US Ambassador to Slovakia Ralph Johnson says that investors are asking questions about the fairness of privatisation sales.
photo: Sharon Otterman
But as the new government's privatisation policy comes under increasing scrutiny by economic analysts, the ST sale is rapidly gaining significance for another reason as well. Both the cabinet and investors are now saying that the sale will be a crucial test of whether the country has turned the corner on the murky privatisation sales of the past, and of whether it will be able to attract significant levels of Foreign Direct Investment (FDI) in the near future.
"Telecom sales are always under a big spotlight, because they are flagship sorts of deals," said Vladimír Zlacký, an advisor to Deputy Prime Minister for Economy Ivan Mikloš. "However, I really believe the ST case will also be important as a signal that the country is turning around, that privatisation has become transparent."
"I fully agree," said Ján Tóth, a senior analyst with investment bank ING Barings. "Slovenské Telekomunikácie will be a benchmark case, because it will be the first sale of a so-called strategic company. It will show everyone how serious the government is about attracting FDI."
So far, not so good
The Telecom Ministry announced in January that they intended to sell off a 34 to 49% stake in ST to a foreign investor, preferably a western telecom operator, by June 1999.
But in April, Stanislav Vanek, director of the Ministry's Regulatory Department, said that he hoped to choose a buyer by November and have the funds in state coffers by the year 2000.
Tóth said that he was not surprised that the original June deadline - which he called "very aggressive" - had been pushed back. But he did warn that the longer it took the government to privatise ST, the worse a signal it sent to financial markets about Slovakia's ability to attract FDI. "This will be particularly bad news for the crown, because an FDI inflow is urgently needed to protect the currency from further depreciation," he said.
What is more, Tóth said, if the new deadilne of November holds, the 12 billion Slovak crowns that the government might expect to generate from the sale will not arrive this fiscal year and will not help the cabinet meet its crucial 1999 budget targets.
The need for haste established - Zlacký said the country's dire fiscal situation "facilitates out efforts to persuade elements in the ruling coalition that it is necessary to move ahead quickly with privatisation" - the Telecom Ministry moved quickly in late April to choose a financial advisor for the ST sale.
The choice proved a controversial one. The firm selected in the tender, Deutsche Bank, in turn selected Bratislava brokerage house Slávia Capital as its domestic partner. Reports in the Slovak media claimed that Slávia's connections with Economy Minister Ľudovít Černák had influenced the tender.
Neither Slávia Capital nor the Telecom Ministry would discuss the tender when approached by The Slovak Spectator, saying that a final deal would not be hammered out until May 21.
US Ambassador to Slovakia Ralph Johnson ascribed the telecom tender controversy to "just inexperience rather than anything nefarious," but said that in "several other cases" involving sales of state property or the selection of financial partners from the private sector, "some questions are being raised about how much corruption is starting to creep back into the decision-making process. That is a matter of concern."
One Bratislava analyst, speaking on condition of anonymity, said that "I share these [Johnson's] opinions. There is growing uncertainty as to how deals are done, and I'm talking about the influence of lobby groups for the [ruling coalition party SDĽ], about Mr. Černák, and about the power of [state gas monopoly] SPP."
When asked about issue of corruption in the government's decision-making process on privatisation sales, Zlacký acknowledged "there is always room for improvement."
In response to the criticism, and in recognition of how much importance investors attach to the ST sale, the Telecom Ministry has been at pains to establish the transparency of the process. Vanek told The Slovak Spectator on May 19 that "both ST and the ministry have an interest in carrying out the privatisaton process transparently. [The sale] will be run by an intergovernmental committee. The ministry will invite the independent group Transparency International Slovakia to monitor the whole privatisation process."
If the ministry provisions are enough to reassure skittish investors that Slovakia is a safe place to invest, the country may reap a considerable FDI harvest. Tóth said that after ST, state banks Investičná a Rozvojová Banka (IRB), Všeobecná Úverová Banka (VÚB) and Slovenská Sporiteľňa (SLSP) would be offered to foreign investors. But even so, Tóth opined, the government was still moving too slowly with privatisation.
"The economic situation is so serious that the government should think very seriously about reducing the number of strategic companies and selling them off immediately. So far, they have only been discussing this internally," he said.
Prime Minister Mikuláš Dzurinda said on April 29 that his government would discuss in May reducing the number of companies designated as "strategic," and thus ineligible for privatisation under a 1995 law. Dzurinda said he expected only six or seven companies would eventually be kept by the state.