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Economists blast privatisation law

A recent law permitting the sale of some state firms previously off-limits to privatisation has been criticised by economists for not going far enough in removing state interference in the economy.
The Law on Large Scale Privatisation, approved by parliament on September 16, was the result of a compromise between the right-wing elements of the government, which had wanted virtually all state banks and utilities put up for sale, and the leftist SDĽ party, which claimed the only state ownership of these firms could protect the nation's economic interests.
The new law requires that the state keep a minimum 51% share in gas utility SPP, pipeline company Transpetrol, energy producer SE and Slovakia's three regional electricity distributors. In addition, the law prevents the sale of any stake in the Slovak postal service and railway network, as well as subterranean and surface water supplies and forest properties.


Martin Barto, a senior economist at SLSP, says the Large Scale Privatisation Law will scare potential investors away.
foto: Marek Velček

A recent law permitting the sale of some state firms previously off-limits to privatisation has been criticised by economists for not going far enough in removing state interference in the economy.

The Law on Large Scale Privatisation, approved by parliament on September 16, was the result of a compromise between the right-wing elements of the government, which had wanted virtually all state banks and utilities put up for sale, and the leftist SDĽ party, which claimed the only state ownership of these firms could protect the nation's economic interests.

The new law requires that the state keep a minimum 51% share in gas utility SPP, pipeline company Transpetrol, energy producer SE and Slovakia's three regional electricity distributors. In addition, the law prevents the sale of any stake in the Slovak postal service and railway network, as well as subterranean and surface water supplies and forest properties.

However, the government will be free to decide on what size stake is to be sold in the SLSP bank, insurer Slovenská Poisťovňa (SP) and telecom monopoly Slovenské Telekomunikácie (ST).

A 1995 Law on Strategic Companies, which the new measure was meant to replace, had forbidden the sale of the aforementioned firms because they were considered to be strategically important to the Slovak economy.

Martin Barto, a senior economist at SLSP, said the new law was a product of political rather than economic reasoning. By reserving majority shares in the nation's most profitable firms, he said, "this law walled up doors that were previously only locked."

Barto also said that possible disagreements within the coalition over what size stake should be sold in SLSP, ST and SP could scare investors away. "With the government taking part in the privatisation of all these companies, it will be a tough political fight," he said.

According to Ivan Chodák, an equity analyst with CA IB Securities, the sale of stakes in firms to remain under state control was supposed to proceed in two phases. In the first phase, a strategic investor would buy a 34% share, which is the minimum necessary under Slovak law to keep control over important strategic decisions taken by company management.

In the second phase, after stabilising the company, the investor would buy a further block of shares to assume up to 49% ownership in the company - rather an unlikely event given that the added shares would bring no further managerial control. "One of the worst shortcomings of this law is that the strategic investor will go no further than the first phase," Chodák said, "because the remaining stake it would like to buy will be owned by the state, which will in any case have control over the whole company."

Political haggling

While economists and right-wing politicians were united in criticism of the new law, the former communist SDĽ party hailed it as a victory for the common man. Party officials said the state's majority stakes in SPP, SE and Transpetrol will prevent a profit-seeking strategic investor from increasing the prices of gas and electricity without regard for people's ability to pay.

"We are practising real politics, and our demands [incorporated in the law] were based on this reality," said Ľubomir Andrassy, SDĽ Vice-Chairman. "This law is not a victory just for the SDĽ but for the entire society."

According to Andrassy, foreign investors would not be discouraged by the impossibility of owning a majority stake. "There are many powerful strategic foreign investors that will be interested in investing into companies like SPP, SE and Transpetrol, with only a 5 or 10% stake," he said.

But Ján Lángoš, who abstained from voting on the law along with six of his rightist government colleagues, said he never heard of a strategic foreign investor willing to enter a company in which the state owns a 51% stake.

Langoš, who is chairman of the Democratic Party (DS), a small right wing faction within the ruling SDK bloc, said that the only positive aspect of the passage of the law was that such a measure had been required by the European Union as a condition for Slovakia to be invited for membership talks during the EU's December summit in Helsinki.

"Our position [in Helsinki] would be much worse without this bill being passed," he said, adding that "I prefer irrational concessions to no agreement at all."

For Vladimír Palko, a member of the Christian Democrats, another right-wing faction, the new Large Scale Privatisation law was further proof that "the right wing is not able to assert its interests within the government."

Thirty days of "stupid speeches"

Accoording to the SDĽ, the new law returns transparency to privatisation in Slovakia by giving parliament 30 days in which to make recommendations on sales of former 'strategic' firms planned by the government. The recommendations will not be legally binding.

"With this step we moved democracy one step further," Andrassy said. According to him, these non-binding public discussions will be the best guarantee that future privatisation decisions made by the government are transparent."Now, all of a sudden, all of those people calling for bigger transparency are running scared," he said.

But both Lángoš and Palko dismissed the 'discussion' clause as political propaganda. "I can only say that this clause is a relic produced by those who were active in the former communist party," Lángoš said.

Barto also felt the discussion clause would add little to transparency. "I'll tell you something," he said. "If they [the SDĽ] think this step will bring more transparency and public oversight of various privatisation problems, I can tell them that the only public element to increase will be stupid speeches."

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