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slovakia

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  SLOVAKIA

REPUBLICAN REFERENCE

Area (sq.km)
48,800

Population
5,415,000

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: 061 - (23/05/02)

The Slovaks and Czechs are on excellent terms, according to Slovak Premier Mukulas Dzurinda in late April. They have been apart for nearly ten years, Czechoslovakia dissolving in 1993.

Integration into the West
The Czech standard of living is one fifth or so higher. The reasons are not hard to seek. "This is a marked difference which has several economic reasons. The most important is the fact that the Czech Republic succeeded in the past decade to join integration trends and this not only from the political, economic and value points of view, but also from the military point of view," Eugen Jursyca, director of the Central European Institute for Economic and Social Reforms (GEKO) says.
The Slovaks are pursuing integration into NATO as fast as possible. They are one of the Vilnius Group (V10) seeking membership of NATO. President Bush himself has spoken of their suitability to join, the only one of the four Visegrad nations not yet to have done so. In the second half of 2002 Dzurinda will be chairman of Visegrad 4, setting the agenda to include illegal immigration and border issues.

Energy to the fore
Slovakia is in a critical situation. Its geographical location makes it a key country in the complex game of East-West energy power play. The Slovak Government has accepted a joint US$2.7bn bid by France's Gaz de France, Ruhrgas and Russia's Gazprom for a minority stake in SPP. 
In the largest privatisation ever done in Slovakia, the three companies are set to take a 49% stake in and management control of the gas importer and transporter, which serves as a key link in the transit of Russian gas to Western Europe. Last year SPP conveyed 72bn cubic metres of gas to Western Europe, and 7.5bn to Slovakia alone.
Prime Minister, Mikulas Dzurinda, said that SPP would be "stronger and more profitable" for the deal. A contract will be signed within weeks.

Coming elections
Slovakia is facing elections to parliament in September. The present ruling coalition has taken an audacious reformist course, which has made it unpopular. It is unlikely to win.
Dzurinda has a difficult job running the six-party coalition government. There are endless tensions between the various parties, which make it difficult to see how they could present a united front in the elections. He lost his reformist finance minister, Brigita Schmognerova, earlier this year in February after he vainly tried to protect her. Her successor is another reformer, Frantisek Hajnovic, an economist from the National Bank. A continuity of policy is highly likely. 
The opposition has a formidable leader. This is the former dictator and premier (the important job in the country), namely Vladimir Meciar, who now has a very good chance of returning to power. He is riding high in the polls. The existing government has not made many mistakes, but has had to do unpopular things that were delayed under Meciar in his period of office. It is esteemed in Brussels, but not at home.

Regional disparities
There is a huge divide between the Bratislava region and the countryside and smaller towns to the east. Unemployment in the former is only 6%, but in the latter it is running at over 30% in some areas. Bratislava and its surrounds have a GDP at 95% of the EU average. Only Prague on 124% fares better as a region among EU entry candidates. 
But the rest of the country comes in at less than 50% of the EU average. A law to exempt investors from taxes in regions with more than 10% unemployment is under consideration and certainly seems a good idea.
Foreign investors prefer the developed regions rather than the backward ones for all sorts of reasons. For one thing Bratislava is in the right place, only 60km from Vienna. It has the best-educated people, the institutes and infrastructure. This is the ruling coalition's natural power base. But the more numerous provincial population are generally behind Meciar. Hence the reason he is likely to win. 

Meciar reborn
Meciar promises that he is a reformed man. He intends to tackle corruption, he says. It is certainly rife. Just perhaps, on the principle of poacher-turned-gamekeeper, he is the politician to make a dent on the problem, but it is unlikely because he is first and foremost a populist and does not seek new enemies.
Foreign investors are staying way until they see the outcome of the election, the gas consortium excepted. The result is not likely to please them, nor Brussels or Washington DC. Unless the electors have an outbreak of common sense, not impossible but perhaps unlikely, Slovakia may be about to re-enter the European dog-house from which it only emerged when Meciar lost the last election. 

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AVIATION

Slovakia examines V4 helicopter revamp project


Slovak Defence Ministry senior officials examined a project that entails the cooperation of the Visegrad Group of states (Poland, Hungary, the Czech Republic and Slovakia) to revamp Russian helicopters Mi-24, the BBC reported, citing the Slovak news agency, SITA. 
According to Defence Minister Jozef Stank, the project is one of concrete cooperation among the three NATO members and Slovakia, which is seeking entry in the Western military alliance. Revamping the helicopters will prolong their service life to 35 years. The defence ministers of the Visegrad Group are scheduled to ink the intergovernmental accord on cooperation in Mi-24 modernising at the end of this month.
Under the accord, the size of the revamping process will be determined. The process will be defined in greater detail in state technical agreements. 
"The modernised helicopters will comply with NATO interoperability parameters and should be introduced to the arsenal of all four countries," Stank was quoted as saying.

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DEFENCE INDUSTRY

Slovak defence ministry signs spare parts deals with Russia

Slovakia's Defence Ministry representative signed two contracts for supplies of spare parts for the Slovak Armed Forces equipment worth US$4.6m and US$5.2m with Russian representatives, TASR web site has reported. Oto Necas, head of modernization and infrastructure section at the ministry, is with the delegation led by the ministry's State Secretary Jozef Pivarci. 
The delegation met Russian partners in Moscow on 26th April. Pivarci told the TASR that the US$4.6m sum is the amount that the ministry did not manage to include in the Russian debt settlement in 2001. Contracts include protective wear for ground soldiers, heavy ammunition and sniper rifles. In Moscow, Pivarci held talks about Russian supply of spare parts for repairs of MiG-29 fighter jets worth US$13.2m already this year with the representatives of the committee for scientific and technical cooperation with foreign countries. The Slovak Armed Forces have 24 Mig-29 fighters, but only one-third is ready for action. 
For the first time in three years the Russian side agreed to include the fighter jet repairs in the debt settlement. However, Pivarci did not discuss the settlement of US$56m above the existing limit for 2002.
The amount was politically agreed upon by Slovak and Russian Presidents Rudolf Schuster and Vladimir Putin respectively, on 19th March. Pivarci said that discussion on this amount is within the remitof the Finance Ministry.

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ENERGY

Slovak cabinet chooses adviser in privatisation of electric power producer


The world's largest audit company, PriceWaterhouseCoopers (PWC), has been selected as the Slovak government's adviser in the privatisation of up to 49 per cent of Slovak Electric (SE) TASR News Agency web site has reported. 
An Economy Ministry spokesman confirmed on 19th April to the TASR that the agreement was signed by the representatives of PWC, National Property Fund (FNM), and the privatisation and economy ministries, four weeks after the tender for privatisation adviser had been closed. PWC has already submitted a draft on the SE privatisation which is currently being discussed by the government. Comments on the proposal should be submitted by the end of April. 
According to PWC, SE should be sold as an integrated firm with two 100 per cent daughter companies, one of them controlling standard energy sources (heat and water plants), the other controlling nuclear power plants. The Privatisation Ministry intends to launch the SE privatisation before the end of 2002 and finish it next year. But Privatisation Minister Maria Machova does not expect the tender to be launched before the general election in September, according to the spokesman. 
Among the possible investors are said to be E.ON (Germany) and Electricite de France, which are also involved in the privatisation of the three Slovak regional energy distributors. 
Economy Ministry Energy Section Director-General, Ondrej Studenec, told the TASR news agency that the companies having won a stake in one of the regional distributors, should not be allowed to enter the tender for SE. It would be a conflict of interests, especially regarding price tariffs, he said. 
SE is Slovakia's largest producer of electricity, and its largest energy-producing company in terms of assets (worth some 150bn korunas). In 2001, SE produced 85 per cent of electricity produced in Slovakia. The majority of SE output represented nuclear plants, producing 62.8 per cent of the total, followed by heating plants with 19.7 per cent and hydroelectricity plants with 17.5 per cent. 

Slovak oil pipeline operator gets final approval to sell stake to Russian Yukos

The sale of a controlling 49 per cent stake in Slovak oil pipeline operator, Transpetrol, to Russian oil company, Yukos, was given final approval by a special session of shareholders in Bratislava on 29th April, TASR web site has reported. 
The stake comprises 931 shares sold by the FNM state privatisation agency on behalf of the Economy Ministry, which retains 51 per cent of the company. Contracts for the deal were signed by representatives of the government and Yukos on 28th January 2002. The shareholders' meeting was preceded by the Slovak Anti-Monopoly Office (PMU) green-lighting the deal on 26th April. 
Yukos will pay US$74m, or 3.463bn korunas to Slovakia. The Economy Ministry has a controlling 51 per cent stake in Transpetrol. Meanwhile, 49 per cent was recently transferred to National Property Fund (FNM) which in turn was, under the agreement with Yukos, the seller. On the newly-appointed management board, three members out of five are representing Yukos. The company also has one member on the nine-member supervisory board.

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FINANCIAL NEWS

EBRD issues new strategy for Slovak Republic


The EBRD will concentrate its future activities in the Slovak Republic on sectors that can best promote growth and help the country's eventual accession into the European Union. In its new strategy published on 1st May on www.ebrd.com, the Bank describes an increasing focus on investments in infrastructure, non-banking financial institutions, small businesses, and areas that can help strengthen the private sector and reduce regional imbalances.
Having invested around €900m in Slovakia - including a record €344m last year alone - and mobilised an additional €2.1bn, the EBRD has played a pivotal role in promoting the country's reform over the past decade. The strategy, together with the continuing reform commitment from the Slovak government, should ultimately help attract additional foreign investment, which is critical to ensure future dynamic growth.
Noreen Doyle, First Vice President at the EBRD, said Slovakia has made significant steps in recent years towards a market economy. She said the country is fast approaching accession into the European Union and that the rate of growth and reforms has been impressive. "There has been a lot of progress, but the road does not end here," said Ms Doyle. "There is still work to be done, and through its new strategy the EBRD will deepen its support for Slovakia as it approaches the accession."
In particular, the EBRD will support the restructuring of the country's infrastructure, with emphasis on municipal projects, whilst in the energy sector it will aim to work with private investors to develop the country's independent power plants. In April the Bank supported the restructuring of this sector by guaranteeing a US$75m loan from leading local bank Slovenska Sporitelna to the national power company, Slovenske Elektrarne to deliver power and electricity more efficiently and meet accession terms of the EU.
Having played a significant role in the privatisation of the country's banking sector, the strategy will now direct the Bank's activities towards non-banking financial institutions, including those handling pensions, insurance, leasing and asset management companies. The EBRD will continue to work with local banks and other institutions to strengthen the country's small and medium-sized enterprises (SME's), important for both economic stability and regional development. Last year, the Bank provided a €20m credit line to Vseobeena uvrova banka, the first to a Slovak bank under a joint EU/EBRD Finance Facility for SMEs to support the growth of this sector. The new strategy aims to expand both the volume and spectrum of financing instruments for SMEs across the country.
The EBRD will further support the restructuring and consolidation of the private sector alongside strategic investors or through equity participation, and at the same time aim to support regional development by encouraging foreign direct investment, particularly for Greenfield projects in regions of higher unemployment.
For further information contact Jazz Singh, EBRD tel: +44 207 338 7931 or e-mail singhja@ebrd.com. 

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TRANSPORT

Slovak cabinet approves state guarantees for loans to railways

The Slovak cabinet on 25th April approved a state guarantee for three loans worth 11.7bn korunas (278.5m euros) for Slovak Railways (ZSR) and The Railway Company (ZS), TASR web site has reported.
Thus, after an approval of the State Aid Office (UpSP), the ZSR will be allowed to draw 12-year loans worth 16m euros from J.P. Morgan Securities Ltd. and Tatra Banka, and 2bn korunas from Ludova banka to refinance debt from 1994-2001, maturing this year. The loans will also cover losses from public services and discounts, and financing programmes under the ZSR Transformation and Reconstruction Project. 
Tatra Banka, Citibank and VUB bank [the General Credit Bank] will provide a five-year loan worth 3bn korunas to the ZS, with a three-year delay of the principal, to cover part of the losses from public services and discounts in 2002. 
This year, the state has ordered 34 million kilometres from ZSR, worth a total of 7.208bn korunas. After subtracting 2bn korunas from revenues for passenger transport and payments from the state budget the uncovered sum will be 4.165bn korunas. 

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