Slovakia faces multi-billion arbitration

A PRIVATE health insurer is demanding Sk15 billion (€447.8 million) from the Slovak government and threatening to take Slovakia to court over a law that bans private health insurers from keeping their profits.

A PRIVATE health insurer is demanding Sk15 billion (€447.8 million) from the Slovak government and threatening to take Slovakia to court over a law that bans private health insurers from keeping their profits.

And the bills could climb even higher: the three other private health insurers are considering similar actions, saying that they are fully entitled to seek legal protection from a law that has been dogged by trouble since its inception.

Prime Minister Robert Fico called the insurer's demands a brazen act of disrespect.

"It is racketeering towards the Slovak Republic," he said at a press conference. "But we will not allow anyone to racketeer or blackmail us."

Under the revision to the health insurance act that the Slovak Parliament passed on October 25, private health insurers are banned from paying out dividends to their shareholders. Instead, any profits they make have to be fed back into the health care system.

The Dutch shareholder of Dôvera, Health Insurance Companies of Eastern Europe (HICEE), sent a pre-arbitration notice to the Slovak Cabinet Office and the ministries of health, finance and foreign affairs demanding Sk15 billion in an amicable settlement, a step necessary for any party to make before proceeding to arbitration. HICEE, which holds more than a 99-percent share in Dôvera and a 49-percent share in Apollo, is part of the Penta International Investment Group.

Fico said the pre-arbitration notice is not a legitimate document because it does not contain a real estimate of the damages that could have theoretically emerged as a result of the new law.

"They just came up with this number and now they expect us to tremble in fear," said Fico.

He added that if the health insurers do not like it in Slovakia, they can just leave, or take out loans and build their own hospitals.

Health Minister Ivan Valentovič argued at the press conference that health insurers in Slovakia should not be focused on "running a business".

The Health Ministry, which produced the legislation, has been tightlipped how they will respond to the potential arbitration.

"Mr. Fico and Health Minister Valentovič have already commented on the pre-arbitration notice at a press conference, and neither Fico nor the minister will return to this issue," ministry spokeswoman Silvia Balázsiková told The Slovak Spectator.

Suit's chances for success uncertain

The ministry quoted constitutional law expert Ján Drgonec as saying that health insurance companies had not entered an environment that was supposed to be market-based, the SITA newswire reported.

"It had been clearly announced in advance that competition and business have no place in health insurance," Drgonec said.

But some legal experts, such as constitutional lawyer Radovan Procházka, said the insurers' chances for success in court depend on their ability to prove that they suffered damages.

Penta is confident that its claims are realistic. The company's calculations are based on the initial investments and the two years they have operated on the market, said Penta spokesman Martin Danko. During that time, Dôvera has generated financial results that allow for a qualified estimate of its future revenues, based on the expected growth of clients and premiums, he said.

"The investor can define the expected return on its investment, based on financial results that the investor has already achieved under the conditions that were in effect when the investor entered the market," Danko told The Slovak Spectator.

Economic results for 2006 and 2007 suggest that by 2009, Dôvera's client base would grow by 15 percent a year, and its revenues would grow by two percent, based on nominal wage growth predictions in the national economy, Danko said.

"The agreement on the protection of investments reached between the Netherlands and the (former) Czechoslovak Federal Republic - which had applied to Slovakia since 1993 - has been violated," he said. "We consider the revision to the law on health insurers an indirect expropriation without compensation for the damages."

Danko dismissed Fico's reaction to the possible arbitration, saying Penta is only exercising its right to an independent court trial, as any individual or party that feels damaged by a state is entitled to do.

"An international court should be the only arbitrator that evaluates how justified the investors' claims are," Danko said.

More suits could be coming

Though the health insurers have been keeping each other informed about their plans, the court procedures will be a separate matter for each.

The Eureko B.V. group, the Dutch shareholder of the Union health insurer, has also been negotiating legal steps with law firms, Union spokeswoman Nina Zelníková said.

Eureko's communications manager Lorrie Morgan said Eureko wants to use all legal means to protect its investments based on the bilateral agreement on investments and European Union free trade regulations, as quoted by Zelníková.

At this point the shareholder feels it is too early to comment on the amount of damages the company might demand, Zelníková said.

"However, the eventual legal steps should have no impact on the functioning of the Union health insurer," she told The Slovak Spectator.

European Health Insurance, backed by the J&T financial group, isaid it has been analysing the situation and is considering further action.

Procházka, the constitutional lawyer, told the Sme daily that the health insurers have a decent chance of success. However, they will have to prove that the legislation resulted in losses, he added.

Eduard Kováč, executive director of the Association of Health Insurers, said in an earlier interview with The Slovak Spectator that the revision to the law is at odds with the Fico government's official agenda.

The agenda clearly claims that no such changes would be made to the health legislation, because they would damage Slovakia's reputation by failing to provide enough protection for foreign and domestic investments, he said.

"This was the first step towards fulfilling the government's decision from May 23, 2007, which encouraged both institutional and legislative steps that gradually lead to the creation of a single health insurer," Kováč told The Slovak Spectator.

All four private insurers - Dôvera, Union, Apollo and Európska Zdravotná Poisťovňa - said they would continue performing as usual in 2008.

The partner in the Health Policy Institute think-tank, Tomáš Szalay, said last October that the legislation is not likely to solve the problems in the health care sector, because the health insurers are not the cause of the problem. On the contrary, they are stabilising elements on the market, he said.

"The problems within the health care sector can be attributed to the government's lack of vision in this area, to drug policies, and to the fact that hospitals cannot be reformed," Szalay told The Slovak Spectator. "If there are court trials and we lose them, not only politicians but also taxpayers will pay the bill."

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