Slovalco Director Štefan Tesák (left) will continue to lead the firm after the EBRD and Norsk Hyrdo took a 66% stake March 30; above, Knut Preus of Norsk Hyrdo congratulates the experienced manager.
"Every foreign investor has to be convinced that the management team is working according to expectations. Slovak managers on the other hand have to be willing to absorb new management know-how."
Slovalco boss Štefan Tesák
It's all a long way from where he began with Slovalco's parent, central Slovak aluminum producer ZSNP, four decades ago. But as Tesák describes, Communism often afforded him glimpses of how market economies worked, while regular contacts with foreign firms kept his language and management skills on a par with those of his western colleagues.
Which is why, he argues, when Slovalco shareholders Norwegian Hydro Aluminum and the European Bank for Reconstruction and Development (EBRD) decided in March 2001 to up their stakes in the firm to 66%, they left Tesák in his position. He now has the task of translating a $75 million Citibank loan into a 50% hike in production by 2004.
The Slovak Spectator spoke to Tesák June 8.
The Slovak Spectator[TSS]: Slovalco shareholders decided to leave you at the helm of the company, rather than appoint a foreign boss, even though they now hold four out of five seats on the board. Why?
Štefan Tesák [ŠT]: I think the shareholders are very just, and that our cooperation has been very good.
Nevertheless, our foreign shareholders wrote into the company statutes that our financial director will be nominated by the EBRD, and our business director picked by Norsk Hydro, of course with the approval of ZSNP. Over the past four years we have had two Norwegians in the position of business director. But in the meantime, a Slovak emerged who I suggested to Norsk Hydro they make business manager. They did so, and he has been our business director for the last three years.
TSS: Is this practice of preferring local talent over foreign imports something you would recommend to other foreign investors?
ŠT: Every foreign investor has to be convinced that the management team is working according to expectations, and that they are either willing to learn or already know the ropes. Slovak managers on the other hand have to be willing to absorb new management know-how. For them that's the alpha and omega, especially for those working in state-owned firms. These people tend not to want either to learn or use new methods, and it shows.
TSS: You'll be 64 years old in three months, and you've spent almost 40 years at ZSNP. How much did you have to change your approach to your job after 1989, and how hard was it to do so?
ŠT: It's a matter of how everyone approaches life. I've always been something of an optimist. Even during Communism, when we started this project, we had a lot of contacts with foreign firms. We could already see how things worked in a different environment, we learned foreign languages. I already knew German then, although I didn't start speaking English until I was 59.
Then again, negotiations with the EBRD [prior to the start of the Slovalco joint venture in 1994 between the bank, ZSNP and Norsk Hydro - ed. note] lasted 14 months, during which time we learned a great deal. After the joint venture was founded and began working, we had a lot of advisors from abroad. It was during that period that the company's philosophy and tactics of management changed as well.
TSS: How and why did Norsk Hydro, the European Bank for Reconstruction and Development [EBRD] and the ZSNP Slovak state aluminium producer ever get together for a joint venture?
ŠT: As far back as the 1970s, a plan was created to modernise aluminium production in the Žiar region. The plan was officially launched in 1985, but it wasn't until 1993-1994, when the project was 60% finished, that we found a financial investor.
During negotiations with the EBRD the need arose for a strong industrial partner for the operation, which turned out to be Norsk Hydro. The EBRD then refused to give a loan to such a broad combine as ZSNP, which led to the formation of an independent company - Slovalco.
TSS: Slovalco recently received a loan from Citibank under much more advantageous conditions than it received credit from the EBRD in the past, such as being allowed to delay repayments for two years. Why are banks apparently so much more willing to trust Slovalco now than before?
ŠT: Because of the simple fact that the firm's business results have improved, nothing more or less. It means that we are now able to use the Citibank loan to repay what remains on our EBRD loan with cheaper credit.
TSS: What are you going to do with the money - sink it into increasing production, or into cleaning up the environment?
ŠT: During the next two years we have approved plans to invest $93 million, $80 million of which will go towards expanding production and increasing efficiency. By 2003 we expect production to be up 40%, from today's annual 110,000 tonnes of aluminium made from primary sources to 155,000 tonnes.
As far as the environment goes, we have already achieved a level among the best in the world regarding emissions, whether we're talking about air emissions or those into water. The investments I have mentioned will allow us to maintain this level.
TSS: But figures produced by the Environment Ministry for 1999 show that Slovalco is the second biggest polluter in the country in the category of carbon monoxide...
ŠT: These statistics have no foundation in reality. No one in the world follows such carbon monoxide statistics from this viewpoint [as a pollutant] because it's not a greenhouse gas. In our country, carbon monoxide cannot be measured in emissions, because in a few days it is oxidised into carbon dioxide, which is emitted into the atmosphere by every human being.
We track emissions which in the past were common in the Žiar area [where Slovalco and ZSNP are located], for example fluoride and its derivatives, smoke and crude-oil by-products. These three pollutants, which in the past were at levels harmful to the environment, have been reduced to a minimum.
TSS: In April this year, parliament amended a law to reduce pollution fines for firms using over 30% of Slovak-mined brown coal in their energy production. This amendment gave the advantage to largely state-owned firms, while private companies will still face rising fines for pollution. Do privately-owned firms see the change as discriminatory?
ŠT: Well, it's not entirely fair, let's say that. We face rising fines. Every year we already pay seven million crowns [$140,000] in fines for pollution, mainly for carbon monoxide. We have already protested the higher fines to the Environment Ministry, but to no avail.
TSS: Has Norsk Hydro's presence in Slovalco brought about an increase in business with other Norwegian or Scandinavian countries?
ŠT: There are indications that because of this investment various central Slovak machinery firms are increasing exports to Norway, but the change hasn't been very marked.
TSS: The government's theory has been that large investors, such as the American US Steel in eastern Slovakia's Košice, attract further investment by their very presence. Has this been your experience?
ŠT: I think sometimes there is more talk than action. If US Steel is doing this [promoting foreign investment in the Košice region], they are doing it for themselves in order to gain partners. We are a small firm, and we don't need such a drive because we have enough domestic firms in the vicinity. We employ the services of sister companies, and don't feel the need of foreign services, which are more expensive than buying domestic.
TSS: Slovalco and sister company Alufinal generate up to 80% of the turnover of the entire 18-member ZSNP group, and are the only profitable companies in the ZSNP portfolio. Do you have mixed feelings about seeing your profits used to keep the others afloat?
ŠT: Our shareholders are serious people, because until now all our profits have been used to pay down [Slovalco's] loans. That's the reason that today we find ourselves only slightly indebted Money has also been used for modernisation, and so far not one crown has been paid out in dividends. The earliest realistic date for the payment of dividends is 2004.
TSS: How much help did the Slovak government give Norsk Hydro during the formation of Slovalco, or during its existence?
ŠT: The state gave a guarantee for the loan contract we signed [with the EBRD] in 1994. The guarantee had three parts - first, the state covered the first loan tranche of $40 million. But since that tranche was paid off within four months, the state suffered no financial pain.
The second guarantee was extended by the state for the completion of the project, which happened in September 1996. So again, this guarantee was not used.
Still open is the third part of the guarantee, which the state issued to the foreign shareholders, and which said the government would take no steps which violated market economy principles.
So, Slovalco has not taxed the public purse in any way, and has not even received tax incentives or relief.
TSS: Could the government have done more?
ŠT: Probably not. The government gave us an important guarantee promptly, without which we would likely not have received the EBRD loan. We didn't ask for anything further. This [Slovalco joint-venture] project from the beginning was self-sustaining, meaning that we were able to cover the investments and even generate some profit.
TSS: What advice would you give other Slovak firms looking for foreign investors?
ŠT: That they have to have a grasp on the real situation in their sectors, and to understand whether they have a realistic chance of getting a foreign investor. Take Slovakia's machinery firms - they made the mistake of looking for foreign partners for precisely those branches of manufacturing that were on the way out, whether we're talking about weapons or tractors or heavy machinery. If they had from the beginning converted to manufacturing for which there is some global demand, today they would be far better off.
I think the main thing is not to aim for some kind of demanding production right at the beginning. Start with simple components, and perfect your production gradually. Even Volkswagen Slovakia in 1992 began by making cars from imported parts, and only gradually matured to assembling models from parts made here.
You've got to look for your niche in accordance with both your goals and some kind of marketing strategy. These two concepts have always been, and still are, totally separate for most firms.
TSS: What advantages do the recent changes in Slovalco's shareholder structure bring the company?
ŠT: If I am to be honest and realistic, the positives lie mostly in the increased trust the company now enjoys with banks, which in turn increases its chances of winning good conditions for loans and financing.
TSS: How important will ZSNP's upcoming privatisation, scheduled for this fall, be for Slovalco?
ŠT: Privatisation in general is not an end in itself, it simply results in better company management - as should be the case with ZSNP.
17. Jun 2001 at 0:00 | Peter Barecz