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Crisis leaves buyers in privatization limbo

THE DOWNFALL of Slovakia's ruling coalition has left the fate of several privatization projects in limbo, spelling nervous times both for potential buyers and state sellers.
After being abandoned by his coalition partner, the Christian Democratic Movement (KDH), Prime Minister Mikuláš Dzurinda announced on February 7 that henceforth no privatization project would be discussed by the cabinet.

THE DOWNFALL of Slovakia's ruling coalition has left the fate of several privatization projects in limbo, spelling nervous times both for potential buyers and state sellers.

After being abandoned by his coalition partner, the Christian Democratic Movement (KDH), Prime Minister Mikuláš Dzurinda announced on February 7 that henceforth no privatization project would be discussed by the cabinet.

The ruling coalition had promised earlier this year not to approve privatization projects after March 31, a full five months before scheduled September elections.

Before the deadline it had still hoped to finalize the sales of Slovakia's railway freight transporter, Cargo Slovakia, of energy utility Slovenské elektrárne, and of further stakes in three energy distributors.

But these plans have been thrown into chaos by parliament's approval on February 9 of early elections in June.

Even before it was certain the government's term would be cut short, Economy Minister Jirko Malchárek said on February 7 that further state holdings in the energy distributors would not be sold, while the Cargo deal would be frozen.

Minister: Cargo sale must go on

Although the government entered the sale of the state's 100-percent stake in Cargo Slovakia with verve, it now appears that the privatization tracks may not be as straight as Transport Minister Pavol Prokopovič had hoped.

After an aborted meeting on February 7, the next day the tender commission recommended to the minister that Rail Cargo Austria and Slovakia's J&T Finance Group be proposed to cabinet as the "preferred bidder" in the Cargo Slovakia sale.

It is now unclear if or when the cabinet will approve the sale.

Three consortiums, each including a Slovak capital group - Penta, J&T and Slavia Capital - had submitted bids in the final round of the Cargo tender, allegedly ranging from Sk7.6 billion (€200million) to Sk16.7 billion (€440 million).

Besides the preferred bidder, other offers came from the Cargo Central Europe consortium, consisting of the Chicago-based investor Rail World Holding LLC, Penta Investments, and MID Europa Partners LLP, a venture capital fund with offices in London, Warsaw and Budapest; and Carpatian Cargo, uniting the MÁV Hungarian railways firm and the Slavia Capital group.

While the political opposition has already condemned the deal, the remains of the ruling coalition still plan to hold talks on the rail company's privatization.

Prokopovič has said several times that the Cargo sale must go on.

KDH might help Enel get its law

Even more vexing for the parties concerned is the laborious privatization of Slovenské elektrárne to Italy's Enel, where a law still has to be passed to allow the deal to go through. The uncertain situation in parliament could still cause headaches on this deal for the Dzurinda team.

For the Sk31 billion (€820 million) privatization project to be completed, the legislature must first pass an Act on the National Nuclear Fund, a condition Enel set for the deal. The law would guarantee the Italian investor that electricity consumers rather than Slovenské elektrárne itself would pay the at least Sk15 billion (€390 million) deficit in the fund that covers the liquidation of nuclear facilities and spent fuel.

The opposition social democratic Smer, a staunch opponent of any privatization, said it would not support the passage of the law, especially in the wake of the coalition's collapse.

"This is another opportunity to block the completion of the SE privatization. We will not support this bill, and we will do everything we can to stop the sale of the power producer," said Maroš Kondrót of Smer.

The opposition Movement for a Democratic Slovakia (HZDS) is not enthusiastic about the sale of Slovenské elektrárne to the Italians either, with the utility's former CEO, Tibor Mikuš, now a HZDS member, saying that blocking the sale could become a priority for the party.

Of all the opposition parties, only the KDH has said it will not try to block the privatization, which leaves a glimmer of hope that the law might be passed.

The Hungarian Coalition Party (SMK), currently Dzurinda's strongest coalition partner, has called for talks to be held with all parliamentary parties on which privatization projects need to be completed.

Tatjana Lesajová, the spokesperson of the National Property Fund (FNM), told The Slovak Spectator on February 7 that the privatization agency does not know the fate of many other privatization projects.

The FNM has already launched tenders to sell the state's remaining shares in central heating plants worth about Sk5 billion (€5 billion), as well as four SAD bus transport companies that could fetch about Sk300 million (€7.9 million).

"The FNM will just act in line with the cabinet's recommen-dations," Lesajová said.

"We are ready to sell additional shares in the power distributor companies Západo-slovenská energetika [ZSE], Stredoslovenská energetika [SSE] and Východoslovenská energetika [VSE], because these shares would go to companies that already own 49 percent stakes in these utilities. However, the cabinet still has to approve these sales," she explained.

Malchárek, however, said it would make little sense to sell additional stakes in SSE and VSE at this time, although he was more hopeful that the privatization of ZSE might be completed.

"I think the privatization of an additional stake in ZSE is sufficiently advanced that it might be completed if no complications arise. However, it all requires a wider political agreement," Malchárek told the SITA news wire.

Finance Minister Ivan Mikloš has said the situation requires a detailed analysis of what sales should be completed and what projects can wait for the next government to decide.

Another potential investor now probably biting its nails is the TwoOne consortium, which was approved by the cabinet in January as the winner of the tender for Slovakia's two largest airports in Bratislava and Košice. The government has not yet signed any contracts with the companies, although officials have listed the sale of the airports as among the deals that can be completed.

TwoOne is awaiting final word from the Antitrust Bureau, Slovakia's competition authority, which has 90 days to rule on whether the deal could harm competition in the region.

TwoOne has committed to pay Sk11.42 billion (€305 million) for a 66-percent stake in the facilities.

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