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Impressive growth in 2002, but reforms may pinch in new year

AS 2002 draws to a close, Slovakia's process of privatisation has largely been completed, with electricity provider SE remaining the last strategic state firm yet to be sold off. The year also saw increasing investor interest in the country, helped by the election of a pro-Western government coalition in September and invitations to join the Nato and EU in November and December respectively.
The new ruling coalition has vowed to press on with difficult reforms including utility price deregulation, which had been put off until after September elections but will take effect in January, meaning significant increases in utility prices for consumers and industry.
However, investors and ratings agencies have been bullish on Slovakia, and healthy economic growth is expected to continue next year.


THE STATE airline Slovenské Aerolínie is being radically reshaped to meet new competition.
photo: Ján Svrček

AS 2002 draws to a close, Slovakia's process of privatisation has largely been completed, with electricity provider SE remaining the last strategic state firm yet to be sold off. The year also saw increasing investor interest in the country, helped by the election of a pro-Western government coalition in September and invitations to join the Nato and EU in November and December respectively.

The new ruling coalition has vowed to press on with difficult reforms including utility price deregulation, which had been put off until after September elections but will take effect in January, meaning significant increases in utility prices for consumers and industry.

However, investors and ratings agencies have been bullish on Slovakia, and healthy economic growth is expected to continue next year.

Here are some of the key business events of 2002:



TRAIN fares will rise 15 per cent, some lines may be cut.
photo: Ján Svrček

January 8

Computer firm Hewlett-Packard (HP) for the third time wins a Finance Ministry tender to supply an information system for Slovakia's State Treasury. The decision is appealed by rival Siemen's Business Services.


January 10 - Transportation, Post and Telecom Minister Jozef Macejko criticises the monopoly Slovak Telecom (ST) for increasing fees for Internet use.


January 29 - National Bank of Slovakia (NBS) economist František Hajnovič swears in as Slovakia's Finance Minister, replacing Brigita Schmögnerová after infighting in the former minister's SDĽ party forced her resignation.

Schmögnerová went on to become executive secretary of the UN's European Economic Commission in March.


January 30 - Officials from Slovakia's NBS central bank announce a record trade deficit of Sk103.2 billion ($3.19 billion) for 2001, on the shoulders of a huge December trade gap.


February 4 - Unlicensed deposit fund BMG Invest and parent company Horizont close their doors to customers for what the firm claims is an internal audit, triggering a wave of collapses among pyramid-type operators that eventually costs several hundred thousand people their savings of over Sk20 billion ($482 million). In late February, two BMG heads, Vladimír Fruni and Marián Šebeščák, are arrested in Croatia and charged with fraud and illegal business activities. Police say the firm caused at least Sk16 billion ($386 million) in damages to 170,000 clients.


March 3 - Steel giant US Steel Košice (USSK) signs a six-month contract with Serbian metallurgical company Sartid, ahead of the US giant's planned entry into Sartid as a strategic investor.


March 4 - The National Labour Inspectorate (NIP) finds 190 illegal employees out of 18,371 people inspected over the second half of 2001. Inspectors levy fines on 36 entities of Sk1.58 million ($38,000) for labour violations.


March 5 - THE ŽSR state railways firm requests another Sk10.5 billion ($253 million) in state-guaranteed credit to pay down debt and cover operating costs. According to figures from September 28, 2001, the state is already backing Sk120 billion ($2.9 billion) in loan principal and Sk33 billion ($795 million) in interest on the guarantees it has extended to various firms.

The railway operator later announces a projected operating loss for 2002 of Sk3 billion ($72 million), but says that state help in the firm's restructuring could cut the loss to as low as Sk970 million ($23 million).


March 20 - Parliament approves several changes to a labour code amendment that is set to take effect April 1. The changes, which raise caps on overtime work and allow part-time contracts, meet the main demands of employers.


March 27 - Police charge František Mojžiš, head of the unlicensed deposit company Drukos, with using misleading advertisements to raise over Sk60 million ($1.45 million) this year from 2,091 people. He faces up to 12 years in prison if convicted.


April 1 - The civic association Internet For Everyone launches a campaign criticising the lack of Internet access in Slovakia. According to the association, the main reason for a 40 per cent rise in Internet costs is the price policy of Slovak Telecom (ST), which has a monopoly on fixed-line service.


April 9 - A joint Slovak-Russian inter-government commission suggests financing a project to build a metro system for Bratislava from the debt Russia owes to Slovakia, with the Russian side looking after all construction. Economy Minister Ľubomír Harach says he is "very pleasantly surprised" by the proposal.


April 17 - The National Bank of Slovakia announces a loss of Sk3.4 billion ($82 million) for the first three months of this year, after a profit of Sk2.3 billion ($55 million) in 2001, largely because of falling interest rates on international markets and the strong Slovak crown.

NBS Governor Marián Jusko says the bank's loss should not exceed Sk5 billion ($120 million) this year.


April 30 - Finance Minister František Hajnovič announces the cancellation of a tender for the State Treasury's IT system. He says the ministry must respect the verdict of the Public Procurement Office, as well as deadlines set for further measures.


May 14 - Alternative telecom provider Profinet.sk is the lone bidder for a combined GSM and UMTS mobile telephone license. Existing GSM carriers Orange and Eurotel win licenses to operate 'third generation' UMTS networks.


May 29 - Contrary to the suggestions of the IMF and the National Bank of Slovakia, the government decides to use privatisation proceeds from the sale of a minority stake in the SPP gas utility to pay down domestic rather than foreign debt.


June 5 - A statement by central bank governor Marián Jusko that the institution would not intervene to halt the fall of the Slovak currency helps push the crown down 40 haliers on the day to Sk44.29 per euro at the close of trading, its weakest level since 1999.


June 11 - Slovakia's Council for Broadcasting and Retransmission, the broadcast licensing and regulatory body, initiates action against UPC and its subsidiaries Trnavatel and Kábel Plus Východné Slovensko for unsettled copyrights with the Slovak Copyright Association (SOZA).


June 11 - The National Bank of Slovakia reacts to the Slovak crown's sharp decline by buying what dealers estimate is 30-50 million euro worth of the local currency.


June 12 - Slovakia's Antimonopoly Office puts a halt to fixed-line monopoly Slovak Telecom's (ST) planned limited introduction of high-speed data service, answering complaints by competing Internet service providers that ST had priced out the competition.


June 20 - City councillors in eastern Slovakia's Košice approve a debt restructuring plan that will allow a Sk1.7 billion ($41 million) burden to be paid down with a Sk700 million ($17 million) new line of mid-term credit. The debt was racked up largely during the mid-1990s, when current President Rudolf Schuster was the city's mayor and launched a major reconstruction drive.


July 2 - South Korean electronics giant Samsung announces plans to begin producing TV sets and computer monitors in Slovakia by October 2002. Samsung also takes ownership of a defunct furniture factory in southwest Slovakia's Galanta.


July 12 - President Rudolf Schuster returns a revised Telecom Law to parliament, along with a number of other laws. The move is welcomed by Slovak Telecom, which is heavily lobbying MPs not to pass the revised law.


July 15 - The consultancy company Encon, Trnava receives a $149,000 grant from the US Trade and Development Agency (TDA) to help conduct a feasibility study on a project to handle radioactive waste from Slovakia's two nuclear power plants.


July 17 - Matúš Grega, head of the AGW non-banking fund, is charged with fraud in the fund's February closure and its failure to repay client deposits on which it had promised high interest rates.


August 1 - Owners of many Slovak pharmacies close their doors for four hours to protest what they say is the Health Ministry's failure to settle massive unpaid debts in the sector. It was the fourth strike action by pharmacies this summer


August 11 - The Financial Markets Office is investigating the purchase of 7 per cent of shares in shipper SPaP by the Restitution Fund from the Dunajservis company for five times the price the latter paid the state in April.


August 12 - Cable provider UPC Slovakia says it will appeal a Sk50 million ($1.2 million) fine levied in the previous week by the Antimonopoly Office for its abuse of a dominant market position and for charging unjustifiably high prices. UPC has in the past defied Telecom Office demands to lower its prices, which exceeded the legal limit tied to the inflation rate, and disconnected clients who refused to pay the new rates.


August 13 - The Supreme Audit Office says that management at the SPP gas utility under both the 1994-1998 Mečiar government and the 1998-2002 Dzurinda government broke laws and used state resources unwisely. The watchdog says the management teams of Ján Ducký (1996-1998) and Pavol Kinčeš (1999-2001) violated laws on privatisation, tax, accounting, advertising and state companies, but did not identify which management team had committed which offences.


August 20 - Slovak Telecom receives a competition reprieve with parliament's failure to pass an updated Telecoms Law at its final session ahead of September election. Passed by parliament in June and later vetoed by President Rudolf Schuster, the law would have required ST to open its local loops to competition for 'last-mile' connections with households and businesses when its fixed-line monopoly ends in January. Although the monopoly will still end, ST will not have to open its lines to competition.


August 22 - The cabinet agrees to write off almost half of the debt Russia owes Slovakia through a cash settlement for 30 per cent of the debt figure, meaning $460 million will be written off the debt in exchange for just over $130 million in cash. The deal, proposed by Finance Minister František Hajnovič, contains better terms than creditor countries have obtained from Russia in the past.


September 1 - An amendment to the commercial code takes effect, which prevents the dissolution of firms to avoid the debt of parent companies, meaning that creditors will be able to claim receivables from any subsidiary or successor of the original debtor.


September 3 - State officials strip the Profinet firm of its license to operate GSM and UMTS mobile services following the firm's failure to pay the first Sk500 million ($12 million) installment of its license fee on time.


September 15 - Following repeated cancellations of tenders to select a supplier for the State Treasury's IT system, outgoing finance minister František Hajnovič describes the final decision to negotiate solely with Hewlett-Packard as "transparent".


September 18 - Following cabinet approval of Sk65 million ($1.5 million) for the launch of an electronic signatures regime, the state prepares to recognise electronic documents on the same level as paper documents by the end of this year.


October 14 - The average Slovak monthly wage in the first half of 2002 is reported at Sk12,800 ($308), up almost 10 per cent in nominal terms and 5.5 per cent in real terms from the first half of 2001, with rates ranging from a high of Sk19,654 ($474) in one Bratislava district to an average Sk8,627 ($208) in east Slovakia's Bardejov district.


October 23 - The Telecom Office says that it has not yet approved a controversial pricing plan by Slovak Telecom. The plan put forward in early October said that clients of ST's standard service would be allowed to choose alternative telecom providers when Slovakia's fixed-line monopoly ends in January 2003, as required by law. However, ST also announced a selection of optional service plans under which clients would not be allowed to switch carriers.


October 23 - The maximum electricity price for end users will increase by 18.63 percent on average from January 2003, according to officials from Slovakia's regulatory Office for Network Industries.


October 26 - The cabinet agrees to raise value-added tax (VAT) rates to compensate for higher-than-expected state budget spending next year, but will keep the expected public finance deficit at the targeted 5 per cent of GDP. The changes are to increase the lower band of VAT from 10 to 13 per cent as of January 1, 2003, while dropping the upper rate from 23 to 20 per cent.


October 30 - The Slovak arm of global electronics concern Sony announces plans to expand production at its factory in west Slovakia's Trnava, pointing to a production increase of 3 million items to 6.92 million for the 2001-2002 fiscal year ending in March, as well as sales of Sk7.3 billion ($176 million) for the same period.


November 4 - The Slovak crown sets a new record strength of 41.26 to the euro on a wave of speculative buying, after the Fitch rating agency awards Slovakia investment status, drawing a warning from the central bank that the crown is stronger than economic fundamentals warrant. The crown/dollar rate, at 41.5, is also the strongest it has been since February 2000 (see article, page 16).


November 11 - Cabinet announces passenger fare increases of 15 per cent on Slovakia's trains and buses, and a reduction in train fare discounts for students and seniors from 50 per cent to 30 per cent. Discounts on buses will decrease by 15 per cent.


November 14 - Transport Minister Pavol Prokopovič signs a deal with the head of the Slovenské Aerolínie (SA) air carrier, Miloslav Mészáros, for the state to increase its stake in the company from 34 to over 90 per cent by late November.


November 18 - State railway network operator ŽSSK proposes shutting down 22 of 36 railway lines it says are inefficient, over 14 per cent of the network, in an effort to cut costs as its state subsidy shrinks. Although the railways had asked for a subsidy of Sk5.5 billion ($133 million), the state has allocated only Sk4.3 billion. ŽSSK is still preparing a new contract on state subsidised transport and has not said which lines are targets for cancellation.


November 24 - Hungarian refinery MOL takes an additional 31.6 per cent of shares in the Slovak refinery Slovnaft to bring its ownership stake to 67.8 per cent. The transaction, worth $360 million and including the transfer of 10 per cent of MOL shares to former Slovnaft owners Slovintegra and Slovbena, is a follow-up to MOL's capital entry in Slovnaft in 2000.


November 25 - A loan fraud trial involving more than 20 accused and millions of crowns in issued credits from the former IRB state bank has to be rescheduled for March 2003 after many defendants fail to appear in court. The loans, many of which were issued in 1992 from the Nitra and Galanta IRB branches, were allegedly secured with property whose worth had been deliberately over-valued.


November 28 - Labour Minister Ľudovít Kaník is proposing to amend a controversial labour code by next spring so that employees will be allowed to work more overtime hours and to sign part-time work contracts, despite protests from unions. The current labour code was changed this year to cancel part-time work contracts, cap overtime hours and require workers at all companies to elect a representative in what critics called a misguided attempt to bring Slovak labour law in line with European standards.


December 10 - Around 10,000 union supporters protest in Bratislava against cabinet reforms and the 2003 budget draft, which call for price rises and spending cuts.


December 11 - Parliament approves the state budget for 2003 after a record two days of debate. The budget calls for a deficit of Sk57.6 billion ($1.4 billion), or 4.9 per cent of GDP, well below this year's expected deficit of 7.7 per cent of GDP.

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