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PRIME MINISTER DEMANDS RESIGNATION OF FNM TOP OFFICIALS AS INVESTORS WATCH IN DISMAY

Nafta scandal a cabinet 'own goal'

The latest Slovak privatisation scandal - the snap purchase of a lucrative Slovak natural gas concern by an American energy corporation - widened significantly at the end of June. Two senior state officials have been asked to resign, with criminal charges pending, while a private businessman spent a night in jail and is being investigated on charges of defrauding the state of over three billion Slovak crowns ($70 million).
The 'Nafta affair,' as the case is now popularly known, has the government worried that its mishandling of the sale will cut a swathe through investor confidence. "One of the most significant consequences, and one that I am most terrified of, is that foreign investors may lose interest in further investment into Slovak companies," said Finance Minister Brigita Schmögnerová in an interview for The Slovak Spectator on June 29. "I think that the ruling coalition kicked the ball into its own goal," she added.


Prime Minister Mikuláš Dzurinda (left) and Economy Minister Ľudovít Černák say they have evidence the FNM privatisation agency broke the law.
photo: TASR

The latest Slovak privatisation scandal - the snap purchase of a lucrative Slovak natural gas concern by an American energy corporation - widened significantly at the end of June. Two senior state officials have been asked to resign, with criminal charges pending, while a private businessman spent a night in jail and is being investigated on charges of defrauding the state of over three billion Slovak crowns ($70 million).

The 'Nafta affair,' as the case is now popularly known, has the government worried that its mishandling of the sale will cut a swathe through investor confidence. "One of the most significant consequences, and one that I am most terrified of, is that foreign investors may lose interest in further investment into Slovak companies," said Finance Minister Brigita Schmögnerová in an interview for The Slovak Spectator on June 29. "I think that the ruling coalition kicked the ball into its own goal," she added.

Her views were supported by opposition HZDS party deputy Sergej Kozlík, a former Finance Minister in Vladimír Mečiar's 1994-1998 government. "This is not the first time that the ruling coalition has acted counterproductively," he said, adding that "ten fingers wouldn't be enough to count the number of goals they [the government] have scored on themselves."


Vladimír Poór spent 24 hours in jail in a bizarre episode on June 28 when he was accused of fraud worth 3.2 billion Sk.
photo: Marek Velček-Sme

Scandal eruptsThe scandal erupted on June 22, when a Czech firm, IPB-All, announced that it had purchased the Slovak firm Arad from Trnava-area entrepreneur Vladimír Poór for an undisclosed sum. IPB-All said the acquisition had been made for Cinergy, a Cincinnati energy giant with 1998 operating revenues of almost $6 billion.

The sale embarrased the government, which had meant on June 23 to unveil its own plan to consolidate Arad's properties - gas storage firms Nafta Gbely and Nafta Trade - under a joint venture known as SPP Slovakia and controlled by the state. According to the government plan, once SPP Slovakia owned the Nafta facilities, a share would be sold to a foreign investor.

But after months of delay over what to do with the Nafta properties, the government's time simply ran out. Following the sale of Arad to Cinergy, Poór revealed that Nafta had been in dire financial straits for some time. A $2.5 million loan that Nafta Gbely held from Anaco fell due on June 26, he said, and if Arad had not been sold when it was, Nafta might have gone bankrupt.

Poór also alleged he had sent letters to government officials on May 19 and May 31 informing them of Nafta's debt problems, and asking them to establish the joint venture and take over Nafta before the beginning of June. The government officials - FNM state privatisation agency president Ľudovít Kaník and SPP state gas monopoly president Pavel Kinčeš - reportedly failed to inform the cabinet of the letters, while cabinet continued to take its time about forming the joint venture.

For that failure, Kaník, a former real estate agency owner, may pay dearly. On June 28, Prime Minister Mikuláš Dzurinda announced at a press conference that he had asked Kaník to resign as FNM President, along with FNM Vice-President Ladislav Sklenár. Dzurinda accused the men of behaviour that was "irresponsible, unqualified and unprofessional," and said that charges would be laid against them both. The cabinet unanimously upheld Dzurinda's decision after a three-hour closed-door meeting on June 30. Dzurinda said that if the men do not resign voluntarily, he may ask parliament within the week to vote them out of office.

Kaník told reporters on June 30 that he would not resign unless the cabinet admitted its censure of him was "a purely political matter." He added that if anyone should bear responsibility for the government's failure to secure Nafta for itself, it should be Economy Minister Ľudovít Černák, who had "personally involved himself in this matter from the beginning."

Also on June 28, Interior Minister Chief Investigator Jaroslav Ivor announced that charges had been filed for fraud against Vladimír Poór. The charges, he said, "were not filed because of the sale of Arad," but because of fraud in connection with Poór's 1996 purchase of a 45.9% stake in Nafta Gbely for under one-sixth of its market value at the time. The purchase, Ivor said, had caused the state 3.18 billion crowns ($74 million) in damages.

Poór was taken into custody briefly on June 28 but released the next day. Ivor said he would not be incarcerated while the investigation went forward.

Negative reactions

The government's determination to mount a legal challenge to the sale of Arad to Cinergy is something that troubles many investment professionals.

During the week that followed the sale of Arad, Černák promised to secure the return of the Nafta shares from Cinergy through the courts if necessary. Although Cinergy representatives promised not to act against the interests of the government, Černák said that he and the cabinet would do their best to get the shares back "even if Nafta Trade's license has to be confiscated and Nafta Gbely has to be renationalised." Černák and his advisors failed, however, to specify what, if anything, was legally wrong with the Arad sale.

"The government has to be very cautious here," said Martin Barto, head of strategy for state bank SLSP. "This is a test of its behaviour towards foreign investors, and the way it solves this problem will be very closely watched." Barto said he expected to get many calls from foreign investors wanting information about the government's latest steps.

Ernest Valko, a well-known Bratislava lawyer who represents the FNM, said he didn't think Černák had a legal basis for his plans. "There are two ways to solve the problem, through the courts or by arbitration," he said in an interview with The Slovak Spectator on June 27. "Legally, the FNM has already done all it could to regain the [Nafta Gbely] shares, and as for the Arad sale, the government doesn't have a long enough reach on this transaction."

Valko explained that "according to the law, the [Nafta Trade's] license can be confiscated, but this presupposes some legal basis. If this [the sale of Arad to Cinergy] is the only fly in the ointment, then I think there is no reason to take the license away."

Vladimír Zlacký, an advisor to Deputy Prime Minister for Economy Ivan Mikloš, said that the settling the dispute would be complicated because of the number of interested parties - the cabinet, the FNM, the SPP and various foreign investor groups. "On the one hand you have investors [like TCI and Gaz de France] who waited patiently and trusted everything would go through an international tender. On the other hand, Cinergy has done nothing wrong. Somehow all of these interests will have to be reconciled."

As Valko saw it, however, neither the cabinet nor the FNM had any further role to play in the Arad sale. "The only parties that can have any influence here are the two involved [Cinergy and Arad]," he said.

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