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ST's privatization on hold until maybe '98

The privatization of Slovakia's state-owned telecommunications company, Slovenské Telekomunikácie (ST), has begun to resemble a hare-and-tortoise affair. The hares, led by foreign investors and officials from ST and the Slovak Ministry of Transport, Post and Telecommunications (MDPT) are growing increasingly restive with postponements of the main event. Government tortoises, meanwhile, have yet to show up for the race.
"I don't see it happening this year, especially as we are already at the end of September," said ST spokesman Lubomír Štancel. "We should have been a 100 percent joint stock company by the end of last year, [but] the government has [yet] to decide."
Peter Haluš, general director of the telecommunications section at MDPT, concurred, saying that since "the minimum time needed just to choose a strategic partner is six months," there was little likelihood that ST could be privatized before the summer of 1998. "It's already a critical time," he said.


Slovak Telecom's general director, Peter Valent.
Courtesy of Slovak Telecom

The privatization of Slovakia's state-owned telecommunications company, Slovenské Telekomunikácie (ST), has begun to resemble a hare-and-tortoise affair. The hares, led by foreign investors and officials from ST and the Slovak Ministry of Transport, Post and Telecommunications (MDPT) are growing increasingly restive with postponements of the main event. Government tortoises, meanwhile, have yet to show up for the race.

"I don't see it happening this year, especially as we are already at the end of September," said ST spokesman Lubomír Štancel. "We should have been a 100 percent joint stock company by the end of last year, [but] the government has [yet] to decide."

Peter Haluš, general director of the telecommunications section at MDPT, concurred, saying that since "the minimum time needed just to choose a strategic partner is six months," there was little likelihood that ST could be privatized before the summer of 1998. "It's already a critical time," he said.

"The longer we wait, the more critical it becomes."

The latest time estimates contradict ST Director Peter Valent's statement last March that "the original idea was that the search for a strategic partner should be well underway by the middle of 1997." Because of possible problems due to the 1998 elections, Valent was quoted by the magazine Infotrendy as saying, "I am sure that we will get a partner by the end of this year."

Possible sagging investor interest

Any further delays in its privatization plans could cost ST dearly, according to some experts.

"Investors are becoming more conservative - we are entering a period of consolidation," said Philippe Kiewiet de Jonge, the director of corporate finance at the Dutch bank ABN AMRO. De Jonge, who assesses telecom privatization projects for the Dutch bank, was addressing the fact that many European telecom companies are now either sold or on the market. "What ST will be worth in six months or one year is uncertain," he said.

Štancel maintained that "so far we think that ST still has a good position," but agreed that the present situation is untenable. "It could be that interest among investors and the value of the company will fall if it takes too long. Capital is sensitive, and needs stable conditions and sure relations."

"Nobody knows why privatization is not going forward," de Jonge added. "A lot of the groundwork has been done, but the key is ST's transformation into a joint stock company, and then its privatization. Everybody is waiting for it."

Haluš said that the MDPT had submitted formal proposals to the government more than a year ago, both for ST's transformation into a joint-stock company and for a subsequent tender procedure, which would allow between 25 and 30 percent of the company to be sold to a foreign investor. "We have been working for more than a year and a half on this," he said, "but privatization and economic transformation are standing still. It's a political decision." ST's telecom monopoly in Slovakia is set to expire in 2003, so modernization of the giant company must start now in order to prepare ST for a competitive market, telecom experts said.

Political aspects

The political aspects of the issue begin with ST's designation as a "strategic company." Under a law passed in July, 1995, ST was listed as one of 27 "state enterprises of strategic importance" considered too vital to the economy to be privatized. But after one of the biggest of these companies, Eastern Slovak Steelworks (VSŽ), was sold in September 1995, confusion about the "strategic" designation set in.

Asked to explain why his company was still considered a strategic enterprise, Štancel replied: "It's not a question for me, but I think the government wants to secure some kind of guarantees for its strategic industries. It's a different tradition than in America."

Other sources in the telecom industry see party politics rather than economic policy at the root of the issue. They think that since ST is an enormously valuable state property, and the Slovak government has shown a tendency to favor domestic over foreign buyers in its privatization process, ST could be sold off to loyal Slovak investors as an election-year stratagem.

Haluš dismissed the hypothesis. "Our report on the optimal strategies for attracting capital to ST applies strictly to foreign capital," he said. "We insist on this, and we hope the government will decide for it. We could attract domestic capital in the form of a loan from Slovak banks, without having to privatize."

Haluš would not comment on any "subjective reasons" behind the privatization delay, but felt nevertheless that it made good political sense to sell ST before next year's elections. "If I was the head of the government, I would privatize the company to show Slovak citizens that I am acting in the best interests of the country," he said.

Last of the lot

What makes the government's inaction on ST's privatization all the more exasperating to MDPT officials is that almost every one of Slovakia's neighbors have sold off their state telecommunications systems. "The Czech Republic, Poland, Hungary, Lithuania...even Albania," Haluš complained. "Everyone around us is privatizing, leaving Slovakia like a white dot on the map."

Part of the urgency to sell shares is that ST's monopoly on fixed-line telephony in Slovakia runs out on January 1, 2003. "Investors know that if they come on board in 1998, they will only have five years to modernize," Haluš said. "The closer to 2003 we come, the lower the price might be. And if investors know this, they might try to wait and either buy ST cheap or set up a competing company." "The process of renewal (at ST) is a long one," agreed de Jonge. "It must start today."

Adding to the dreary recipe is a dash of financial urgency. Slovak Telecom needs about 55 billion Sk for its "Telecommunications Project II," set to run until the year 2000.

In 1998, the first payments on the principal and interest on a loan of approximately 150 million Ecu the company secured from the World Bank in 1993 also come due. "That is why we need a strategic partner by 1998," Haluš said. "The time is not five to midnight, it is already five past midnight."

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