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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: 086 - (30/06/04)
Premier resigns: new government required
Vladimir Spidla, the Czech premier, has stepped down as party chief after losing the support of his Social Democrat party (CSSD) and is to resign the premiership. He decided to do so on June 23rd, announcing the decision to his cabinet. Early elections could follow.
The CSSD won only two of 24 available seats for the European Parliament. The party received a serious setback, scoring only 8.8 percent (2 seats) which put them in fifth place behind two main opposition parties - the Civic Democratic Party (9 seats) and the Communists (6 seats), a non-parliamentary Party of Independent Candidates (3 seats) and the other minor coalition party - Christian democrats (2 seats).
At a subsequent Social Democrat central committee meeting, 103 of the 180 delegates expressed no confidence in him, just short of the majority needed to remove him.Spidla's resignation from the two posts as party leader and as prime minister will automatically bring down the three-party coalition government. President Vaclav Klaus, who returned from abroad at once, will nominate a successor to try to form a new administration.
EU Constitution at issue
Klaus is not at all unhappy to see the back of his premier. Spidla faced criticism for signing up to the newly agreed European Constitution, not least from the president. The Civic Democrats (ODS), of which Klaus is the former leader, believe the Treaty will damage the Czech Republic's position in the EU and is unfortunate.
According to Klaus, the outcome of the EU elections gave a clear signal that the mandate of the government had been weakened. "The future of European integration is too serious a thing for it to be decided at emotional evening negotiations only to allow some politicians to write 'fulfilled' in their calendar", Mr Klaus is quoted as saying by the Czech press agency (CTK).
Instead, the well-known Eurosceptic thinks it would have been much more appropriate to once again consider the future of the EU and have a broader public debate about it.
Former train driver the likely successor
The trenchantly right-wing president is expected to nominate Stanislav Gross, 34, the interior minister who was chosen as the Social Democrat's interim leader on June 26th. Gross, a popular former train driver is certain to try to persuade the Christian Democrats to stay in the cabinet. But they will be wary if the government continues to depend on the opposition communists for passing legislation, a vexed issue for the previous coalition government.
Without at least tacit Christian Democrat support it would be very difficult for Gross to form even a minority government. "I will be seeking to proceed towards forming a government which will not rely on the support of the Communist Party," Gross said.
If Gross succeeds in forming a minority government, it would be unlikely to be able or willing to pursue the welfare state and public finance reforms needed to slash budget deficit, the worst in the European Union. Gross will instead be most likely to focus on uniting the party. Spidla was persuaded to begin spending cuts and tax rises partly under pressure from his coalition partners, but it cost him much support in his own party. His government only very narrowly survived a series of no confidence motions in parliament. Its demise, therefore, is no surprise
The economy is turning in a solid, if not spectacular, performance. GDP is expected to grow by 3.1% in 2005, after being 2.8% in 2004.
Inflation is due to fall to 2.8% in 2005, against 3.1% this year. The double-digit inflation of the 1990s is safely behind it.
But these modest achievements mean little to the more than 20% of the population out of work. There is a running external trade deficit at just over 6% of GDP. And then there is the huge government budget deficit.
But wages are rising by around 6% per year, a solid performance for the 90% in work. An external deficit is normal for a transition economy, which can easily finance it by credit and inward FDI, huge in the Czech case at over $20bn and growing. The deep unpopularity of the government was mainly due to political, not economic, factors.
Czechs launch maiden sovereign issue
The Czech Republic will launch its maiden sovereign international bond, reflecting both the persisting interest in eurozone convergence plays and the Czech government's serious fiscal problems, The Financial Times reported on June 11th.
The €1bn 10 year issue, which had a roadshow in London, is set to achieve the tightest spreads of any of the 10 new members that joined the European Union in May.
This is partly because it is the Czech government's first international issue and partly because of the country's high credit rating, built on its relatively low level of government debt.
According to Ralph Berlowitz, head of sovereign syndicate at Deutsche Bank (which along with Morgan Stanley is lead managing the issue), spreads will be around 12 to 14 basis points over mid-market swaps or in the low to mid-twenties over the equivalent Bund issue.
More lowly rated Slovakia achieved 18 basis points over swaps, or 33.5 points over Bunds, in May with a €1bn issue. This Slovak bond is currently trading at about 25 basis points over Bunds, similar to Hungarian issues, while Polish equivalents trade at about 46.
Most of the convergence with EU yields has already occurred, but the spreads of these new EU members are expected to narrow further before the countries adopt the euro at the end of the decade.
"There is, to a certain extent, still a convergence story in the market," Berlowitz said.
This convergence story has been even more pronounced in the domestic bond markets, though there has been some falling back as it has become clear that the new member states will take longer than anticipated to adopt the euro.
Hungary and Poland, which had ambitious plans to enter the eurozone as soon as possible after 2006, are now setting a target of the end of the decade.
Both are having difficulties reducing their government budget deficits to the below 3% of gross domestic product required to adopt the euro, and have been punished by the markets.
Construction output grows
Czech construction output grew by a record 21.4% year-on-year in March 2004, according to figures released by the Czech Statistical Office (CSU). In month-on-month comparison, it was up 2.8% from February 2004, New Europe reported recently.
The figure was significantly influenced by expected changes to the value added tax (VAT). Higher activity on the Czech construction market was caused by the government's decision to move construction work to the basic 19% VAT rate as of May 1st. Construction firms rushed to complete orders at the lower, 5% rate, the CSU said. Czech construction output has been rising for the past 10 months.
Polish oil concern buys 63-per-cent stake in Czech Unipetrol
Polish Oil Concern PKN Orlen on June 4th reached an agreement with the National Asset Fund of the Czech Republic on the purchase of 62.99 per cent of shares in Unipetrol a.s. Holding for 11.3bn Czech crowns, PAP News Agency reported.
PKN Orlen pledged to pay 1.7bn Czech crowns for liabilities belonging to Unipetrol Group. The nominal value of liabilities totalled 3.1bn crowns (9.5m euros and US$4.9m).
Orlen also reached an agreement on buying 745,000 shares in Unipetrol subsidiary Spolana a.s. for 1m Czech crowns. Each share was worth 655 crowns and the total amount of sold shares accounted for 9.76 per cent of the founding capital.
PKN Orlen said that following the purchase of 62.99 per cent of shares in Unipetrol it would issue a call for the sale of minority share rights in Unipetrol a.s. and its subsidiaries Spolana a.s i Paramo a.s., as is required by the Czech law.
The conclusion of the transactions is envisaged before the end of the third quarter of 2004 after gaining all required licences.
Unipetrol consolidated profit shrinks in Q1
The Czech petrochemical giant Unipetrol showed a consolidated profit of 304m Czech crowns in the first quarter of this year, the firm's spokesman, Tomas Zikmund, said recently, Interfax News Agency reported.
In the same period of 2003, Unipetrol showed a profit of 438m crowns.
The results are not fully comparable because the Ceska rafinerska (CeRa) refinery, where Unipetrol holds a 51% stake, has been operating as a processing refinery for its owners for a fee since August 2003.
Unipetrol's consolidated sales amounted to 17.3bn crowns in January-March 2004, and were slightly higher in year-on-year comparison. The holding's total assets fell to 69.3bn crowns in March 2004 from 70.4bn crowns one year ago. Capital remained unchanged at 19.1bn crowns.
CeRa netted 27.5m crowns on revenues of 2.1bn crowns in the first quarter 2004. The firm refined 1.4m tonnes of oil in the monitored period. Pharmaceutical maker Spolana showed a net profit of 23.3m crowns in the first quarter, up from a loss of 124m crowns in the same period of 2003. Petrochemical firm Chemopetrol netted 215m crowns, an improvement from a loss of 96m crowns in the first quarter of 2003. Chemopetrol's revenues were up 8% year-on-year to 5.6bn crowns in the first quarter of 2004, thanks to high margins.
Rubber maker Kaucuk Kralupy netted 56m crowns over January-March, down from 87m crowns in the first quarter of 2003. The firm's revenues increased by 6.5% year-on-year to 2.3bn crowns. Fuel retailer Benzina showed a loss of 94m crowns on revenues of 3.64bn crowns in the first quarter of 2004.
The firm's revenues grew 12% year-on-year. The Pardubice-based oil refinery Paramo netted 2.7m crowns this year, up from a loss of 77m crowns in the first quarter 2003. Revenues hit 1.1bn crowns in the monitored period.
The Unipetrol group consists of the wholly owned subsidiaries Chemopetrol, Kaucuk, and Benzina and the majority-owned subsidiaries CeRa (51%), Paramo (74%) and Spolana (80%).
SPP Bohenia doubles net profit
East Bohemian gas and oil group SPP Bohemia showed a net profit of 809.4m crowns in 2003 in Czech accounting standards (CAS), more than double its 2002 result, according to figures released by the firm recently, New Europe reported. SPP's gross profit soared by over 80% year-on-year to 2.05bn crowns last year, while revenues were up 900m crowns year-on-year to 4.7bn crowns.
The firm attributes the positive results in part to the rising price of oil on world markets. The parent company SPP Bohemia and the oil extraction unit Moravske naftove doly (MND) made the greatest contributions to the results, according to the group's CEO Karel Domarek. SPP Bohemia operates in the natural gas trade and also operates an underground natural gas storage tank. MND is engaged in oil and natural gas exploration and extraction.
Czech republic gets 678m Euro for rural development
The STAR Committee (Agriculture Structures Committee) recently gave its favourable opinion to the Czech Horizontal Rural Development Plan (HRDP), which will be co-financed by the "European Agriculture Guarantee and Guidance fund" (EAGGF) Guarantee section, reports New Europe.
EAGGF will contribute a total amount of 542.8m Euro during the period 2004-2006, which will be complemented with national public funding of 135.7m Euro, the Commission said in a statement. In the Czech Republic there is a tradition of farming and a traditional symbiosis between farming and forestry, it added.
There are also considerable areas of valuable habitats, in particular numerous areas of permanent grasslands, it noted. "It is good to see that we are on target for a rapid implementation of this rural development plan," Agriculture, Rural Development and fisheries Commissioner, Franz Fischler, said.
"This sends a positive signal to the population of the rural areas of the Czech Republic that we are committed to help them in their ambition to have a more competitive and sustainable agriculture sector, to improve incomes and create new job opportunities," he added.
Czechs face industrial boom
Czech industrial output increased 15.3% year-on-year in March, after growth of 7.1% one month earlier, the Czech Statistical Office (CSU) reported recently. Industrial output was up for the 19th consecutive month, New Europe reported.
February's growth was the strongest since July 1996. Adjusted for the number of working days - there were two more working days in March 2004 that in March 2003 - industrial output added 10.8%.
Sales in industry rose by 15.7% year-on-year or 11.0% when adjusted for the number of working days. The growth was fuelled mainly by firms manufacturing electrical and optical equipment (+37%), metal products (+21%) and rubber and plastic products (19%).
"Industrial output data are strongly positive for the market since they confirm the competitiveness of the Czech economy and a potential for a further trade balance improvement," said Helena Horska of Ceska sporitelna. Direct export sales of industrial enterprises rose 22% year-on-year and their share in total sales of industrial enterprises stood at 50%. Industrial foreign-controlled enterprises raised their sales by 20% and their share in total sales stood at 54%. Direct export sales of these enterprises increased by 24% year-on-year.
The number of employees in industry fell in March by 1.5% (17,500) year-on-year. The biggest declines were seen by textile and leather products manufacturers.
The average nominal monthly wage in the sector amounted to 16,939 Czech crowns in March 2003, an 11% increase year-on-year. Labour productivity measured as sales per employee was up 17.5% and unit wage costs were down 6%. The volume of new orders signed by industrial firms reached 119bn crowns in March, of which orders from abroad amounted to 79bn crowns, according to the
MINERALS & METALS
Russia's Severstal voices interest in Vitkovice Steel
Severstal, Russia's second largest steelmaker, has declared its interest in the Czech State-owned steelworks Vitkovice Steel (VS), the Czech daily Hospodarske noviny (HN) reported recently.
Severstal expressed its interest in partnering with VS through material submitted to Czech Prime Minister, Vladimir Spidla, by the US investment bank Citigroup, which is advising Severstal. The material passed by Citigroup to Spidla says that Severstal envisions an ideal partnership with VS, thanks to its extensive managerial and technical experience, its strong position as an integrated steelmaker, and its direct access to key suppliers of raw materials in Russia.
Deputy Trade and Industry Minister, Vaclav Srba, said the privatisation of VS remains in the preparatory stages and can only be formally launched after the government successfully resolves problems involving pig iron prices.
JIRI Stanek, director general of the state-owned firm Osinek, which controls VS, declined to speculate about potential investors interested in VS.
HN says the sale of VS could be complicated by its dependence on supplies of pig iron from Vysoke pece Ostrava (VPO). A dispute between VS and VPO on payments for supplies of pig iron for 2003 has not been resolved yet.
Severstal Group Vice President, Michail Gordejenko, told HN the firm is aware of VS's problems with pig iron supplies. He refused to specify, however, what activities Severstal would like to focus on in the future. He would only confirm that Severstal has been working on several variants of future developments at VS.
Severstal posted a net profit of US$19bn in 2003 on revenues from sales of products and services worth US$82bn. Severstal employs nearly 40,000 people.
Last year Severstal successfully completed its first US acquisition of the fifth largest US steelmaker, Rouge Steel. Vitkovice Steel, which has been controlled by Osinek since May 2002, expects a profit of 200m Czech crowns for 2003, up from 46.3m crowns in 2002.
Panasonic ups Plzen investment
Japan's Panasonic AVC Networks, which manufactures TV screens in the Czech Republic, will spend US$46m to expand its Czech operations, creating 550 jobs over the next five years, CzechInvest announced recently, New Europe reported.
The state agency encouraging FDI in the Czech Republic said Panasonic will build a new plant in Plzen for the production of plasma and liquid-crystal screen TVs. The government agency supports foreign direct investments, CzechInvest announced. To date, Panasonic, part of the multinational concern Matsushita Electric, has invested US$136m in production, research, and development in the Czech Republic. It now employs over 1,700 people. Panasonic AVC Networks Czech was established at the beginning of 1996. Matsushita Electric products are sold under the Panasonic, National, Technics, and Quasar brand names. The Plzen-based production plant exports 90% of its products, worth 1.3bn Czech crowns, to 30 countries.
T-Mobile's Q1 profit stays flat
T-Mobile, the Czech mobile operator, saw its net profit stagnate year-on-year at 1.04bn Czech crowns in the first quarter of 2004, the firm's spokesman, Martina Kemrova, said, Interfax News Agency reported.
T-Mobile's sales rose 8% year-on-year to 6.125bn crowns. Gross profit fell 2% year-on-year to 2.775bn crowns in the monitored period. All results are in accordance with German GAAP. T-Mobile's client base grew by 441,000 year-on-year (or 12.4%) to 3.991m at end March 2004. The firm added 43,000 new clients in the first quarter of 2004. The company said the volume of data transmitted increased by a factor of 50 in the monitored period. "At the same time, the number of customers using multimedia messages (MMS) is growing. The number of MMS sent is more than eleven times higher year-on-year," said T-Mobile's Marketing Director Jiri Dvorjancansky.
CSFB/CS to advise Telecom sale
Following a recommendation by the privatisation commission, the National Property Fund has approved the Credit Suisse First Boston/Ceska sporitelna (CFSB/CS) consortium as the state's advisor for the sale of its stake in dominant fixed-line operator Cesky Telecom (CT), FNM spokesperson, Petra Krainova, said, Interfax News Agency reported.
The Morgan Stanley/Patria Finance consortium finished second, followed by Wood&Company/Merrill Lynch consortium, the spokeswoman said. The adviser is charged with drafting the strategy, organisation, structure and timetable for the privatisation of the state's 51% stake in the firm, as well as the method of privatisation, which has to be recommended to the government by the middle of 2004, Krainova said. The adviser will be paid a fee ranging between 0.2 and 1.0% of the sales price. CT will be sold together with its wholly owned subsidiary Eurotel.
Telecom board proposes 17 crowns/share dividend
The Board of directors of the dominant Czech fixed-line operator Cesky Telecom (CT) has approved a proposal to pay a 17 Czech crowns per share dividend, CT spokesman Vlada Crha told Interfax recently. The proposal would see a total payout of 5.48bn crowns from the firm's retained earnings of 6.6bn crowns.
"The dividend proposal reflects the strong financial position of the company in terms of cash flow generation and sufficient disposable financial resources after meeting development investment needs and debt servicing," Crha said. The dividend proposal was submitted to the firm's supervisory board, which agreed to it, he added.
The dividend payment must still be approved at the company's annual general meeting (AGM). The proposed record date for the dividend is July 9th. The dividends should be paid out by end-October. "The 17 crowns per share could be considered as a positive surprise," said Libor Vinklat of Ceska sporitelna. "The proposed dividend reflects management's optimism regarding the future development of the company. Given the fact that the proposal was consulted and approved by the supervisory board, which includes representatives from the government, which is the major shareholder, we expect the company's proposal to be approved at the AGM," said Komercni banka analysts.
Last year, the firm approved a policy which set dividend payments at between 50% and 70% of the firm's consolidated net profit of the current year. However, the firm posted a loss of 1.78bn crowns, due mainly to a one-off impairment charge. "This loss did not impact the cash position of the company," Crha said. CT paid 57.5 crowns per share dividend (a total of 18bn crowns) last year. The state holds a 51% stake in CT. Last year, CT took control of 100% of Eurotel, the country's largest mobile carrier, which provides services to over 4m clients. CT shares added nearly 2% in reaction to the news of the proposed dividend.
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