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WOOD FIRM KRONOSPAN BUCKING FOR SK6.5 MILLION IN TAX RELIEF PER JOB CREATED

Business says good riddance to latest FDI "blackmailer"

THE MEDIA uproar surrounding German car components producer Dräxl-maier, which unexpectedly dropped plans to build a Sk700 million plant and employ 1,200 people in impoverished Rimavská Sobota, had scarcely subsided when another prospective investor threatened to take its money to Poland instead of Slovakia if the state failed to come through with the lavish incentives package it was asking for.

THE MEDIA uproar surrounding German car components producer Dräxl-maier, which unexpectedly dropped plans to build a Sk700 million plant and employ 1,200 people in impoverished Rimavská Sobota, had scarcely subsided when another prospective investor threatened to take its money to Poland instead of Slovakia if the state failed to come through with the lavish incentives package it was asking for.

The Cyprus-based wood panel maker Kronospan said it would pour Sk12 billion into its existing facilities in Prešov and Zvolen, creating 550 new jobs in addition to the 500 employees it has already.

However, in return, Kronospan asked for Sk3.6 billion (€95.42 million) in state incentives, almost a third of the wood processor's total investment and double the ceiling that the government set for state aid. The company hopes to get the aid of corporate tax breaks over a 10-year period.

Local media reported that Kronospan said it would take its money to Poland and kill the existing 500 jobs in Slovakia if the government did not accept its demands.

The Slovak cabinet discussed the Kronospan proposal on May 24 and took it under advisement. However, such incentive packages are subject to approval from Brussels, which has the final word on whether investments are in line with European rules.

According 0to the Economy Ministry, the Kronospan subsidiary in Zvolen should get stimuli worth Sk2.2 billion while the Prešov daughter would acquire Sk1.4 billion.

While the Kronospan ultimatum drew criticism from the business community, the global wood processor said it was using standard tactics to get support from Slovakia.

"We are not blackmailing anyone. We did not come here to speculate but to do serious business," Dušan Šneider of Kronospan told the SME daily.

Kronospan also denied local media reports that it was considering switching to Poland, saying that if it carried out the planned investment in another country, the promised jobs would not be created, but the existing jobs in Prešov would be preserved.

However, the Klub 500, which associates companies with over 500 employees, said that the business community considered the Kronospan investment even more overpriced than that of the South-Korean Hankook tyre maker, which moved to Hungary after the Slovak cabinet turned down its incentive demands.

"I don't question the importance of investment stimuli, but asking for almost Sk6.5 million per job is not a correct request at all - it's blackmail on the part of Kronospan," Klub 500 Director Tibor Gregor told The Slovak Spectator.

"Given that the average wage in Slovakia's economy is Sk16,000 a month, the subsidies they are demanding would cover the wages of each job for almost 25 years. Why should the state pay for Kronospan's jobs for 25 years? With that kind of money the state could support a thousand people on Sk6,000 a month for 48 years," Gregor added.

According to Klub 500, under such conditions it might be better for Slovakia if companies like Kronospan just avoided the country.

The business group argued that Kronospan's planned investment would not bring with it a chain of suppliers in the way that auto factories do, and that it would tax an already undersupplied domestic pulp and paper industry.

"Kronospan is a wood processing firm using local wood and cheap labour. At the moment, the Lesy SR state forestry company is unable to secure enough wood in the long term for existing local paper mills and other processing companies," Gregor said.

The Economy Ministry claims that while the company pledged to create 360 jobs in Zvolen, indirectly it could lead to the creation of an additional 2-3,000 jobs.

While Prešov would see 190 new jobs as a result of the expansion in Kronospan's production, the ministry claims that "for each job directly created the investor assumes the creation of an additional six to eight new jobs".

Kronospan Slovakia is a subsidiary of the Kronospan Central European Group, which comprises five separate groups and is the biggest wood-based panel producer in Europe. The company has 10 panel mill sites in 8 countries.

The company said if it reached its targets in Slovakia, it would earn a profit exempt from corporate income tax for 10 years. However, if it failed to make a profit or if its profit were minimal, the incentives provided to the company in the form of tax relief could be considerably lower. The Kronospan case is reminiscent of that of Hankook, which opted for Hungary after the Slovak government backtracked on a promise by former Economy Minister Pavol Rusko to give it support amounting to 21.3 percent of its total investment. The maximum that the cabinet was willing to give was six percent of the total investment, or about Sk1 million (€25,700) per job created.

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