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EDITORIAL

Sold! To the only bidder: Another suspect privatisation

The sale two weeks ago of an almost 40% stake in the Restitution Investment Fund offered a new slant on why fraud cases are not yielding any major convictions.
We've grown used to claims the law is porous. We've been told by the police that the courts and prosecutors are bungling perfectly straightforward cases, and heard the same complaints made against the police themselves. But what if those in charge simply don't want the law enforced because they are profiting from the same cronyism seen under the 1994 to 1998 Mečiar government?
The RIF, which controls Sk3.8 billion in assets, was created after communism fell to compensate citizens injured by property nationalisation in the late 1940s. It holds stakes in about 400 firms, many bankrupt but some of which are extremely viable. These latter include the Slovenské elektrárne energy utility, set for privatisation next summer, the SPaP shippers and the Piešťany spa.

The sale two weeks ago of an almost 40% stake in the Restitution Investment Fund offered a new slant on why fraud cases are not yielding any major convictions.

We've grown used to claims the law is porous. We've been told by the police that the courts and prosecutors are bungling perfectly straightforward cases, and heard the same complaints made against the police themselves. But what if those in charge simply don't want the law enforced because they are profiting from the same cronyism seen under the 1994 to 1998 Mečiar government?

The RIF, which controls Sk3.8 billion in assets, was created after communism fell to compensate citizens injured by property nationalisation in the late 1940s. It holds stakes in about 400 firms, many bankrupt but some of which are extremely viable. These latter include the Slovenské elektrárne energy utility, set for privatisation next summer, the SPaP shippers and the Piešťany spa.

The state-run national property fund (FNM) sold its RIF stake for Sk507 million to a consortium of firms including J&T Banka. There's nothing much wrong with the price, which seems low but in fact reflects the money the RIF will have to spend over the next 10 years in liquidating its bankrupt holdings. It also reflects a special clause in the privatisation contract barring the J&T consortium from selling or speculating on the RIF's stake in Slovenské elektrárne, considered under the law a 'strategic company'.

But it was a good deal for J&T and partners nonetheless, because it gives them a possible back door into several other viable companies which - if they so incline - they can use to extort concessions from majority shareholders.

This is the reason Finance Minister Brigita Schmögnerová reacted so strongly to the RIF sale to J&T. Too often in the past, 'financial groups' have used high-powered lawyers to sow legal chaos at firms where they have only tiny stakes. The majority owners, usually barred by court injunctions from disposing of their shares, are over a barrel and have to either cede control or buy out the minority owner at an exorbitant sum. This tactic has been used since 1998 by Penta Group (now a 13% shareholder in the RIF) with the VSŽ steel maker, the IRB and VÚB banks and the SP insurer to force financial concessions from the government in its most important privatisations and sales.

The head of J&T, Jozef Tkáč, was from 1993 to 1996 the director of the state IRB bank, where murky practices led to the central bank calling forced administration at the end of 1997, and in 1999 led to the compilation of an 87-page file on suspect IRB loans issued under Tkáč's tenure. J&T was founded in 1994 by Tkáč's son, and came to hold an 8.5% stake in IRB. Many J&T group companies were IRB clients, although Tkáč denies they received favourable credit conditions.

Surely, given the risks involved of letting J&T in through the back door, the FNM might have waited until the most important state holdings in the RIF docket were sold. Instead, the FNM first tried last summer to make a direct sale to Howard Golden of the consortium's Brookdale Group, and after a public outcry designed a tender in which only the J&T consortium out of eight interested firms submitted a bid.

Why the sale couldn't wait is a mystery, although one that may have been cleared up somewhat by Robert Žitňanský in the weekly Domino fórum.

Žitňanský pointed out that Peter Huňor, vice-chairman of the FNM executive council and a member of the RIF supervisory board, is also a member of the supervisory board in the firm Syndikat. Syndikat has personal ties to BK-finančne služby, which shares the business address of J&T. Boris Čarakčiev of BK-finančne služby also sits on the board of directors at J&T Asset Management.

J&T says it intends to turn the RIF into an open unit trust, allowing other investors to join the fund. It says it would never abuse its minority stakes for gain, and that its intentions are honourable.

Unfortunately, the FNM's behaviour during the sale of the RIF has taken away any element of certainty regarding these promises. We are left only hoping that both sides are honest, and powerless to do anything about it if they aren't. Reminiscent of the mid-1990s.

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