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slovakia

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  SLOVAKIA

REPUBLICAN REFERENCE

Area (sq.km)
48,800

Population
5,400,000

Capital
Bratislava

Currency
Koruna

President
Rudolph Schuster

Private sector
% of GDP

60%

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Background:
In 1918 the Slovaks joined the closely related Czechs to form Czechoslovakia. Following the chaos of World War II, Czechoslovakia became a communist nation within Soviet-ruled Eastern Europe. Soviet influence collapsed in 1989 and Czechoslovakia once more became free. The Slovaks and the Czechs agreed to separate peacefully on 1 January 1993. Historic, political, and geographic factors have caused Slovakia to experience more difficulty in developing a modern market economy than some of its Central European neighbours.

Update No: 057

The political situation in Slovakia is enough to cause alarm in Western capitals. The former dictator and premier, namely Vladimir Meciar, now has a very good chance of returning to power. He heads the opposition and is riding high in the polls. Were an election held tomorrow, he would win it hands down.
The existing government has not made many mistakes, but has had to do unpopular things that were delayed under Meciar in his period of power. Meciar had been largely responsible for Slovakia seceding from Czechoslovakia in 1993, allowing him to become the big fish in a small pond. He was at the time genuinely popular, especially with the rural constituency. He still is. But the townsfolk and in particular the more educated strata of the population cannot stand him. It will be a bitter blow to them if the seasoned populist gets back in.
The present premier, Mikulas Dzurinda, has a tough job running the six party coalition government. There are numerous tensions between the various parties, which make it difficult to see how they could present a united front in elections due in September. An embarrassing spat took place in late January. On January 21st the finance minister, Brigita Schmoegnerova, was dismissed by her own Democratic Left Party, reflecting discontent with her pro-reform policies that have won her plaudits abroad, but not at home. Dzurinda bravely stuck by his minister and refused to allow her to resign. But this threatens to break up the precarious coalition. The stalwart premier may have to back down if the government is not to fall prematurely.
Perhaps he has no great desire to hang on to power, reckoning defeat is inevitable. Only after another spell of Meciar would the populace realise the error of their ways. But the risk is that once back he will never relinquish power again. He only did so in 1998 because he over-estimated his own popularity, as did Milosevic in Yugoslavia. He is unlikely to make the same mistake once more.
Slovakia then is at crucial crossroads. What happens next could determine its fate for decades. The key problem is horrendous unemployment of over 20%, which is over 30% in rural areas. There is little the government can do between now and September to rectify the situation. Things look as if they are going to get worse before they get better in Slovakia.

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BANKING

Austrian Bawag bank wins tender to buy Slovak bank


The Austrian Bawag [bank] has won the tender to buy Istrobanka, the Slovak bank providing general banking and insurance services. It will buy an 82 per cent stake in the bank for a 2.25-multiple of the value of Istrobanka's net commercial assets, which will be determined in keeping with international accounting standards, Radio Twist in Bratislava, has reported.
The outcome of the selloff exceeded shareholders' expectations. Deloitte & Touche company, which acted as an advisor on the sale, said that this transaction was one of the most effective banks' selloff in Central Europe.
The remaining 18 per cent stake in the bank is held by Bratislava City, which is also interested in selling it.

Final price to be paid by Erste Bank for Slovak Savings Bank agreed

The definitive price for the 87.18 per cent share package of the Slovenska Sporitelna (Slovak Savings Bank/SLSP), purchased in January 2001 by the Erste Bank (Austria), was set at 411.3m euros (about Sk17.674bn) on 20th December, TASR web site, has reported. 
Slovak Finance Minister Brigita Schmognerova signed the Memorandum on Understanding between the Finance Ministry and Erste Bank with regard to Slovenska Sporitelna, as approved by the government. This will enable the released finances from the fixed account to be used. 
After the contract on the sale of SLSP shares was signed, Erste released only 340m euros to the benefit of the Slovak party, whereas 85m euros remained blocked on the account. Based on the latest audit in the SLSP and court disputes surrounding the takeover of Priemyselna Banka, Erste decided to release only 71.3m euros (some Sk3.064bn) from this blocked sum. The final price is thus by 13.7m euros lower. Currently Erste owns only 67.19 per cent in the SLSP, since it sold 19.9 per cent to the European Bank for Reconstruction and Development (EBRD) in summer.

OTP wants 100% of IRB

The largest Hungarian bank, OTP Bank, has said it wants a 100% stake in Slovak finance house IRB.
OTP was due to sign a contract on the purchase of a 92.55% stake in IRB on December 7th. But OTP deputy general director, Laszlo Wolf, told the Hungarian daily 'Het' that the bank would offer to buy the remaining 7.45% from minority shareholders.
The Hungarian bank will pay US$14m for the 92.55% stake.


Slovak bank gets higher rating by international rating agency

International rating agency, Fitch IBCA, on 20th December assigned a new long-term rating of BB+ to Slovakia's SLSP [Slovenska sporitelna - Slovak Savings Bank] bank, recently privatised by Erste Bank of Austria, TASR web site has reported. Fitch also assigned short-term and individual ratings of B and D, respectively, to SLSP. The support rating of 2T remains unchanged. The outlook for long-term rating is positive. 
According to the Fitch press release, the ratings reflect much improved fundamentals following restructuring prior to privatisation in March 2001 and the positive impact of Erste Bank on revitalization. The ratings also reflect credit enhancement from Erste Bank and SLSP's importance to the Slovak banking system - SLSP has the largest branch network in the country. However, underlying profitability remains weak, Fitch said.
The agency praised the ongoing transformation process in SLSP, centralising back-office functions, reducing staff numbers, reviewing credit processes and introducing new products.

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ENERGY

Energy sales arouse interest


Several investors have expressed interest in a capital entry into three Slovak state energy distributors. The foreign firms include the German RWE plus, E.ON and Energie Baden-Wurttemburg, Czech CEZ, the Spanish Union Fenosa and Belgian company Tractebel.
The sales of VSE, SSE and ZSE, slated for completion by the middle of this year, are considered key steps in the further liberalisation of the energy sector.

Russia to be only Slovak crude source?

Concerns over the growing dependence of Slovakia on Russian energy resources have been raised after the Russian firm Yukos won a tender for a 49% stake in the crude oil distributor Transpetrol, reports the Slovak Spectator.
Crude oil producer Yukos was confirmed as the winner of a public tender for Transpetrol by the cabinet on December 19th, beating domestic refinery, Slovnaft, with an offer of US$74m. Yukos had been recommended as the winner by a tender commission on December 7th.
Some analysts and politicians warned the decision might lead to an unhealthy and even dangerous reliance on a single source of crude oil, rather than promote a search for alternative suppliers.
They added that the cabinet might face the same problem in the upcoming privatisation of a 49% stake in the gas utility, Slovensky plynarensky priemysel (SPP), at the beginning of 2002. The Russian gas giant Gazprom has expressed interest in the stake along with well-known western European energy firms.
Slovakia now gets all its crude oil and natural gas from Russia.
With access to different energy resources, critics argue, the country's industrial sector would not be so vulnerable to potential shifts in oil and gas flows from Russia. Diversified suppliers would also create competition, thus lowering transport fees and offering access to better quality products.
"Diversification is necessary because no one knows when a single resource provider might fail to deliver crude oil and gas. A Russian investor in Transpetrol would not be interested in diversifying fuel sources because it would take the business out of his hands and allow other producers and distributors to penetrate the market," said Marek Jakoby, an analyst with the Mesa 10 think tank.
But members of the selection team which chose Yukos said that with the state controlling the remaining 51% Transpetrol stake, the government, not Yukos, would get to decide whether to diversify Slovak crude oil sources.
"It will be in the hands of the government to get other than Russian crude oil to Slovakia. Yukos simply cannot block the government's decision on this," said Laszlo Hoka, a member of the selection team.
The Slovak government has already tried to diversify its crude oil sources. At the end of last year, Prime Minister, Mikulas Dzurinda, said that Slovakia was interested in a new crude oil pipeline project that would transport Caspian Sea crude to Western Europe.
Although Yukos has promised to use Transpetrol's full transport capacities, which are currently running at about 33%, it will likely not use crude from the new pipeline to reach this goal. Yukos vice-president, Jurij Bejlin, recently told the Slovak economic weekly 'Trend' that his company viewed the project as a competitor.
According to oil and gas analysts, Caspian crude, drilled mainly in Kazakstan, would be the most suitable way for Slovakia to diversify its crude oil supplies, which in turn would increase Transpetrol's importance in Central Europe.
The Caspian oil fields provide higher quality crude than Russian sites, which makes the product more interesting for western customers.
Kazakstan has one of the world's biggest confirmed deposits of crude oil at 7 billion tonnes, and both the central Asian state and Azerbaijan plan to increase their annual exports of crude oil to 80 million tonnes by 2010.
Ludovit Odor, an analyst with the Slovak rating agency said: "I consider this Caspian crude a real chance for Slovakia to diversify its sources. Now it really all depends on what powers the government will maintain in Transpetrol."
Jakoby said that while the sale of Transpetrol to Yukos was noticeable example of the country's growing dependence on Russian energy resources, he was sure the cabinet would not risk selling a 49% stake in SPP to the Russian bidder, Gazprom.
"Just look at how much pressure the decision on Transpetrol has caused. I dare say that with Yukos's presence in Transpetrol, no selection team would risk selling another key stake in an energy utility to the Russians," Jakoby said.
Earlier in December last year, Gazprom announced that it had considered joining the western consortium of German Ruhrgas, French Gaz de France and Italian Snam in bidding for the SPP stake, the same step it had taken shortly before the recent privatisation of the Czech natural gas distributo, Transgas.
"This decision to team up with European bidders might have been affected by the decreased likelihood of Gazprom's getting SPP by going it alone," said David Marek, an oil and gas analyst with Patria Finance in Prague.
"But even if Gazprom is accepted in this consortium, I wouldn't worry about it misusing its position. It would be a strong and wide spectrum consortium which would not allow any such attempts."

Slovak oil pipeline operator sells its petrol stations to Austrian OeMV

Transpetrol sold its 13 petrol stations for about US$18.5m (882.45m korunas) to Austria's OeMV on 16th January, Transpetrol representative Martin Zlocha told the TASR News Agency. 
One hundred per cent of shares of Transpetrol Trading, the administrator of the petrol stations were sold. It owns 12 petrol stations (plus one unfinished in Michalovce). In the near future, OeMV will gradually take over the property, while Transpetrol will gradually take the agreed-upon sum from an account. 
The tender, in the first (Information Memorandum) stage, saw 11 companies participate. Five of them submitted nonbinding offers by the set deadline (31st July). Four bidders committed themselves to the second phase (after carrying out due diligence) and submitted offers. Then, the shortlisted OeMV and Slovnaft specified their offers. The winner was announced on 5th December.
After the transaction, the number of OeMV petrol stations in Slovakia will go from 61 to 74. (Unsuccessful bidder, Slovnaft, will remain dominant on the market, though, with 316 stations in its Slovnaft/Benzinol network. Totally, there are 743 registered filling stations in Slovakia.) 
According to Transpetrol management, the reason for selling the stations is that the market place is too crowded in Slovakia for this independent distributor to operate. The sale was one of the conditions of signing the 49 per cent Transpetrol share sale to Russian Yukos. 

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FINANCIAL NEWS

Five major Slovak banks ready to offer euro notes, coins


Five major Slovak banks announced on 30th December their preparedness to offer euro notes and coins to their clients as soon as the euro becomes the Eurozone's legal tender on 1st January. Since the banks were expecting an increasing demand for the first issue of the euro notes and coins, the volume of the banks' foreign currency reserves was expected to be slightly higher than in the previous years, TASR web site reported. 
As Slovakia's central bank - the National Bank of Slovakia (NBS) - does not organise the supply of euro notes and coins, the five banks - Slovenska sporitelna [Slovak Savings Bank], VUB [Vseobecna uverova banka - General Credit Bank], Tatra Banka, CSOB [Czechosloval Commercial Bank] and HVB [HypoVereinsbank Group] - co-operate in supplying the euro with either their major shareholders or foreign partner banks. 

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FOREIGN INVESTMENT

Premier seeks to encourage Finland's investment in Slovakia


On 20th December, Finnish businessmen expressed interest in doing business in Slovakia, at a meeting with Slovak Prime Minister Mikulas Dzurinda, SITA News Agency web site has reported. 
According to Mr Dzurinda, Finnish businessmen have been monitoring the Slovak market. He added that after the Slovak cabinet had published its intention to boost housing construction in Slovakia, a Finnish elevator producer began to penetrate the Slovak market. Special technology production is one of the spheres for cooperation between Slovak and Finnish businessmen. The defence departments of both countries plan to sign a memorandum of understanding. 
In the past, Slovakia won a tender to supply howitzer Zuzana for Finnish rapid deployment units. However, the Finnish side cancelled the tender due to lack of finances. Mr Dzurinda praised the Slovak tradition of chemistry and industrial production, adding that geographical distance should not present any obstacle. However, Finnish businessmen warned Mr Dzurinda of a slowdown in economic growth in Finland. GDP growth, which next year should exceed 3 per cent in Slovakia, could be attractive to Finnish investors.

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FOREIGN LOANS

EBRD finances Slovak chemical company restructuring


A Slovak company that produces caprolactum, a raw material used in the manufacturing of nylon, recently received a €8.1m loan from the European Bank for Reconstruction and Development (EBRD) to enhance production and improve environmental standards, a recent EBRD press release reported.
Aquachemia was founded in 2000 by Italy's Bonazzi Group to manage a caprolactum plant spun off from the chemical conglomerate Povazske chemicke zavody, a.s. which was privatised in 1996. The plant is located in Zilina, one of the regions of the Slovak Republic, which has seen less investment.
The EBRD's eight-year loan will finance a comprehensive programme to refurbish and actively maintain Aquachemia's existing facilities, expand production through the construction of new facilities and raise the company's environmental standards to those of the European Union. Alongside the EBRD will be two local co-financiers, each providing a further €3m with a shorter six-year maturity. The total financing amounts to €14.1m.
The EBRD's Country Director for the Slovak Republic, Alezander Auboeck, said combining the EBRD's finance with the skill and know-how of the Bonazzi Group should help restructure Aquachemia into an efficient, environmentally sound and ultimately profitable business.
Tonino Beccegato, Director General of the Bonazzi Group said Aquachemia would follow on from other similar business models in Slovenia's Yulon and Aquasava, both co-financed by the EBRD, and which are now successful textile businesses. Mr Beccegato said that the refurbishment should turn Aquachemia into a successful low-cost, competitive producer. For further details contact: Ben Atkins, Tel: +44 207 338 736 or E-mail:atkinsb@ebrd.com

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MINERALS & METALS

Oil distributor sells shares in steel works prior to privatisation

The oil distributor, Transpetrol, sold its 21.24 per cent share package in Eastern Slovak Ironworks (VSZ) on the stock market on 21st December. The company gained 160 korunas per share, bringing overall earnings to more than 559m korunas. 
Transpetrol's spokesman told the TASR News Agency that the company obtained the VSZ shares in 2000 for an average price 209 korunas. By having done so, the company helped the government to promote the sale of VSZ's activities in favour of the American company, US Steel, that took over the VSZ metallurgy production. Despite the lower price for the shares, Transpetrol achieved a net profit of 333m korunas in the transaction. At the beginning of December, VSZ paid Transpetrol dividends of some 504m korunas. Overall, Transpetrol collected from the VSZ transactions about 1,063m korunas while it purchased them in 2000 for some 730m korunas. 
The sale of VSZ shares owned by Transpetrol was necessary with regard to the decision of the Slovak cabinet to sell 49 per cent of Transpetrol to Yukos (Russia), said the spokesman. The expected time for signing of the contract on the sale is scheduled for January 2002. 
It is not known who bought the VSZ' shares in an anonymous transaction, but TASR has information that it was not US Steel, or J&T or Penta Group or Slavia Capital. Transpetrol sold its VSZ shares after the failure of the talks between Privatisation Minister Maria Machova and US Steel President John Goodish 

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SHIPPING 

Shipyard picks up steam


Shipbuilder, Slovenske Lodenice Komarno Bratislava (SLKB), should turn out more than Sk 1bn worth of production this year, the company has said, as reported in the Slovak Spectator.
More than 900 people will employed by the firm at the start of 2002, an SKLB board of directors' member, Jaroslav Papp, said on December 4th.
The company, which was created from the remains of the bankrupt SLK ship maker, in June last year won a Sk 500m (US$10m) contract to build three ships for the German market. The first of the three left the yard in January 2002, the second should be delivered in the spring.
The orders allowed the company to secure a 30m Deutsche mark loan from the import-export bank Eximbanka, guaranteed by the Slovak government.
SKLB's success in winning the orders has revived the yard, which after SLK folded lost more than 1000 workers. The district's unemployment rate has been kept at the same 25% level only through the local labour office offering seasonal work and introducing the government's public work-for-welfare scheme.

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