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RAIL CHIEF INSISTS HE DID NOTHING WRONG

ŽSR head under threat of recall over promissory notes

Transport Minister Jozef Macejko said May 14 he will call for the dismissal of Andrej Egyed, the head of state railway firm ŽSR, if it is proved Egyed went against a ministry directive and was involved in what one analyst described as "Slovakia's national sport" of signing promissory notes on state-owned companies.
Egyed has confirmed to local media that at the end of last November he signed promissory notes [corporate 'IOUs' that are commonly used forms of payment, and can be transferred from one holder to another without the approval of the issuer] worth 29 billion crowns ($600 million). The firm's total assets in 1999 were 73.8 billion crowns, making it Slovakia's third largest company.
However, the rail boss' failure to inform either the Transport Ministry or the ŽSR board of control, a controlling body of six experts and three ŽSR-appointed employees that effectively governs the company, has angered the minister.


Tracking down the truth. Head of the state railway firm Andrej Egyed says the promissory notes he signed for $600 million were safe at all times.
photo: Ján Svrček

Transport Minister Jozef Macejko said May 14 he will call for the dismissal of Andrej Egyed, the head of state railway firm ŽSR, if it is proved Egyed went against a ministry directive and was involved in what one analyst described as "Slovakia's national sport" of signing promissory notes on state-owned companies.

Egyed has confirmed to local media that at the end of last November he signed promissory notes [corporate 'IOUs' that are commonly used forms of payment, and can be transferred from one holder to another without the approval of the issuer] worth 29 billion crowns ($600 million). The firm's total assets in 1999 were 73.8 billion crowns, making it Slovakia's third largest company.

However, the rail boss' failure to inform either the Transport Ministry or the ŽSR board of control, a controlling body of six experts and three ŽSR-appointed employees that effectively governs the company, has angered the minister.

Macejko has said that as head of ŽSR Egyed was not allowed to sign any promissory notes without the consent of the Transport Minister or the board of control.

In their defence, Egyed and ŽSR management claim that the notes were never made available for use, and were only signed as a preparatory move in collateral for a future loan with a foreign bank, and stored safely in an account at Poštová banka until they were destroyed in March this year.

This, Egyed says, means that he was never obliged to inform the minister of the signings.

But Macejko has rejected the claim. "If Egyed did sign the notes against the advice of the central bank and the Finance Ministry and my recommendation, and without the agreement of the board of control, I will ask the board to recall him," the minister said.

Last year the ministry and ŽSR considered using promissory notes during the transformation of the debt-ridden company prior to planned privatisation in either 2004 or 2005. It decided against the measure, reasoning that the risk of laying ŽSR open to later financial and legal problems through possible abuse of the notes was too strong.

Possible threats

The notes signed by Egyed were allegedly mediated by Bratislava firm IHAK-R, run by the brothers Pavol and Peter Reich. However, the firm has no phone number, and the address listed in the Slovak business register shows no evidence of the company's seat, fuelling speculation over the credibility of Egyed's claims that the notes were dealt with securely at all times.

"Signing dubious promissory notes seems to be a national sport in Slovakia," said Marek Jakoby, analyst at the Bratislava-based economic think-tank MESA 10. "I used to think that Mr Egyed was one of the better and more honest managers in Slovakia, and now there's all this," he added.

"People in Slovakia have realised that there is big business in [abusing] promissory notes, especially after what happened with [former Economy Minister and head of gas utility SPP Ján] Ducký," he said, commenting on the possible role of IHAK in the transaction.

Gunned down in early 1999 by unknown assailant(s), Ducký allegedly signed as many as 36 promissory notes, many of them blank, before being removed from his post after elections in September 1998.

Some firms have since come forward to claim amounts as high as $350 million from SPP. Present management at SPP says that the notes were fraudulently issued, and has refused to honour claims against them.

Slovak legislation on the use of promissory notes is covered by the 1950 Law on Bills of Exchange, which gives little protection for firms against disputed notes.

"Until this law is amended it is going to be very difficult to fight against people abusing signed notes for their own gain. We should have it changed," argued Jakoby.

A political battle ahead?

Beyond the problems involved with the issuance of the ŽSR promissory notes, the Transport Minister may face a political struggle if he does eventually press for Egyed's recall.

Macejko will have first to consult the move with the ruling coalition Party of the Democratic Left (SDĽ), which nominated the ŽSR head.

Under a coalition agreement governing cooperation between the five government parties after the 1998 election, top positions at state firms were divvied up among the coalition partners.

Last March, the SDĽ started a bitter intra-coalition row after Economy Minister Ľubomír Harach tried to recall Štefan Košovan, its nominee as head of the power utility Slovenské elektrárne.

Košovan was eventually sacked, but the move led to four SDĽ members of parliament, including Speaker of Parliament Jozef Migaš, supporting an April 2000 no-confidence vote in PM Mikuláš Dzurinda.

It's unclear how the SDĽ would react to a proposed recall of Egyed, but the ŽSR head has the support of his company, and the board of control is reluctant to let the issue drag on.

"This is flogging a dead horse," said Dušan Pajdlhauser, head of the ŽSR board of control. "As soon as the risk of possible abuse became known, on the basis of expert advice the notes were destroyed."

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