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VV wins state promise of $100m Gabčíkovo loan

The Slovak government said on December 2 it would offer a state guarantee for a $100 million loan for the state-run construction company, Vodo-hospodárska Výstavba (VV), to finance the completion of the controversial Gabčíkovo dam.
"The government agreed to promise to give a state guarantee for a loan worth $100 million in 1998," a government statement said, adding that further details and final approval of the loan guarantee would be given after the passage of the 1998 state budget in Parliament. According to Oľga Vavrová, VV's spokeswoman, the money should be used for financing of the Gabčíkovo and Žilina dams.
The whole transaction had been formally approved already in 1995, when the government announced it would guarantee a loan totaling $500 million to finance three projects: Gabčíkovo/Nagymaros, Vodné Dielo Žilina and another dam in Tichý Potok in eastern Slovakia.

The Slovak government said on December 2 it would offer a state guarantee for a $100 million loan for the state-run construction company, Vodo-hospodárska Výstavba (VV), to finance the completion of the controversial Gabčíkovo dam.

"The government agreed to promise to give a state guarantee for a loan worth $100 million in 1998," a government statement said, adding that further details and final approval of the loan guarantee would be given after the passage of the 1998 state budget in Parliament. According to Oľga Vavrová, VV's spokeswoman, the money should be used for financing of the Gabčíkovo and Žilina dams.

The whole transaction had been formally approved already in 1995, when the government announced it would guarantee a loan totaling $500 million to finance three projects: Gabčíkovo/Nagymaros, Vodné Dielo Žilina and another dam in Tichý Potok in eastern Slovakia.

The first $200 million installment, drawn in December 1995 entered the books as the first state-guaranteed syndicated loan in Slovakia, and like the second installment in October 1996, was managed by J.P. Morgan, London. The conditions of both loans appeared quite favorable for the company and were viewed very positively by the country's representatives.

The conditions of the second installment, a 10-year eurobond issue bearing a 7.25 percent yield (1.15 basic points higher than the yield on US government bonds at that time), caused heightened demand on the international market, and led the company to double the amount offered. 60 percent of the issue was placed on the US market.

While it is quite likely that the company will use the same partner for the third installment, Vavrová was cautious. "It is still not clear what source of financing we will use. We have to wait for the formal approval of the goverment," she said.

According to VV, the finished dams should repay the loan in less than 10 years. The Gabčíkovo plant alone will generate about 2.5 billion kWh which means more than 2.6 billion Sk per year. The overall revenues from the whole plant should be no less than 10 billion a year.

A treaty on the controversial Gabčíkovo waterworks was signed between Hungary and Slovakia in 1977 to harness the waters of the Danube and generate electricity. Hungary pulled out of the project in 1989 following pressure from environmental groups, but Slovakia decided to press ahead with its part of the scheme.

Last September, The Hague-based International Court of Justice ruled that the 1977 treaty was still valid and that the two sides must work out a joint operational regime for Gabčíkovo which takes into account environmental as well as economic factors.

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