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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: 060 - (18/04/02)

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. 

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AUTOMOBILES

Czech car giant eyes Slovak suppliers

Skoda Auto has revealed they are considering replacing their luxury car component suppliers in the Czech Republic with contractors in Slovakia, the Slovak Spectator has reported.
The announcement came after results showed the company's profits down eight per cent in 2001 from the year before due to a strong Czech crown. 
Skoda suppliers in the Czech Republic have so far been unwilling to take account of the shifting exchange rate and drop the prices of their components, the firm said.
"We negotiate with them every week, but if the Czech crown keeps strengthening we will be forced to change some suppliers. One alternative we have considered is to move our activities to Slovakia and take advantage of the cheaper Slovak crown and conditions similar to those in the Czech Republic," said Skoda spokesperson, Milan Smutny.
However, he refused to specify which suppliers Skoda was considering changing.
Top Skoda representatives have praised the potential of the automotive production sector in Slovakia, which is driven by the German giant, Volkswagen - Skoda's majority owner.
Volkswagen has expanded production from 126,500 cars in 1999 to a projected 200,000 this year. It has also drawn a supplier base to Slovakia over the last two years, including French auto parts maker, Platic Omnium, which invested US$53m in late 2000.
VW is also building an industrial park near western Slovakia's Lozorno to house suppliers such as car interior producers Johnson Controls, Lear Corporation and Sommer Liberty, and electronics maker Delphi. Plastic Omnium and French VW supplier, Inergie, have already settled in their own complex five kilometres from the Lozorno park.
"Volkswagen is invested in Slovakia, the Slovak crown is softer and the government has prepared industrial zones," said Skoda chairman of the board, Vratislav Kulhanek. He added that these factors may also convince some Skoda suppliers who have plants in the Czech Republic to move their production to Slovakia.

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FOREIGN LOANS

EBRD supports power sector restructuring

The European Bank of Reconstruction and Development is supporting the restructuring of the power sector in the Slovak Republic by guaranteeing a US$75m (SKK 3.62bn) loan from leading local bank, Slovenska sporitelna, to national power company, Slovenske elektrarne (SE). Noreen Doyle, the EBRD's First Vice-President, announced the Bank's commitment during a visit to Slovakia in late March.
The EBRD-guaranteed loan is being made in parallel with an additional US$90m equivalent Slovak crown loan from a group of international and domestic commercial banks led by Citibank and Tatrabanka. The combined finance will allow Slovenske elektrarne to restructure its existing debt on more favourable terms, thus providing the flexibility to pursue a long-term restructuring plant to deliver power and electricity more efficiently and meet accession terms of the European Union.
Significantly, neither loan requires a sovereign guarantee. The loans are being made in local currency and are backed by a pool of SE electricity receivables. Ms Doyle said it is important to find such innovative local-currency solutions, particularly for infrastructure companies whose revenues are denominated in local currency. Further, the ability to raise financing without government support demonstrates the strength and independence of SE. The country's power sector, she added, is undergoing deep restructuring and it is important to provide Slovenske elektrarne with all the support it needs to undertake the necessary reforms.
The US$165m (SKK 7.96bn) facility will support SE's transformation into separate generation and transmission companies, in compliance with the EU's directive on electricity. The government of Slovakia is also moving to privatise both the electricity distribution and generation companies in preparation for a more competitive market. Ms Doyle said the Bank is ready to support potential strategic investors seeking to invest in Slovakia.
Ms Doyle visited Bratislava to meet with Deputy Prime Minister Ivan Miklos, Finance Minister Frantisek Hajnovic, as well as with the business community. To date, the EBRD has committed almost €1bn to the Slovak Republic. Ms Doyle said the EBRD remained committed to doing business in the Slovak Republic and welcomed the country's commitment to reform.
For further information contact Ben Atkins, EBRD, tel: +44 207 338 7236; e-mail atkinsb@ebrd.com. 

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MINERALS & METALS

USSK signs steel deal with Serbian Sartid

US Steel Kosice (USSK), one of the leading steel makers in Slovakia, announced it has inked a deal with Sartid, a Serbia-based metallurgical group. According to USSK officials, the agreement stipulates that USSK material will be processed in two of Sartid's facilities, which will be overseen by them. The deal, good for a six-month period, will be active while USSK carries out due diligence ahead of its planned entry into Sartid as a strategic investor, Slovak media reports said.
The company said it is also planning to expand in other east European states because of the potential trouble that may arise thanks to the EU and US trade row on steel imports. The US administration said recently that it would apply tariffs on steel imports, as high as 30 per cent, so as to protect its domestic steel industry. This move was met with a great deal of criticism by European states. USSK President, Good Goodish was quoted as saying "We have found further market opportunities in our effort to balance out possible losses (from any EU tariff rises), and some are to the east. We have to have our own strategy if we want to remain a profitable concern."

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TELECOMMUNICATIONS

Energotel gearing up for end of ST monopoly

With nine months to go until the end of Slovak Telecom's monopoly on fixed-line services, alternative telecom provider Energotel is already establishing a presence on the Slovak market, the Slovak Spectator has reported.
Energotel, formed from the internal telecom networks of Slovakia's energy, gas and oil firms, already has a broad fibre-optic network around the country, and a core clientele among Internet service providers and international firms.
The firms plans to generate an income of Sk370m this year, more than the combined income in 2001 of the companies from which it was formed, say Energotel officials. In addition, Sk350m should be invested in 2002 to expand the network and update equipment.
Because Energotel's network is entirely fibre-optic, company officials say they can offer clients data transfer speeds exceeding 30 Mbits per second. The ISDN service offered by Slovak Telecom (ST) has a maximum data speed of 128 kbits per second, although ST plans to launch a high-speed digital subscriber line (DSL) service by the end of the year.
Energotel director, Márius Hricovsky sees the firm's main potential for growth among large companies and organisations that need high transmission capacities as well as firms needing high speed data transfer.
"Our potential clients today are, for example, Internet service providers, wholesalers of telecom capacity and international firms operating networks. We are also looking at large firms that have multiple branches in Slovakia, for example banks and insurance providers. We also believe that government offices could and will be our clients," said Hricovsky.
The firm's weak point, however, remains the 'last mile' cable connection between Energotel's lines and final users. This connection is owned by ST, although as of January 1st, 2003 ST will lose its monopoly on fixed line voice services and have to start renting capacity to operators such as Energotel.
ST's head of strategic planning, Peter Poliak, says Energotel has the potential to offer real competition to his firm. "They have enough facilities to provide high speed services like leased lines and high-speed Internet access. Because of that, Energotel in the future can really compete in the business segment with those who use high speed services.
"It's not about the mass market or mass services, just large enterprises," he said.
Hricovsky confirmed that Energotel had no plans to expand to residential service.
"Households will really only have a connection with us when, for example, they are connected through ST to the Internet, and the Internet provider buys the long-distance connection from us," said Hricovsky.
Energotel was assembled in February 2000 as a 100 per cent daughter company of the state-owned oil pipeline firm Transpetrol. The company, then called Transtel, took over the internal telecom networks connecting state electricity provider Sloveské elektrane (SE), gas giant SPP and Transpetrol.
Electricity producers and distributors under the SE umbrella already have a fibre-optic network leading to nearly every town of more than 20,000 inhabitants, and to every district and regional government seat, while SPP and Transpetrol both have fibre-optic networks running along their respective pipelines.
The scheduled opening of the Slovak telecom market at the start of next year, say analysts, has been a long time coming. Dag Storrosten, the director of Nextra, Slovakia's largest Internet service provider says: "Some forces are trying to make privatisation move fast, and some are trying to delay it. Obviously challengers in the market will try to speed up the process. Those who have a good position will try to delay it as much as they can."

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TRANSPORT

Bratislava and Vienna to be linked in 2005

Preparations for the construction of a 20-km highway stretch between the Austrian border town of Kittsee and the highway connecting Vienna to Budapest are advancing, the Slovak Spectator has reported.
"Everything indicates that after the start of construction in 2003, the stretch will be completed by the end of 2005," said Boris Gandel, spokesman for the Foreign Ministry following the talks of the Slovak-Austrian commission for cooperation in transport.
The Slovak-Austrian commission, whose mandate is to improve transport between Slovaki and Austria, was launched at the initiative of the Slovak Prime Minister Mikuláš Dzurinda and Austrian Chancellor Wolfgang Schussel in 2000.
Austrian and Slovak businessmen have been frustrated by the lack of a decent road connection between Vienna and Bratislava, which at only 60 kilometres apart are two of Europe's closest capitals.
A strong environmental and civil lobby in eastern Austria has so far managed to defeat plans to build a large freeway through the area's rural hinterland.

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