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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%

  

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: 074 - (19/06/03)

Relief in Brussels
The Slovaks have a shrewd operator in their premier, Mikulas Dzurinda, who won re-election for himself and his centre-right coalition government last year. He kept the prospect of Vladimir Meciar returning to power at bay, the previous ruler until 1998, an arch thug and autocrat.
The two organisations based in Brussels, NATO and the EU, were mightily relieved at Dzurinda's success. They would have opposed Slovakia's entry into either organisation if Meciar had won.

Dubious ways
But problems aplenty remain. It is far from clear that Slovakia is really ready to join the EU. Indeed, it is evident that in many ways it is not.
The country is infested with criminals. Its institutions are rooted in communist practices and networks of power. Corruption is rife. There is no proper judiciary above the fray. Privatisation is conducted in a shady fashion. Basically there is no rule of law in a Western sense.
Nevertheless, it is probably best for Slovakia to join the EU and be pulled up by its bootstraps, as it were. Serious security issues would arise if it were left out, bordering Poland, the Czech Republic and Hungary, three certain to join, Austria already in and also porous Ukraine. Interpol could not tolerate a Schengen border - one without checkpoints and controls - along this stretch of Central Europe. So Slovakia is to enter.

Meciar still a menace
Meciar may not have won the election, what with the West so clearly disapproving of him. But he has not gone away. His Movement for a Democratic Slovakia gets 15-20% of the vote, the highest score in a fractured field, and is strongly entrenched locally with 384 mayors.
Once in NATO and the EU, the population might feel like having him back, knowing that the country would scarcely be evicted if he returned in a democratic election. After all, he left in a democratic way in 1998, belying his image as a dictator. The possibility remains so long as the economy fares poorly, which is exactly what is happening. GDP growth of under 3% per year is leaving the general bulk of the population with around US$5,000 per capita income, scarcely enough to make ends meet. And they know that those in power are crooks. An incendiary situation.
Meciar has his murky side himself of course. The intelligence services were prone to Byzantine scandals in his day, involving the kidnapping of the president's son and the murder of an opponent. But he is a populist for all that, giving the right impression to the elderly and the rural voters. The beter-educated population of Bratislava despises him, naturally. But he has his supporters.
Robert Fico, leader of the left-wing opposition Smer Party, put it as follows: there has been progress in the international agenda for Slovakia, obviously, but little has changed in the domestic arena: "On corruption, social questions and the rule of law there is no difference. There are dozens of scandals, over share privatisation and government cronyism." The last point is crucial. There is little that even Dzurinda, doubtless an honest man himself, can do about it.
Slovakia used to be ruled by Vienna, then Budapest, then Moscow, then Prague. Soon it will be Brussels. That might erode the structures of government cronyism in time. Or not, as the case may be.

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AUTOMOBILES

Volkswagon Slovakia has vital impact on economy

In the 12 years that it has been operating in the Slovak Republic, Volkswagen Slovakia has produced one million cars, Interfax News Agency has reported. 
The Volkswagen Touareg was the one-millionth car that Volkswagen has produced. It was also Volkswagen's first off-road vehicle, which only the Bratislava plant produces. The Polo, Golf and Bora models are all produced by Bratislava workers. The production of the Ibiza has partly been moved to Slovakia from the Spanish automaker, Seat. Sales have increased 35% to 30.6bn Slovak crowns. It produced 46,406 vehicles, 84,781 gearboxes and 4.85m gearbox components. 
The operations of Volkswagen Slovakia, being the countries largest engineering concern, have had a significant effect on the country's economy. In the first quarter, the company's exports were worth to 30.5bn Slovak crowns, while imports stood at 19.5bn crowns.

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ENERGY

CEZ eyeing stake in Slovenske electrarne

CEZ, the number one Czech power group, will likely submit a bid for Slovakia's national power concern Slovenske elektratne (SE), CEZ chief executive, Jaroslav Mil, said, Interfax News agency reported. The Slovak government announced it would like to divest SE in two parts - the nuclear power plants and the rest - by December. The Czech company disclosed it is prepared to purchase 100% of SE. According to CEZ, the idea of buying SE has "some political support" with the Slovak cabinet. The Czech power company failed to secure bids in other Slovak regional power distributors in the past. CEZ exports about 33% of the power it generates. It said it has no plans to purchase SE to sell its own electricity in Slovakia. Mil was quoted as saying," CEZ is also watching for potential purchases in Hungary and Poland." 
SE announced a net profit of 168m Slovak crowns on sales worth 43bn crowns last year. The company generates more than 80% of the domestic market's electricity and has a 10,000 strong staff. Interfax reported restructuring in advance of privatisation has resulted in the company being split into three entities: a transmission network, a heat production firm, and an electricity producer. Slovakia is giving up a 49% stake in SE.

Government approves EBRD purchase

The Slovak government approved the purchase of a 10% share in Zapadoslovenska energetika from German company E.ON by the European Bank for Reconstruction and Development (EBRD).
The EBRD will pay €60m for the shares.
As the majority shareholder, the government's approval was necessary for the transfer from E.ON's 49% share in the company.

More efficient power an unrealised possibility

High initial costs and a lack of long-term investment mechanisms have prevented energy-efficient combined heat and power (CHP) technology from being used to its full potential in Slovakia, industry insiders say, reports The Slovak Spectator.
In a standard condensing power station, electricity is produced with a maximum of 34% efficiency; the rest of the energy is wasted. With CHP, also known as cogeneration, the heat is used to produce either super-heated steam or hot water, which can then be used for industrial processes or for domestic heating and hot water. The steam can also be used to drive additional turbines to produce more electricity.
By applying modern technology to common heat and power production, CHP can reach efficiency levels of nearly 90%, bringing clear benefits to the environment because of reduced emissions of carbon dioxide and other greenhouse gasses.
International concerns about nuclear-power generation and the pending decommissioning of the Bohunice nuclear power plant - one of two in the country - have created a need for Slovakia to find ways of reducing its dependence on fossil fuels, mainly in the form of gas piped in from Russia.
A World Bank report released in 2001 describes the Slovak Energy Sector as facing "numerous critical questions involving the appropriate future role of nuclear power and the political possibility of moving prices for electricity and gas toward full marginal cost."
At present, energy use in Slovakia is widely inefficient, mainly due to historical factors. During the communist period, the price of energy was artificially low and energy efficiency in housing construction and manufacturing was not a major concern.
While modern housing in Slovakia is more energy efficient, most of the country's houses and blocks of flats are more than 40 years old. Some government grants have been made available to improve insulation, but energy experts say Slovakia must seek more efficient use of its energy output. CHP can provide at least part of the solution to the problem, experts say. However, there is a drawback to the technology: the start-up costs for projects are higher so the payback time is longer.
Also, because of the long-term nature of the investment, it is essential to ensure that there are future markets for the heat and electricity produced. As market conditions change, blocks of flats that have contracted for hot water from a local heat and power plant may find it more cost-effective to invest in local boilers.
Experts say it is therefore extremely important to carry out comprehensive market research, and to size resulting projects accordingly. "The main financial risk of projects in the operating phase is the decrease of usable cashflow under the planned volume, either due to an increase in fuel prices on the input side or due to unrealistic sales assessments, disconnecting of the customers, their inability or refusal to pay, inadequate price regulation, or opening of the electricity market on the output side," said Vladimir Vacho of Prva Komunalna Banka.
A large CHP plant can cost hundreds of millions of euro, but current regulated heat and power prices do not allow enough room for manoeuvre when setting up investment projects, according to industry professionals. For example heat producers are restricted to profits of Sk25 per gigajoule (€0.65 per Gj) of heat, decreasing the economic potential of such projects and limiting the interest of foreign investors. The cost effectiveness of CHP plants depends very much on local conditions, and it is therefore extremely important to make sure that there are good contracts in place with local heat and electricity customers.
Gas company, Slovensky-plynarensky priemysel (SPP), reports that "the use of the cogeneration unit solely for the production of heat is not cost-efficient but under certain circumstances, when combined with electricity production, it can be very lucrative."
An alternative to building large CHP plants is to build smaller ones or refurbish existing heating or power stations aimed at eh precise needs of local communities. One such project designed and managed by Energoprojekt Slovakia came online last year in southern Slovakia's Nove Zamky, and is currently the country's largest CHP plant with gas-fuelled piston engines.
CHP units were installed in the existing heating plant, providing 4.7 megawatts of electricity and 4.7 megawatts of heating power. Most of the electrical power is delivered to the national grid, while the heat produced in the plant provides hot water for local residents and businesses. The total cost of the project was just Sk130m (€3.2m), with an expected return on investment within eight years, Energoprojekt officials say.
But even this smaller project was only possible because 40% of its funding came from the EU PHARE fund. Insiders say there is much the government could do to encourage these more energy efficient and environmentally friendly power stations.
The government could increase the use of such power stations by guaranteeing loans, attracting foreign investors, or by changing the rules limiting profit in the electricity and heating sector. Such ministerial help was instrumental last year in gaining international funding for the development of a biomass cogeneration plant near the central Slovak town Banska Bystrica last year.
Another alternative would be for the government to change legislation concerning the way profit is calculated for energy companies.
"The legislation concerning the fixing of the price of heating is based on the principle of due costs and adequate profit. This principle is considered to be out of date and, in addition, it does not motivate the heat producer to make any effort for cost savings. In fact it works the opposite way: In order to achieve a higher profit, as much cost as possible needs to be shown," said Vojtech Cervenka of energy company Dalika.

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EU ACCESSION

Slovakia welcomes EU membership with thumping referendum results

Voters in Slovakia's two-day referendum approved EU membership by 92.46 per cent, Slovak parliamentary Speaker, Pavol Hrusovsky said recently, reports New Europe. The referendum succeeded in securing the 50 per cent plus voter turnout needed for validity, with 52.15 per cent of the country's 4.2m eligible voters participating, Hrusovsky reported.
Speaking earlier in Bratislava's central square, Slovak prime Minister, Mikulas Dzurinda was ecstatic. "For the first time in the history of the Slovak Republic, a referendum is valid," he said. "An overwhelming majority has spoken for entry into the European Union. The people have understood that the referendum wasn't about political parties but about the future of our country," Dzurinda said.
Earlier the European Union ambassador to Slovakia confirmed the referendum's validity. "Everybody's extremely happy that the participation rate was higher than 50 per cent," Eric Van der Linden told Deutsche Presse-Agentur.
Under Slovak law, at least 50 per cent of voters must cast ballots for a referendum to succeed. The EU referendum was the first with a turnout greater than 50 per cent in the history of the 10-year-old country of 5.2m, which was created by the 1993 split of Czechoslovakia.
Van der Linden said the referendum passed because "Slovaks really think their place is in the European Union, and they expect an improvement in their standard of living." Slovakia can expect €1.5bn in EU funds over the first three years of its membership in what is expected to be a 25-nation bloc, Van der Linden said. He added that Slovakia had fulfilled all EU membership requirements but was still working to improve "administrative capacity" to a level that satisfies Brussels.
The European Commission issued a statement from Brussels congratulating Slovakia on the vote, which it called evidence of the "overwhelming support" for EU membership in the country.
"This demonstrates the strong will of the Slovakian people to join the European family of democratic nations," it said, adding that EU membership will strengthen Slovakia's political and legal stability and encourage its economic development.
Although polls conducted before the election began indicated widespread support for EU membership, questions were raised over whether at least half the country's 4.1m registered voters would cast ballots. Some opposition leaders had urged voters to stay away from the polls as a protest against Dzurinda's coalition government.
Earlier, EU referenda were approved by voters in Hungary, Slovenia, Malta and Lithuania. The Czech Republic and Poland hold elections in June, while Estonia and Latvia scheduled theirs for September, Cyprus is not planning a referendum.

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FINANCIAL NEWS

Crown strengthens on positive trade data

Better than expected foreign trade figures for March nudged the Slovak crown to record-breaking levels, and analysts expect both the trade balance and the currency to continue to strengthen in the future.
The National Bank of Slovakia (NBS) spent about €250m in three intervention waves on May 5th to ease the crown from it strongest-ever value of 40.75 crowns to the euro, the TSAR News Agency reported. It was the first intervention of the year.
Slovakia's currency also performed well against the US dollar, on April 30th firming to 36.78 to the dollar, its strongest value against that currency since January 1999 and it further strengthened over the following days.
"After the central bank left interest-rate levels unchanged and the positive foreign trade results for March, I expect strong interest in the Slovak currency," Juraj Zabada, a trader with Slovenska sporitelna, told the SITA News Agency.
Numbers released by the Statistics Office on April 30th show that the trade deficit for March, at Sk3.6bn (€87m) was 51.6% lower than for March 2002.
Exports rose by 24.4% on the year to Sk63.3bn (€1.5bn), and imports by 14.8% to Sk66.8bn (€1.6bn). The first quarter cumulative deficit of Sk7bn (€171m) represented a fall of 64.1% year-on-year. Exports for the first three months of 2003 rose by 22.1% to Sk175.4bn (€4.3bn) and imports by 11.8% to Sk182.3bn (€4.4bn). Analysts say the solid export growth can be attributed largely to the activities of western investors.
"Growth in exports can be explained by the fact that in the last two to three years, foreign companies such as US Steel, Volkswagen, Sony and others have invested in Slovakia to increase the volume of production in existing factories," said Jan Toth, chief analyst with ING Bank in Slovakia.
In addition, say analysts, Slovakia is protected against the impact of global economic stagnation by low costs, especially the low price of labour.
"When a parent company has several subsidiaries, it tends to reduce production in places where costs are higher. For example, if Volkswagen manages to sell fewer cars, it needs to reduce production. It will naturally do so in countries where costs are seven or eight times higher than in Slovakia, so this will most likely be one of the last countries where (VW) will cut production," said Toth.

Foreign investment breaks all records

Foreign investment in Slovakia reached Sk182bn (€4.4bn) in 2002, almost double the previous record set in 2000. Sk152bn (€3.7bn) was gained through privatisation, according o the National Bank of Slovakia, The Slovak Spectator reported.
Economic analyst, Marek Jakoby, from MESA 10 said: "For economic growth and the reduction of unemployment, it will be important to increase the share of non-privatisation investment."
Non-privatisation investment rose by 13% over 2001 figures.

S&P upgrades EuroTel Bratislava credit rating

International ratings agency Standard & Poor's (S&P) upgraded its long-term corporate credit rating on the Slovakia-based mobile operator EuroTel Bratislava to BB-form B+, Interfax News Agency reported. The ratings rise reflects better operational and financial performance figures at the company. S&P also upped its senior unsecured debt rating on guaranteed related entity Slovak Wireless Finance to BB- from B+. The outlook is positive. 
"The upgrade reflects EuroTel's continued solid operational performance, improvement in its credit metrics, and the expectation that the company will generate positive free operating cash flow from 2003," S&P credit analyst, Michael O'Brien was quoted as saying. "Furthermore, EuroTel has been successful in protecting its relatively strong market position and 42.6 per cent subscriber market share in the two-player Slovak mobile telecoms market." In a statement, S&P said the upgrade is also supported by the effects of improvements in the Slovak Republic economy (local currency A-/stable/A-2; foreign currency BBB/positive/A-3), the higher purchasing power of Slovak consumers, and the effects of the stronger Slovak crown, which have enabled the company to pay less for equipment purchases, according to Interfax.

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TELECOMMUNICATIONS

Global giants battle for Slovak mobile market

Slovakia's dominant fixed-line provider Slovak-Telecom (ST) is under increasing pressure from mobile operators, and saw its customer base drop by 8% in 2002. It now has just 1.46m lines, less than mobile operator Orange and only marginally ahead of its rival Eurotel, the Slovak Spectator reported.
The rivalry within the mobile sector is just part of an ongoing global battle between two of Europe's telecommunication giants: France Telecom and Deutsche Telekom.
Orange Slovakia is part of France Telecom, which took a controlling stake in the company under its former name Global in February 2002. It was rebranded as Orange at the end of March 2002, several months after France Telecom bought a controlling stake in the Orange group, now the world's second-largest mobile-operator group with more than 44 million customers worldwide.
Eurotel is 51% owned by ST itself, whose majority shareholder is Deutsche Telekom. The other 49% of the company is owned by an American consortium of Verizon Communications and AT&T Wireless Services. Deutsche Telekom is Europe's largest communications company, and holds a large share of the European and US mobile markets through its T-Mobile subsidiary.
Both of the European parent companies suffered heavy losses in 2002, with Deutsche Telekom recording Europe's biggest-ever corporate loss of €24bn, despite seeing its revenue increase by almost 15%, 30% of which comes form its mobile operations. France Telecom has fared no better, notching up a net loss of €20.7bn.
However the mobile-communications companies they own in Slovakia both scored record gains. Orange recorded gross EBITDA profits of Sk5.5bn (€130m) and Eurotel saw its own gross profits jump 21% to Sk3.2bn (€76m) in 2002.
Orange claims it now has more than 62.2% of the Slovak mobile-communications market. It has consistently dominated the mobile-communications market in Slovakia since the end of its first year of operation, overtaking rival Eurotel in December 1997, when the company claimed 112,000 customers to Eurotel's 110,000.
Since then, the gap has widened, and last year Orange claimed a customer base of over 1.7m, a 42% year-on-year rise. Rival Eurotel saw its numbers rise by 27% to 1.3m. Eurotel has claimed that the main reason for its slip behind Orange was its focus on yearly profits rather than on building its client base.
While mobile phones have fast become a part of everyday life in Slovakia, the market did not really take off until 1997 with the introduction of second-generation GSM networks. Since then, Slovaks have taken advantage of the falling prices and ever increasing capabilities modern mobile telephones offer.
The first mobile phone, about half the size and weight of a hardback dictionary, hit the market 20 years ago for around US$4,000 (€3,760). In contrast, the mobile phones of today are more powerful than the business computers of that time, and are capable of taking pictures and surfing the Internet even though they can weigh in at just 100 grams. These phones are offered in Slovakia for less than Sk3,000 (€72) when tied with a provider's contract.
Slovak customers have been eager to try out the new mobile phone services on offer. On Christmas Day 2002 Slovak mobile users sent more then 20 million SMS text messages, and when Orange introduced its multimedia messaging service (MMS) in February, more than 140,000 picture messages were sent in the first three weeks alone.
This eagerness has led to a high penetration in the Slovak market. According to Eurotel, 56% of Slovaks now have mobile phones, which is well above the global average of 20% and only marginally less than the European average of 61%.
However, growth in the market has also led to changes in where and when people are allowed to use their mobile phones.
Most buses, banks, hospitals and shops have banned mobile phone use, although these bans are not widely enforced. The same is true of a ban on using handheld mobile phones when driving, which has been in effect since 1997.
For several years, mobile phones have been especially popular among secondary school students, leading some schools to ban or restrict their use. Now even some primary schools have imposed limits on phones.
Karol Muller, head of a Bratislava primary school, told the daily SME that last autumn children's excessive use of phones forced him to act. "It was unbearable. Pupils were sending SMSs to each other when sitting in the same classroom, so we had to ban mobiles," Muller said

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