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After World War II, Czechoslovakia fell within the Soviet sphere of influence. In 1968, an invasion by Warsaw Pact troops ended the efforts of the country's leaders to liberalize party rule and create "socialism with a human face." Anti-Soviet demonstrations the following year ushered in a period of harsh repression. With the collapse of Soviet authority in 1989, Czechoslovakia regained its freedom through a peaceful "Velvet Revolution." On 1 January 1993, the country underwent a "velvet divorce" into its two national components, the Czech Republic and Slovakia. Now a member of NATO, the Czech Republic has moved toward integration in world markets, a development that poses both opportunities and risks. 

Update No: 066 - (22/10/02)

Presidency for grabs
Vaclav Havel, the distinguished playwright and former dissident, is bowing out as president in the new year. The post is a largely ceremonial one, but its occupant, if an accomplished figure, as Havel undoubtedly is, can have clout in the political process in the Czech Republic. The perks that go with the job, including the glittering baroque palace in Prague's central Hradcany Square, are considerable.
For these reasons Vaclav Klaus, the erstwhile leader of the conservatives, covets the job. But the ruling social democrats also want the post filled by one of their own. Milos Zeman, the former premier, is likely to stand on their behalf. The contest between these two old rivals has dominated Czech politics for a decade and a run-off between them for the presidency would be a fitting denouement.

New man at the helm
The job that really matters is of course the premiership and Vladimir Spidla is the key figure at the helm of the state. He is steering a median course, avoiding the Thatcherite excesses, as he sees them, of Klaus, while promoting reform. 
The country had a nasty jar in August when torrential flooding brought disruption to Prague's medieval quarter and to many rural regions. Up to 150,000 people had to be evacuated.
The reconstruction bill will amount to 90 billion crowns or more. This should give a fillip to the economy. But a lot depends on how it is financed.

Economic strategy still uncertain
The government is not yet committed to one course of action to finance reconstruction. Returning to its radical populist instincts is one option, soaking the rich or better-off by a tax hike. 
This has been widely criticised. For it could lead to a brain drain abroad. No longer are Czechs restrained from foreign travel, while their language skills are generally high, especially among the upper strata, who speak German as a matter of course and usually excellent English too.
Another way of funding the reconstruction would be 'flood bonds,' issuing bonds for reconstruction. The same people would be likely to be involved, but as investors not tax-payers, with foreigners chipping in too. Such is the course being urged on the government by orthodox financiers. It should be evident which way it will jump before the end of the year. 

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Ostrava-Mosnov airport investment signed; repair centre will employ 40

A Kc 620m (US$20m) investment in an aircraft repair centre at Ostrava-Mosnov airport was signed recently at the Investment Forum in Ostrava, Prague Business Journal has reported.
"The deal, which has been in negotiations for over two years, has finally been signed, and I'm very happy about that," said Moravian-Silesian regional governor, Evzen Tosenovsky.
Originally, the investment was supposed to be part of the offset programmes of the consortium of BAE Systems-Saab in the purchase agreement for supersonic fighters by the Czech government. But a group of investors from Iceland, European Central Aviation (ECA), decided to go ahead with the investment in spite of the apparent cancellation of the jet purchase. BAE is providing financing for the ECA project.
Construction of the repair hangar should start this December and will be carried out by ZS Brno. The company should begin operations next autumn. In the first phase ECA plans to employ about 40 local workers alongside their own engineers and technicians. However, the company has said that it plans to train local workers to take over those more highly skilled positions eventually, said Thorir Gardarsson of ECA. Within the next three years the company plans to expand to 250 employees, he added.
The factory should be able to handle repairs of some 100 planes a year and besides Boeing planes, will specialise in repairs of the newest transport plane, the Airbus A 380, currently under development.
"There are local army specialists, who were made redundant, and also former Air Ostrava employees (the local air carrier that went bankrupt about five years go), who can find new jobs here," said Michal Cervinka, director of the Mosnov Airport. Local VSB-Technical University has already introduced a new aviation engineering course.
The airport, which has the longest runway in the country, is still state-owned through the Czech airports authority, but the region would like to privatise it as soon as possible.

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Czech government fails to sell off national petrochemical company

The privatisation of the Czech petrochemical industry has not come off. Agrofert will not pay for the 63 per cent stake in Unipetrol, a state holding company uniting six major Czech petrochemical companies, Czech Radio1 has reported The payment for this chemical giant was due to take place on 30th September.
The state will thus lose more than 11bn korunas that it had reckoned on.
Agrofert chief, Andrej Babis, says that the main reason for backing away from the purchase contract were unclear relations within Ceska rafinerska, one of the companies under Unipetrol auspices, where Unipetrol holds a majority stake.
The state-held share in Unipetrol will be put on the market again, Czech Radio1 reported. 
The finance minister, Bohuslav Sobotka, wants to propose to the government that the chemical group be sold in parts. The minister of industry and trade, Jiri Rusnok, will be pushing for Unipetrol to be sold off as one entity, however. 
According to Rusnok, the new privatisation tender to sell the state share in the chemical holding should be prepared by the end of the year. Rusnok says that several important companies are interested in the Czech
petrochemical industry: "I prefer a quick sale of Unipetrol and in order for it to be quick, I think that it has to be sold as one entity, as the firm stands at the present time. There is no sense in discouraging a future owner by some restrictions that the firm will be restructuralized after it is sold, in other words after it is acquired by a new owner."

Sector awaits shakeout from CEZ deal, but foreign investors still circle

Czech electricity distribution companies have never had it so good, but the good days could soon be coming to an abrupt end, the Prague Business Journal reports.
For now, the companies are reaping the rewards of being in the right place at the right time. They are able to buy electricity from producers on a competitive market but sell the power on to a still largely captive one. Under the Czech's staged electricity market liberalisation, only the biggest consumers, such as steel companies, Vitkove and Nova Hut, are not tied to a the local distribution companies. The rest of the country's consumers still are.
Nearly all the eight Czech regional distribution companies posted phenomenal first half year results with profits more than 30 per cent higher compared to 2001.
Jaroslav Mil, CEO of dominant power producer, CEZ, accused the distributors at a news conference on September 2nd of failing to pass on cheaper electricity to consumers. The companies said that part of the reason for their improved results was the restructuring embarked upon ahead of expected privatisation.
CEZ could, however, have the last word if it is cleared by the Office for the Protection of Economic Competition (UOHS) to take controlling shareholdings in five of the regional distribution companies and significant minority shareholdings in the remaining three companies. CEZ has refused to explain its future plans for the distribution companies.
Competition office clearance would make the latest move by the country's biggest distribution company, Severomoravsk Energetika (SME), a last gasp show of defiance to the new owner, CEZ.
SME was scheduled to announce the winner of a tender to supply 25 per cent of its electricity from 2003-2005 inclusive. However, it announced later that none of the five bids it received met all of its conditions. In spite of attacking CEZ for failing to take part in the tender, SME now appears destined to buy around 60 per cent of its power needs next year from it.
SME is the only distributor to have made such use of tenders and for such a large amount of its power supply. As a result of an earlier tender, Swiss-based energy trading company, Entrade, is this year supplying around 25 per cent of SME's overall power needs. Strangely enough, Entrade, was part of a surprising electricity power production and trading deal recently.

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Japanese engineering firm announces investment project in Czech Republic

The Japanese Toyoda Machine Works company, which is involved in the production of components for the automobile industry, has decided to build a new plant in the Pardubice industrial zone, it was confirmed by Martin Jahn, director general of Czechinvest, the government investment promotion agency, 'Mlada fronta Dnes' has reported. 
Thanks to this decision, Pardubice will acquire an investment of roughly 1.8bn korunas and almost 300 new jobs over the next few years.. 
The Japanese Toyoda company is the second investor that has decided to set up operations in the Pardubice industrial zone. It wants to manufacture gear systems and steering wheels there, with which it will supply, among others, the Toyota-PSA automobile plant under construction in Kolin. 

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Czechs to be able to draw floods aid from EU Solidarity Fund

The Czech Republic meets the conditions of the new EU Solidarity Fund for aid to member and candidate countries in which natural, technical or environmental disasters cause damage of at least 1bn euros (30bn Czech korunas) or 0.5 per cent of GDP, CTK News Agency has reported.
This basic criterion was approved by the European Commission on 18th September.

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LNM Holdings on final stretch to Nova hut buy

Nova hut (NH) CEO, Frantisek Chowaniec, has told journalists that Dutch group LNM Holdings will buy the Czech steelworks concern by the end of November or end-2002 at the latest, Bluebull reported recently. 
According to a purchase contract signed in June with the National Property Fund (FNM), LNM Holdings will gain 67.25% of NH shares for US$9m after meeting various conditions stipulated in the contract. These include a contract with the EU on a restructuring of the Czech steel sector, resolving issues regarding the Petrcile company and transfer of 18.25% of NH shares held by Credit Suisse First Boston to FNM, which condition Bluebull noted has already been met. Another condition was NH's purchase of 0.7% of Vysoke pece Ostrava VPO shares from Vitkovice; this has also recently been concluded.

Vitkovice Steel secures steel export agreement

Vitkovice Steel has won a 400m crown contract on steel exports for the construction industry, whereby the Ostrava steel company will, over the next year, supply rolled and calibrated steel for industrial construction works in a number of European countries. Vitkovice produces over 700,000 tonnes of heavy steel sheeting and 100,000 tonnes of heavy profile steel annually, New Europe reported recently.

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Ambitious Russian owner set to take charge of Czech telco group

Less than six months after its sale to bankrupt KPNQwest, alternative telco group KPNQwestGTS Central Europe is due to change hands again with Russian Antel Holdings a division of investment house, group Menatep, set to become the new owner, Prague Business Journal has reported.
GTS managing director, Milan Rusnak said that finalising the acquisition was imminent, but he couldn't disclose its exact value.
Antel won GTS in a tender when it offered €36.5m for KPNQwest/GTS assets in tehCzechRepublic, Slovakia, Poland, Hungary and Romania. However, the final price may be different, since Antel has reserved the right to modify it after a "full financial audit" of GDS Central Europe.
GTS is one of the largest alternative telcos in the Czech Republic with a turnover totalling Kc 12bn in the first half of this year, a 13.4 per cent increase year-on-year. And the new owner has ambitious plans for its development in what it predicts to be a fast consolidating local market. "Our goal remains unchanged - we want to be the largest alternative operative in the country," GTS' Rusnak said. However, the company will continue to concentrate on providing services to corporate customers and doesn't plan to offer retail services to households, he added. 
Antel owns five telcos in Russia and one in the US. "The purchase will expand the scope of Antel's operations, by giving it a strong entry point into Central Europe's most dynamic and developed telecommunications markets," said Antel director, Alexander Kabanovsky, adding that it is committed to "further developing and strengthening the market position of the KPNQwest Central Europe companies." 
Antel is a fully owned subsidiary of Gibraltar-based Group, Menatep, which also owns a majority share of one of the biggest oil companies in the world, Russia's Yukos.
Rusnak said GTS's owners could be willing to buy more assets in the country but didn't elaborate. He said GTS's long-term goal is to become a full-service telcom house, including mobile activities. "In the end there will be three to four operators in the Czech Republic that will do everything - fixed lines, Internet and mobiles," Rusnak said. "We want to be one of them." Rusnak added that he expects the consolidation process in Czech telecoms to continue and even speed up over the next year.

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