* Avala Film bankrupt, up for sale
* War epics extolled Yugoslav unity under Tito
* Serbian film buffs fear loss of national treasure
* Rights to hundreds of films to be sold to settle debt
By Matt Robinson
BELGRADE, March 7 (Reuters) - On a forested hill above the Serbian capital, stray dogs nose through plywood film sets, the remnants of what was once one of the world's most prolific movie studios.
Founded in the wake of World War Two by Yugoslav leader Josip Broz Tito, Avala Film fed his socialist federation on a diet of rousing war epics extolling a vision of 'Brotherhood and Unity' between its peoples.
Richard Burton, Yul Brynner and Orson Welles brought the glamour of Hollywood, while Tito's army supplied the extras.
But mirroring the fate of the country it once promoted, the long-since bankrupt studios now face being dismembered, picked apart and sold off to settle a debt.
Filmmakers and cinema buffs in Serbia fear the loss of a national treasure, and with it a rich catalogue of hundreds of films spanning half a century.
"The cinema of any country is a central component of its heritage," said Mila Turajlic, director of Cinema Komunisto, a 2010 documentary that looked at Tito's legendary love of cinema and the film industry he bankrolled.
Avala's creations, she said, "represent the cultural history of not only Serbia but Yugoslavia, and they will end up in the private hands of local businessmen, who'll be free to exploit them or even deny access to them in any way they see fit."
Avala Film's demise mirrored that of Tito's Yugoslav vision.
As the socialist federation he ruled imploded in war a decade after his death in 1980, the studios were left to rot, reels of film in flimsy cardboard boxes scattered on the floor of a leaking warehouse.
Sub-tenants, including a car mechanic and an Italian TV production company, moved in. A film set of Rome still stands.
"It looked like a nuclear winter," Vladislav Cvetkovic, the director of Serbia's Privatisation Agency, said of the day the receivers moved in last year. "No one had dealt with it for 10, 15 years, except to declare how important Avala Film is for Serbia."
The sell-off to settle a debt of 9 million euros ($11.72 million) could begin this month, with some 36 acres of prime real estate, film rights, costumes, props and studios potentially up for grabs.
Cvetkovic defends the privatisation, saying that for the first time in years the archive is now secure and being catalogued for eventual sale, while the land will be put at the disposal of the state.
The debt stems from import-export company Yugoexport, which took a majority stake in Avala Film during Yugoslavia's demise and then went bust. Once it is paid, Cvetkovic told Reuters, the government or the Serbian film industry is welcome to offer "a vision of how to restore Avala's shine".
Cultural heritage in the former Yugoslavia, however, can be a prickly subject for governments, which often prefer to forget certain periods while lauding others. Tito's legacy is still fiercely disputed.
In Serbia, culture struggles for the attention and resources of a state still emerging from the disastrous rule of late strongman Slobodan Milosevic until 2000, when war, guns and gangsters dominated society and independent thinkers were deemed subversive.
Now gripped by recession and a jobless rate of 25 percent, the country trails most of its Eastern European peers in the money it sets aside to support cultural life - just 0.6 percent of the state budget.
Among Belgrade's most important cultural landmarks, the National Museum and the Museum of Contemporary Art have been shuttered for years, having run out of funds for renovation work.
The heirs of Milosevic are now in power in Serbia. While their nationalism is tempered by a desire to join the European Union, they have little interest in burnishing Tito's Yugoslav legacy.
Culture Minister Bratislav Petkovic said this week that his office was "following closely, trying to help and give our opinion". The ministry declined to answer questions.
With corruption blighting much of Serbia's privatisation process since Milosevic's ouster, filmmakers fear Avala Film could suffer a similar fate to Belgrade Film, which ran 14 Art Deco and Bauhaus cinemas in the capital dating back to before World War Two.
The much-loved movie houses were sold in 2007 for 9 million euros to a London-based Serb businessman who pledged to restore some of them to their former glory. All have since been boarded up or taken over by squatters, prompting campaigners at this week's closing night of the Belgrade film festival to erect 14 wooden crosses bearing the name of each cinema.
"Practice has shown that cinematography is the biggest loser from the transition (from socialism)," said Radoslav Zelenovic, director of the Yugoslav Film Archive, where an overstretched staff is carrying out the painstaking work of repairing and archiving thousands of reels of film found in Avala's premises.
"Avala Film is an integral part of Serbian culture," he said. "Such a space should be made into a museum, where the public can watch the films, see the sets and how the stuntmen worked."
Instead, he said, "someone's going to buy the rights to those films, come to the Yugoslav Film Archive like it's a warehouse and say, 'Hand over the negatives'."
Some in the Serbian film industry have proposed following the example of other countries in the region by selling off a part of Avala Film and re-investing the proceeds to create a new, state-of-the-art film studio.
Private production keeps the film industry in Serbia alive, part of an emerging eastern European offering of cheap locations and crews that attracted Ralph Fiennes to film his directorial debut Coriolanus here in 2010.
"The most urgent concern is to preserve public access to the films," said director Turajlic. "The second question is the Avala Film site, which if sold as plain real estate will be razed to the ground, leaving no trace of its rich history."
Unfortunately, she said, in the grab for assets after the fall of Communism in Eastern Europe, cash-strapped governments frequently bow to the interests of big business, and Serbia has proved no different.
"The issue of Avala Film's privatisation has been settled privately between the Serbian oligarchs, and despite various attempts to reform the process to benefit the Serbian film industry, successive culture ministers have in the end bowed to their 'vision'," Turajlic said.
"This is obvious in the fact that they let Avala go bankrupt." ($1 = 0.7677 euros) (Additional reporting by Jaksa Scekic; Editing by Will Waterman)