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Opposition plans reprivatization

The Slovak Democratic Coalition (SDK) unveiled on February 17 a new method of privatization that would be applied to sales of state property if the SDK were to win September's general elections.
The announcement brought to a head years of widespread frustration with Slovakia's privatization process, which the opposition has recently shown to have disposed of valuable state assets at a fraction of their book value.
Despite the apparent unity of the SDK in support of the new privatization plan, much remains to be agreed on the specifics of its application. One of the thorniest questions to be answered is that of how to deal with property already privatized. While all opposition parties agree that something should be done in specific cases where fraudulent sale can be established, very little consensus exists on how properly to compensate the state for massive property losses, without undermining the young Slovak investment sector.


The Slovak Democratic Coalition (SDK) wants to change Slovakia's style of privatization, in which some state companies, like Nafta-Gbely, ended up the property of anonymous owners, such as Druhá Obchodná.
Ján Kuchta

The Slovak Democratic Coalition (SDK) unveiled on February 17 a new method of privatization that would be applied to sales of state property if the SDK were to win September's general elections.

The announcement brought to a head years of widespread frustration with Slovakia's privatization process, which the opposition has recently shown to have disposed of valuable state assets at a fraction of their book value.

Despite the apparent unity of the SDK in support of the new privatization plan, much remains to be agreed on the specifics of its application. One of the thorniest questions to be answered is that of how to deal with property already privatized. While all opposition parties agree that something should be done in specific cases where fraudulent sale can be established, very little consensus exists on how properly to compensate the state for massive property losses, without undermining the young Slovak investment sector.

Empty Coffers

The State Property Fund (FNM), according to Ivan Mikloš, Vice-Chairman of the FNM's Supervisory Board, is on the brink of bankruptcy even though it has sold property with a combined market value of 103.05 billion Sk ($2.91 billion) since 1995.

"The beginning of the year showed that the liquidity of the FNM is endangered," said Mikloš. "It has [only] 2.4 billion Sk in long term [reserves] and 1.015 billion Sk in current accounts. It has not even created reserves to pay [bonds and old coupons] to citizens older than 70 [as mandated by an October 1996 law]." Mikloš said that the FNM's straitened circumstances had forced it to take a loan of 124 million DEM in January, 1998, "on disadvantageous terms - the interest rate was 14.6 percent, while it's possible to get a long-term loan for 7 to 9 percent less."

The financial crisis at the FNM could have been avoided if state property had consistently been sold at market value. But in August 1996, the FNM caused widespread outrage by selling 45.9 percent stake in Nafta-Gbely, one of the crown jewels of the Slovak economy, to an unknown company called Druhá obchodná. The storm of protest was generated by the fact that while the market price of the shares sold was approximately 3.2 billion crowns at the time, Druhá Obchodná paid only 500 million crowns, 16 percent of market value.

Much has been made of the Nafta Gbely case, but it is far from unique in the history of privatization in Slovakia. According to a list prepared by the weekly Trend from information supplied by the FNM presidium, the FNM disposed of state property at a rate, on average, of 47 percent of market value from 1995 through 1997. Shares of blue-chip companies such as Slovnaft and VSŽ were sold for 10 percent of their real value, of which price only 20 percent was paid at the time.

Danka Volfová, an economic expert with the SDK's Privatization Commission, claimed that the goal of the new SDK plan was to make privatization transparent. According to Volfová, a register of property would be created to give everyone complete information about any planned privatization of state property. This was designed, she said, to turn the public into a kind of privatization watchdog, in the hope of preventing future thefts of state property.

Taking chunks back

While the SDK is unanimous on how to carry out future privatization sales, no opposition party can agree on what do about past sales. The question they are trying to tackle is how much state property, if any, should be taken back. "It is my personal estimate that the law was broken in about 10 percent of privatization cases," said Ľudovít Černák, ex-Minister of Economy and a deputy for the SDK. "This 10 percent ranges from small game to some of the largest privatization quarry," Černák added.

Brigita Schmögnerová, a former deputy prime minister and a deputy for the SDĽ, an opposition party not under the SDK umbrella, guessed the figure to be much higher. She said for the daily Sme that revision of privatization contracts should occur for about 30-40 percent of enterprises privatized by the current government of Vladimír Mečiar between 1995 and 1998.

But no party has advocated radical repossession of state property. "Even though it is our obligation to revise privatization, as there is suspicion that it was illegal...it will be done lawfully and without any bloodlust," said Mikuláš Dzurinda, SDK spokesman.

The opposition agrees on one thing - it will be the courts which decide whether any laws were broken and whether a particular privatization contract should be annulled. There is no unity, however, either on what constitutes a violation of the law or on who would be able to file suits.

"If something has a book value of 2 billion Sk and is sold for 500 million Sk, it gives a sufficient reason to civil courts to declare such a contract void," said Róbert Fico, a legal expert with the SDĽ, adding that a blatant rip-off of the state allows it to file a suit for repossession. Fico maintained, however, that this approach should be applied only to several major cases.

Ivan Šimko, a legal expert with the SDK, wanted to propose a constitutional amendment to put Fico's approach on firm legal footing. "It is necessary to set criteria for reconsideration of privatization decisions," Šimko said. His approach is more privatizer-friendly, since instead of repossessing the privatized company, Šimko proposed additional payments for those who underpaid for state companies.

The overriding message that the opposition wanted to get across to investors was that no hasty or vindictive action would be taken. "We should not frighten anyone who pays taxes, who invests in his company and who gives jobs to a lot of people by telling him that his company is going to be taken away from him," Černák said. He refused to say what he would do if owners obtaining a privatized company had broken the law in the act of privatizing. "I think the average privatizer can rest easy," he said.

Additional reporting by Miroslav Beblavý

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