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Water utility sales hit political sandbar

Representatives of the Slovak Association of Towns and Villages (ZMOS) have said the Agriculture Ministry is failing to carry out its duties in one of the government's key privatisations, that of water utility Vodárne a Kanalizácie (VaK), and that it is about to miss the first important deadline in the process.
A 45-day period which municipalities were given to present alternative proposals for the privatisation, which would see the transfer of VaK into the hands of individual towns and the formation of 14 separate companies run by municipalities, is to expire on March 3. The ZMOS says that the Agriculture Ministry has not yet told the towns that they can prepare these proposals.
The Agriculture Ministry's laggardly approach to the process so far has given rise to fears within the association that the VaK privatisation - which would lay the foundations for FDI in the sector - may be stalled on other key dates, and that it will not be finished before the next parliamentary elections in 2002.


Agriculture Minister Koncoš (right) wants to make very sure that municipalities behave responsibly in sales.
photo: TASR

Representatives of the Slovak Association of Towns and Villages (ZMOS) have said the Agriculture Ministry is failing to carry out its duties in one of the government's key privatisations, that of water utility Vodárne a Kanalizácie (VaK), and that it is about to miss the first important deadline in the process.

A 45-day period which municipalities were given to present alternative proposals for the privatisation, which would see the transfer of VaK into the hands of individual towns and the formation of 14 separate companies run by municipalities, is to expire on March 3. The ZMOS says that the Agriculture Ministry has not yet told the towns that they can prepare these proposals.

The Agriculture Ministry's laggardly approach to the process so far has given rise to fears within the association that the VaK privatisation - which would lay the foundations for FDI in the sector - may be stalled on other key dates, and that it will not be finished before the next parliamentary elections in 2002.

"A new government formed after the next elections could have a different approach to privatisation. Thus, it should be in the current government's interest not only to start but to finish this whole process," deputy chairwoman of ZMOS, Viera Krakovská, told The Slovak Spectator February 19.

A lack of information

Cabinet on January 17 approved a plan for VaK's privatisation that would see the transformation of the five state-owned companies which presently make up the utility into 14 joint-stock companies under the control of individual municipalities. Agriculture Minister Pavol Koncoš and Privatisation Minister Mária Machová were appointed to work with the FNM state privatisation agency to see the privatisation process through by June 30, 2002 at the latest.

The municipalities in theory should discuss and participate in the drafting of the plan for the transformation of the companies. However, they say that they have not been sufficiently informed of their right to do so.

"Property worth 35 billion crowns ($732.2 million) is going to be transformed, and it seems to be nobody's duty to inform those who will be affected," said Milan Muška, deputy chairman of the ZMOS and mayor of Vranov nad Topľou in eastern Slovakia. He added that while it had been the Agriculture Ministry's responsibility to do this, ZMOS had instead been forced to carry out the task.

"The information concerning the beginning of the transformation of the water utilities was not published officially, and municipalities were not addressed in any way," he said.

However, Agriculture Minister Pavol Koncoš rebuffed the claims that his ministry had been lax in fulfilment of its duties.

"It's not true. The government resolution approved binding deadlines for the Agriculture Ministry, Privatisation Ministry and the FNM, and we accepted the tasks concerning the transformation of VaK, as well as submitting a plan to the government with a valid resolution and [keeping to] valid deadlines," he said.

Spokesman for the Privatisation Ministry Robert Merva, though, has said that while the approved privatisation process clearly marked out deadlines for the Agriculture Ministry, and while the Privatisation Ministry would insist these deadlines be kept, delays in the process should be expected.

"It's a very complicated process and will take a very long time," he said, adding that the process of specifying which property belonged to each of the five companies before their transformation into joint-stock companies could create delays in the privatisation.

Agriculture Ministry fears

Koncoš has raised his own concerns over the transformation of the five state companies into the 14 joint-stock companies. He fears that the privatisation could give rise to a situation where the municipal governments, which would control the joint-stock companies, would then sell them on to foreign investors with only a sale price in mind, rather than the possible effects of a take-over by a non-domestic entity.

Last year, some foreign firms which had already expressed an interest in the utilities said that if they did enter the firms, it was likely that the cost of investing in infrastructure and bringing them up to western European standards would make for higher consumer prices.

Koncoš reiterated that concern on February 20: "There is no reason for us not to meet the [privatisation] deadlines, but we also expect correct behaviour from mayors [after privatisation]."

He said that the state was giving the municipalities the five companies without asking for financial recompense because it believed that the towns and villages would manage them better, and that they would assure water supplies for citizens at reasonable prices. Koncoš added that his ministry would be seeking to thwart any later plans by municipal leaders to sell shares in the utilities abroad, and would only allow the entry of a foreign investor into a company via an increase in basic capital.

Politics behind privatisation

The privatisation of VaK, if done on time, will be one of the last among the government's planned state sell-offs before the elections in 2002. One privatisation expert, who wished to remain anonymous, explained that the government's mixed approach to the VaK privatisation was tied to the results expected in the 2002 elections.

"Specifically, the party of current Privatisation Minister Machová [the Party of Civic Understanding - SOP] is not expected to be in the government after the next elections, and thus it wants to speed up the privatisation. But other parties, which feel assured of their seats in government, want to slow down the process," the analyst said.

Koncoš is a member of the Democratic Left Party (SDĽ), which commands 7% voter support and is expected to stay in parliament after 2002 elections. The SOP currently has 2%. A party needs 5% support to hold seats in parliament.

Key sale for FDI

The aim of the VaK privatisation, the government has said, is to improve the management of water utilities by putting them under the municipalities, and to attract the FDI needed to restructure the companies and bring their infrastructure up to European standards.

Deputy Prime Minister for Economy Ivan Mikloš said February 19 that Slovakia registered foreign direct investment (FDI) of around $1.5 billion last year, its highest yearly total ever. Over the last eight years, Slovakia has trailed the Czech Republic, Hungary and Poland in both total and per capita FDI, something Mikloš put down partly to the inexperienced privatisation programmes of previous governments.

"The reason why Slovakia was lagging behind its neighbours in FDI throughout the 1990s was not only a lack of greenfield projects, but also that these countries were better in selling their biggest companies and utilities," Mikloš said.

The Privatisation Ministry has also stressed the importance of the sale of VaK for attracting foreign direct investment. Merva said his ministry was keen to see the sale concluded as soon as possible. "The sooner the water utilities are privatised, the sooner the space for restructuring and the entry of a foreign investor will be created," the ministry spokesman said.

ZMOS's Krakovská added that Slovakia was lagging behind its regional neighbours in utility privatisation, and that Hungary, Poland and the Czech Republic had dealt with transforming or privatising water utilities a long time ago. "This is one of the areas in which we are behind our neighbouring countries," she said.

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