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MANAGEMENT SAYS PRICES NEED TO REFLECT INFLATION, EU ENTRY

Slovak Post to raise rates despite profits

STATE-RUN postal services monopoly Slovak Post has announced plans to raise its rates, despite racking up huge profits over the last decade.
Company officials claim that unless postal prices go up by 15 per cent from January 2003, Slovak Post's revenues won't cover the investment it needs to make in preparation for EU entry.
After years of declines, the company's fortunes took a turn for the better in 1997, when, for the first time, it was allowed to adjust its rates in line with inflation, which exceeded 60 per cent over the four years of its existence. Three yearly inflation adjustments followed, helping the company make a profit of Sk240 million ($5.7 million) in 2001.


THE PRICE of sending a letter will soon reach EU country levels.
photo: Brian Jones

STATE-RUN postal services monopoly Slovak Post has announced plans to raise its rates, despite racking up huge profits over the last decade.

Company officials claim that unless postal prices go up by 15 per cent from January 2003, Slovak Post's revenues won't cover the investment it needs to make in preparation for EU entry.

After years of declines, the company's fortunes took a turn for the better in 1997, when, for the first time, it was allowed to adjust its rates in line with inflation, which exceeded 60 per cent over the four years of its existence. Three yearly inflation adjustments followed, helping the company make a profit of Sk240 million ($5.7 million) in 2001.

Even though no rate adjustments for inflation have been made since then, the company has continued to make a profit. In the first nine months of this year, its pre-tax profit reached Sk379 million ($8.6 million). The management of Slovak Post attributed this to better service overall.

"The better economic results are because we increased our income. We have registered growth in all our main activities since the beginning of the year," said General Director Jaroslav Dobrotka, adding that cutting costs also contributed to the rise in profits.

However, the company says there are still problems to address, pointing out that despite high income earlier this year, its year-end profits are predicted to reach only Sk45 million ($1.1 million) as only 200 out of its 1,630 offices throughout the country are able to make a profit.

Slovak Post plans to solve the problem by allowing other businesses to run its unprofitable offices, a move that experts say is standard in developed Western countries.

"With the unprofitable offices, the only change will be in who is running the business. They will still provide postal services. Such a trend is common in developed countries, where people are satisfied with this type of [service arrangement]. I don't doubt that we will be able to do this to the full satisfaction [of customers] in our country," said Jarmila Brichtová, head of the post and telecom section at the Ministry of Transportation, Post and Telecommunications.

Nevertheless, the company says that cost-cutting measures like this will not be enough to make a significant difference to its bottom line. Company representatives stress that a hike in postal rates is necessary to reflect the country's macroeconomic development.

"We have not taken inflation into account in our price structure since 2000. Adding the inflation rates for the years 2000, 2001 and this year, prices in the country are now 23 per cent higher [than when we last raised rates]," said Dobrotka.

Therefore, the company says, it needs to raise its prices, proposing a 15 per cent increase beginning in January 2003. The cost of sending a second-class letter within the country will rise from Sk6 to Sk7, while the cost of sending a standard package (up to 5 kilograms) will rise from Sk56 to Sk69.

For those mailing abroad, from next January sending an airmail letter to the US will cost Sk21 instead of Sk18, and an airmail letter to the UK will cost Sk16 to send instead of the current Sk14.

Officials say that there are additional factors driving the decision to raise rates, for example the need to invest in the future of the company.

Slovak Post has already prepared an investment plan for 2000-2004 designed to pay for the renovation of its offices, improvements to technical equipment and an increase in the speed of its delivery services.

To achieve these aims, the company needs to invest between Sk400 million and Sk450 million ($9.3 million and $10.5 million) every year - money it hopes to get from increased rates.

The company claims these investments will enable it to provide a standard of service similar to that offered in the Western world, especially in European Union (EU) countries.

As Slovakia is slated to become a member of the EU in 2004, Slovak Post officials believe that the company's prices - as well as its level of service - should reflect EU norms.

"With Slovakia's planned entry into the EU, we have to adjust our rates for services so that they reflect the average prices [for postal services] in the EU. These are currently three times higher than ours," said Dobrotka.

The company plans to adjust its prices in line with its EU partners by the year 2006. As an example, the delivery cost of a standard letter, now Sk6, is likely to grow to Sk16 over the next four years.

The news of the rate hikes was met with a mixed reaction from the public. Most people The Slovak Spectator spoke to on the streets of Bratislava said the higher postal rates would not affect them.

"I don't write to anyone anyway," said 58-year-old Marta Šölméciová. "I don't care about [the price of stamps]. What I care about is the price of electricity and gas."

Architect Richard Kráľovič, 25, said he thought a rise in postal rates was to be expected, saying: "It is normal. Incomes are increasing too, so it makes sense to raise the price of stamps. This is the case everywhere in the world."

With additional reporting by Kristina Havasová

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