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INCENTIVES PACKAGE PROVES TOO BIG FOR CABINET

Cabinet scuppers Hankook deal

AFTER initial euphoria over Korean tyre producer Hankook Tire choosing Slovakia as the site of its new central European plant, it seems the company may be leaving. The Slovak cabinet rejected a proposed investment agreement at a July 6 meeting.

AFTER initial euphoria over Korean tyre producer Hankook Tire choosing Slovakia as the site of its new central European plant, it seems the company may be leaving. The Slovak cabinet rejected a proposed investment agreement at a July 6 meeting.

The bite of the investment agreement that the cabinet found too large to swallow was the proposed incentive stimulus package.

Speculation in the media suggests that Hankook will now look at locating its plant in Hungary or Poland; countries the company had previously rejected in favour of Slovakia.

The general director of Hankook flew to Slovakia to discuss further steps with Economy Minister Pavol Rusko.

However, Minister Rusko is very pessimistic about achieving a solution and says the cabinet's rejection might have an impact on other investors planning to come to Slovakia. He also says that the cabinet's attitude will influence other ongoing projects.

"We simply will have to tell them [foreign investors] that we cannot discuss investment stimuli before adopting the state budget," said Rusko.

Hankook chose Slovakia as the location for its new €500 million plant in May. While the investment promised to support the local economy and create jobs, the Korean tyre maker asked the Slovak government to extend an investment stimulus package worth 21 percent of its justified investment costs, which would amount to around Sk4 billion (€100 million) in incentives.

The stimulus package included tax allowances and a direct cash grant. EU regulations, however, forbid any investment stimulus package exceeding 15 percent of the investment.

Minister Rusko even decreased the originally required assistance from Sk3.6 million (€94,000) to Sk1.6 million (€42,000) per job, but the ministers representing the ruling Christian Democratic Movement (KDH) and the Slovak Democratic and Christian Union (SKDÚ) still considered the amount too high.

SKDÚ member and Finance Minister Ivan Mikloš said that the Hankook investment would still require further state spending and the incentives that would go to Hankook would prevent incentives going to other projects.

According to Mikloš, part of the problem is that the cabinet discussed the investment stimuli before discussions on the state budget have been completed. Mikloš added that the Hankook investment would require additional funding of up to Sk3 billion - Sk4 billion (€78 - €104 million) to widen access roads.

According to the Economy Ministry, the arrival of the Koreans might have created over 2000 jobs.

Other foreign investors have received large state assistance. In the case of PSA Peugeot Citroen the state supported the investment to the tune of Sk1.4 million (€36,000) per job, while the KIA investment required state assistance of Sk1.9 million (€49,000) per job.

Justice Minister Daniel Lipšic, of the Christian Democratic Movement (KDH), argued that giving Sk3.6 million (€93,000) per job to Hankook exceeds reasonable limits.

Slovak economic ministers rejected the investment package for Hankook at their July 4 meeting and recommended the cabinet not to support the investment agreement because of the burden it would put on the state budget.

The Slovak Investment and Trade Development Agency (SARIO) is pessimistic about the possibility of preparing a new proposal for Hankook.

"SARIO thinks that this investment is no longer achievable in Slovakia after the cabinet decided not to support the investment agreement even after the proposal to lower the state support," spokesman of SARIO Ondrej Žember told The Slovak Spectator.

"We managed to attract Hankook, despite the fact that Poland and Hungary had absolutely the same conditions as Slovakia, including the investment stimuli and their favourable location. We still managed to persuade the tyre producer that Slovakia was the right place to invest," Žember said.

He thinks that the cabinet's decision will definitely have an impact on other investors.

"The decision will certainly influence other investors in their decisions too. I do not dare to make a guess how many or to what extent, but it certainly is not a good signal for investors who are considering investing in Slovakia," Žember added.

After his failure to push through a proposal on the unbundling of Slovenský plynárenský priemysel (SPP), which would have resulted in special dividends for the state to pay investment stimuli to investors, the Hankook investment is the second battle that Rusko has lost.

Rusko has made clear that his main ambition is to create conditions for attracting the most foreign investment possible in the next five years.

"Here, I unfortunately bang my head against the absolute lack of understanding on the part of some coalition partners, namely the KDH and the SDKÚ, who keep rejecting some proposals on political grounds. They are weakening the success in winning foreign investments," Rusko told The Slovak Spectator in a recent interview.

"By rejecting my proposal [for SPP unbundling], pushing through the biggest investment projects in Slovakia could get complicated," Rusko said.

Hankook, which is one of the ten largest producers of tyres worldwide, will be in competition with Slovak producers Matador Púchov (tyres for cars) and Continental Matador (tyres for trucks).

Klub 500, an association of businesses with more than 500 employees, also criticized stimuli promises and said that this particular proposed stimulus package was unfair towards Matador Púchov, the Slovak tyre producer located in the Trenčín region.


Magdalena MacLeod
contributed to this report

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