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THE STATE COULD LOSE TRANSPETROL SHARES WORTH SK3 BILLION AFTER TAX SNAFU

Another landmine lurks

ECONOMY Minister Pavol Rusko alarmed his ruling coalition partners when he said that Slovakia might lose 34-percent from its 51-percent stake in oil pipeline operator Transpetrol.
According to Rusko, the shares might slip into the hands of a company from Eastern Slovakia, the Vranov-based CSI-CD, represented by Ignác Ilčišin.

ECONOMY Minister Pavol Rusko alarmed his ruling coalition partners when he said that Slovakia might lose 34-percent from its 51-percent stake in oil pipeline operator Transpetrol.

According to Rusko, the shares might slip into the hands of a company from Eastern Slovakia, the Vranov-based CSI-CD, represented by Ignác Ilčišin.

The news comes shortly on the heels of a decision made by the International Centre for Settlement of Investment Disputes (ICSID) in Washington declaring that Slovakia would have to pay millions of euros to Czech bank ČSOB regarding the debt of Slovak bailout bank Slovenská inkasná.

In early 2005, the Prešov Regional Court ruled that CSI-CD would be eligible to get the 34-percent share package, currently worth Sk2 to 3 billion (€50 to €80 million), that it had received in damages from an earlier legal dispute.

The Economy Ministry appealed the decision of the Prešov court at the Supreme Court, which has already decided in favour of Ilčišin twice before.

The history of the case goes back to May 1995 when the tax authority wrongly blocked Ilčišin's rights to real estate. He later claimed Sk40 million (€1.03 billion) as property damage from the government.

Back then, the Finance Ministry failed to appeal against this claim that was recognized in court.

"In 1998 an executor offered 34 percent of the government's shares in Transpetrol as a damage settlement," Rusko explained for the press.

According to Rusko, although the executor distrained government shares with a nominal value of Sk40 million, their actual value ranged between Sk2 billion and Sk3 billion.

The Economy Ministry plans to set up a team consisting of representatives from the Finance, Justice and Economy Ministries and regional development agencies to seek effective ways to prevent Ilčišin from taking control of the governmental shares.

"It is absurd that someone might gain several billions from a dispute worth Sk40 million," Rusko said.

The Economy Ministry claims that the case is just another landmine that the Mečiar regime laid and the current government will have to deal with.

"Unfortunately, the fact that [Sergej] Kozlík and [Miroslav] Maxon [both former ministers of finance in the Mečiar government] failed to appeal the verdict within 15 days, meant the verdict gained validity and the firms started executing its claims. After failed trials to obtain, for example, even the building of the Economy Ministry, the judge provided the firm with the shares that they now claim. It was a mistake," spokesman of the Economy Ministry Maroš Havran told The Slovak Spectator.

However, the Economy Ministry hopes that the judges will discover several illegal proceedings within the case. One of the loopholes is that during the transfer of the Transpetrol shares, a law banning the privatization of state-owned companies was in force. Based on that law, shares of the Transpetrol could not have been transferred to a private or any other firm.

"Some state bodies and the executor herself took illegal actions and the 1998 transfer itself should not have happened when there was no legal basis for distraining the shares of a state-run company," Havran explained.

"In our view the verdict cannot be executed," Havran added.

Another potential problem with the case is that executor Milada Korimová should have not touched the property of the Economy Ministry when, officially, the original proceeding had been taken against the Finance Ministry, which was in charge of taxes. In 2001, Korimová was criminally prosecuted and suspended.

Ilčišin himself also faced criminal prosecution and was suspected of money laundering and fraud.

Though the Movement for a Democratic Slovakia (HZDS), which was part of the Mečiar government at the time the case generated, has not taken any official stand yet, they are unwilling to carry any responsibility.

"It is ridiculous in the extreme that after seven years they try to throw the blame on the previous government, when the second Dzurinda government has known of the problem but has not moved a step toward a solution," the spokesperson of the HZDS, Igor Žvach, told The Slovak Spectator.

"It is necessary to find out who has neglected the case in the current government for the past several years. This has not been a hidden landmine - it was on the table. The Dzurinda government has neglected it for seven years," Žvach said.

Transpetrol is careful in commenting on the case.

"We consider it correct that only the Economy Ministry, which is directly involved in the particular court trial, makes comments on the case," Martina Méry, head of the Transpetrol general director's office told The Slovak Spectator.

In February 2001, the Supreme Court confirmed the CSI-CD's claim for the Transpetrol shares for the first time. In 2002, the Supreme Court returned the case to the Prešov court, which at that time decided in favour of the state.

Former Economy Minister Ľubomír Harach told the daily Pravda that it was very strange that the courts delivered completely contradicting decisions within four years.

In mid-November 2004, the media informed the public that Slovakia might want its Transpetrol shares back just two and half years after the Slovak government had sold a minority share to Yukos, Russia's second largest oil concern.

However, the Economy Ministry is aware that the current problems with the Transpetrol shares might seriously affect the state's plans to buy the shares back from Yukos.

"If the Economy Ministry loses the 34-percent share, it would become a minority owner and might lose further shares too," Havran told The Slovak Spectator.

According to the privatization agreements with Yukos, the state, after losing its majority, is obliged to sell the decisive 2 percent of shares to Yukos.

"If Yukos crashes, their property would be taken over by the Russian government," Havran added. Yukos is currently in legal proceedings in Russia and its solvency is uncertain.

The Slovak government sold its Transpetrol shares to Yukos for $74 million. Yukos took control of the 49-percent stake April 29, 2002, having secured the tender in December 2001 after competing with Slovak oil refinery Slovnaft.

The Slovak pipeline network enjoys an advantageous position in the European crude petroleum market, giving Transpetrol leveraging power. The network consists of two routes - the Druzhba and Adria pipelines - both of which have favourable geographic locations and a relatively high transport capacity.

Druzhba was built on Slovak territory between 1960 and 1961. Its route starts in the Russian Federation and continues to the Czech Republic through Belarus, Ukraine, and Slovakia.

Druzhba's overall length in Slovak territory reaches 507 kilometres; beyond Slovakia's borders it stretches a further 2,280 kilometres. The throughput capacity of Slovakia's section is 21 million tonnes of crude petroleum per year.

The Adria pipeline covers just 8.5 kilometres in Slovak territory, starting in the Croatian port of Omishajl and leading to Hungary and Slovakia. It has an overall length of 606 kilometres and an annual capacity of 4.5 million tonnes. It connects to the Druzhba pipeline in Šahy-Tupá, in southern Slovakia.

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