The law is still in its draft version, we expect it in the Parliament by the autumn and adopted by the end of the year”. Perić is convinced the privatization problems could stem from the process of granting concessions, that is, the right to exploit thermal and mineral water sources (use of curative factor fees). “In Europe, it is customary to allow for the right to use mineral water through concessions. We currently have a similar law, but the charging criteria are not in place, so that until now, the local government and the mineral water source user had to work out an agreement between themselves. That fee will in the future stand at per cent of the total profit. Our Law on Concessions must be accompanied with certain codes, so that in the future these rights will be acquired through concessions, rather than research and exploitation rights”.

Inđija mayor Goran Ješić explains the sort of obstacles he has faced due to a lack of regulation in the area of thermal springs exploitation.

“Formally, NIS presented itself as the owner of the Inđija thermal springs, while in reality that company only owned the rig. We offered that we lease the source from NIS, but that proved to be impossible to justify economically. Then we offered that they become a shareholder, but that wasn’t acceptable either. Finally, we agreed to buy the rig for € 400 000. NIS said yes, but should they change their mind, we will dig three new rigs ten meters from the existing one, and solve our problems”, Goran Ješić told the Ekonomist magazine.

Ješić believes that the Vojvodina spa tourism will develop along the Greenfield investment system, while some established spas in Serbia will face problems in the process, mostly because of unclear ownership and water sources exploitation possibilities. The Spa Association of Serbia representatives also say that the stumbling block will be the unresolved issue of natural curative factor fees(thermo-mineral water), and the water exploitation fees. The Association says that the water’s owner – the municipality, not the spa- is the one that can give concessions.

That is why Goran Ješić suggests Serbia should adopt the Slovenian solution to the concessions question. Ješić points out to the Slovenian experience where the state instructed spa owners to pay a low yearly fee of  € 10 000; however the state is not unhappy with the arrangement, bearing in mind it collects huge profits in tourist taxes.

Siniša Perić says that in the future there will be two terms in use: spa, and natural healing site. “Currently there are seven or eight places in Serbia that can be categorized as spas, the rest will be natural healing sites until they fulfil the necessary conditions”. Asked about the amount the state intends to invest in this sector’s development, Perić said: “The state will assist in the funding of general and tourist infrastructure in Soko banja and Palić”.

The tourism development strategy envisages Serbia divided into four clusters, with the long-term development of thermal springs and spa centers as the priority. There are 140 thermal and mineral springs in Serbia, along with 100 spa sites. 

Bojan Dimitrijević says that the 50 spas developing health and wellness centers will by 2015 receive 500 to 600 million euros to be invested in development, and that the aim of this is to change the structure of visitors toward foreign guests with higher income. Germany, Italy, France, Austria, Russia, Japan and the Scandinavian countries are considered to be the  potential markets.

Then, there is the problem yet to be faced in Serbia: “In European spas, German tourists spend an average of € 50, Slovakians and Hungarians between € 25-30, while when those same tourists arrive in Serbia, they rarely spend more than € 10. An increase in the quality of service would increase the daily spending”, Siniša Perić explains.

Serbian spas have so far mostly been a brand for the people with health problems, who recognized their healing potential. That is an obsolete understanding of a spa, since there is a model abroad that treats the visitor as a guest rather than a patient, offering active vacationing, wellness, sports and recreation all in one – a combination of traditional therapy and well-being. Beside the system framework, Serbia lacks a Slovenia-style strategy that dealt with turning obscure village springs into a spa industry.

Two kinds of research are needed: acquiring clear and internationally recognized certification of the medical quality and then determining the market on which to place this “produce”. Global experience shows that the spa tourism has significant influence on the profit level and market growth potential. Serbian spas can attract investors, first and foremost in building new, small, luxury hotels, which, coupled with certified beneficial effects for the health and package offers can meet the demands of even the choosiest of visitors.

This still doesn’t mean that the utterly neglected Bukovička banja will become a Serbian Karlsbad any time soon, but it is important to have a vision and gradually implement it. Unfortunately, Bukovička banja could serve as a model for what should not be done in the spa tourism sector. That spa, only an hour’s drive from Belgrade, has not had a single hotel bed on offer for the past three years. Out of the three existing hotels, one, “Izvor”, has been sold and is undergoing reconstruction, the other, “Staro zdanje” is a humid, crumbling place, and the third, “Šumadija”, has turned into a refugee camp. The few who still work in tourism in Bukovička banja can only wish to be able to offer wellness and recreational centers, running tracks, riding schools, carriages and excursions to Oplenac. Local politicians have turned Aranđelovac into an apathetic and dusty town.

Some things are still being done to promote the spa tourism in Serbia, independent of the announced privatization that should benefit the sector.

The Tourist organization of Serbia is undertaking the promotion of the five spas (Vrnjačka banja, Sokobanja, Koviljača, Kanjiža and Zlatibor as a favorable climate site) in all specialized fairs, chosen by the Ministries of tourism and health, as destinations capable of accepting and servicing the needs of foreign tourists.

“The five chosen spas” will soon be joined by Niška and Bukovička banja. It isn’t insignificant that the German wellness tourism magazine Foot Raisen is set to include Vrnjačka and Sokobanja in its 2007 season offer.

Never completed

There are four complexes among the numerous rehabilitation centers built using the PIO Fund money that never received a single guest. 

To make the situation even less likely, the facilities in question have been completely or almost completely constructed, but had never been opened fro business. These are the rehabilitation centers in Jošanička, Vranjska banja, Sokobanja and Aranđelovac. Each of these centers was accompanied with the establishment of an appropriate company, the role of which was to suck the money out of the PIO Fund.

The construction of a complex spreading on 11 500 sq meters started at the end of the 1970’s, located on the Mount Kopaonik slopes, along the Jošanica river valley. The original idea that the facility should operate with a 180-bed capacity was changed, and that projected capacity grew to 400 beds. By 1981, when the construction works were halted, 62,757,500 dinars were spent, completing 95 per cent of construction, 40 per cent of craft-works, and one third of installation works, equipping the facility with compete infrastructure.

In the construction’s final phases, however, Serbia’s Executive council [former title for the government] entered the stage with a recommendation that the complex changes its purpose and becomes a tourist facility, and be given over to “Generaleksport”, at the time involved in developing the Kopaonik ski-center. This takeover, which did not cost “Generaleksport” a penny, was then defined as PIO Fund’s contribution to Serbian tourism. The new owner also took over the obligation to finalize the works on the complex in five years, but the state of it today is almost identical to what it was two and a half decades ago. In 1977, the Fund made a decision to build a rehabilitation center in Vranjska banja, housing 250 beds and with 10 000 sq meters of space, spending 57,993,000 dinars by 1980.

All the construction works, installations and woodwork were in place by 1981. However, the newly established company, Vranjska banja Rehabilitation institute, made a contract with the Vranje cotton factory, regarding the finalization of works – all this without PIO Fund’s authorization.

The factory, later renamed Jumko, addressed the Fund in 1983 with a request that the payment of additional 45 million dinars be made on account of the heating system construction. The money went to Vranje, but the facility never got its heating. Five years later, Jumko wrote another letter to the Fund, this time requesting an additional 900 million dinars in order for the structure to finally be completed. Once again, the Fund provided the money, but the Vranje company then used it to pay the wages and other outstanding obligations. For this reason, the Vrnjaska banja complex stands today as it stood 25 years ago.

The Fund started to build another rehabilitation center in the mid-70’s, this time on the Mount Ozren slopes, above Sokobanja, which cost over 120 million dinars in five years of construction. The facility was competed and brought to its use. Then in 1978 the Funds makes a decision to start building another structure, the Rehabilitation center Ozren. Nine and a half million dinars were set aside for this purpose. The new facility was competed and equipped, but has not been launched to date. The Fund representatives say they never received an explanation as to why this happened.

The construction of an institute in Bukovička banja, Aranđelovac, was started in 1975. It occupied 7 000 sq meters and cost the Fund over 37 million dinars. The money was sufficient to cover the majority of construction works, roofing and woodwork. In the mid-80’s when the economic crisis and the (in)famous Stabilization program limited investments, the company established to build the recreation center was paid 37 million dinars to conduct conservation works.

However, those works were never done, so that the structure in the meantime dilapidated to the extent where its reconstruction would take enormous investment. Still, the cash flow from the Fund to Aranđelovac never dried, this time directed to the old Institute for rehabilitation and prevention, at the amount of 50 million dinars. Today, the Fund finds itself in ownership of two institutes in Aranđelovac, one functional, but over which it exercises no factual control, and the other, a permanent building site with no hope of completion.

European spa tourism

Spas and favourable climate sites represent an integral part of the health care system, cultural heritage and an important economic factor in the EU countries. The significance of spas and spa tourism grows with the aging of the population and with health-awareness.

The essence of European spa development strategies is the trend to “activate the awareness of the responsibility towards own health and create a user-oriented offer”.

The growing needs and an integral approach to the user have as a result a complex offer defined as “well-being”. This term includes reinvigorating the mind, body and soul, which is the essence of the European spas’ activities.

In 2002, Serbia’s share of the European spa total overnight stays was 1,2 per cent. There are 1200 spas in Europe.

Tourism in Serbia

An analysis produced by the Croatian marketing experts in cooperation with the Belgrade Faculty of Economics, (in March 2006),  estimates that Serbia has a relatively attractive base of tourist resources – towns, mountains, spas, but an insufficiently developed tourist offer.

“Tourism is domestic-market oriented, facilities are old, the tourist infrastructure inadequate and obsolete. Over 80 per cent of structures are in need of reconstruction”, the analysis concludes.

Experts point to the advantages of the geo-strategic positioning and resources (water, nature, heritage), but also to the strategic disadvantages such as a non-existent perception of Serbia as a tourist country. They also warn about the neglect of tourist attractions, and a lack of expert know-how.