First strategic firm fingered for takeover

NOW Slovakia not only has legislation which allows the state to take over companies it deems ‘strategic’ but the government has designated the first ‘strategic’ company for acquisition following the law’s enactment on November 26.

NOW Slovakia not only has legislation which allows the state to take over companies it deems ‘strategic’ but the government has designated the first ‘strategic’ company for acquisition following the law’s enactment on November 26.

The legislation, originally tailored to deal with the troubled chemical firm Novácke Chemické Závody (NChZ), which declared bankruptcy in September, has displeased not only traditional political opponents of Prime Minister Fico’s government, but also some of its staunchest allies, such as trade unions.

Foreign chambers of commerce argued that the law undermines property rights as guaranteed by the Slovak Constitution by significantly limiting the strategic decision-making powers of company owners. The so-called social partners, unions and employers’ organisations, complained that the government has violated the rules of tripartite negotiations by its failure to discuss the draft legislation thoroughly with them. The unions had also appealed to Slovak President Ivan Gašparovič to veto the law but he turned a deaf ear to their request and signed the bill into law on November 26.

The president said he agreed with the arguments and position of the prime minister’s government and also viewed the law as a measure to ease impacts from the economic crisis.

The law, which parliament passed on November 5, authorises the state to buy bankrupt firms which the cabinet declares to be ‘strategic’ to the economy. Any firm employing more than 500 employees which is deemed important for the security of the state, protection of public health or that operates within so-called network industries can be defined as strategic. If such an enterprise files for bankruptcy the state will have a pre-emptive right to take over the company and later decide whether to select new owners.

The cabinet said that the law is intended to help preserve existing jobs at companies severely affected by the economic downturn. Though the Economy Ministry has said that the law would be valid only until December 31, 2010, PM Fico suggested in early November that some companies that might be taken over by the state could remain in state hands even after then.

The European Commission has requested additional information about the law from the Slovak government and will be reviewing whether it complies with EU regulations.

On December 2, the cabinet approved Economy Minister Ľubomír Jahnátek’s proposal to classify NChZ as a strategic company, saying that the company is important to the functioning of the Slovak economy and employs more than 500 people. The ministry’s report said that the action will probably have a negative impact on the state budget even though it is not possible to estimate how much might be generated in a subsequent public tender to sell the company, the TASR newswire wrote.

NChZ filed for bankruptcy on September 17 after being slapped with a €19.6 million fine by the European Commission for participating in a price-fixing cartel.

Foreign investors deeply concerned

Foreign chambers of commerce expressed concern about the manner in which the law was prepared, saying that it was done with a notable lack of transparency.

“Neither economic experts, nor the general public, nor the companies concerned were invited to participate in drafting the proposed legislation,” the American Chamber of Commerce (AmCham) told The Slovak Spectator. “In addition, they were given no opportunity to offer their input or have consultations on the law.”

AmCham also objected that the draft was presented in parliament under fast-track legislative proceedings without even the usual interdepartmental review.

“We find this quite frustrating as it is exactly this type of approach which was identified as problematic in our recent comprehensive survey of foreign investors in Slovakia,” AmCham said.

Additionally AmCham believes the law contains unclear mechanisms for granting strategic status to a company that finds itself in bankruptcy proceedings.

“The state could become a temporary owner of a company until a new suitable owner who would secure the firm’s operations to the desired extent would be found,” AmCham wrote. “This practice could facilitate potentially corrupt approaches, as the law gives no details of the control mechanisms to be used in this process.”

The German-Slovak Chamber of Commerce spoke in the same vein.

“The foreign chambers of commerce believe that the law hinders company owners’ property rights which are embodied in the Constitution of the Slovak Republic by significantly limiting the strategic decision-making powers of owners,” Markus Halt of the German-Slovak Chamber of Commerce told The Slovak Spectator.

AmCham, together with the German-Slovak Chamber of Commerce and eight other foreign chambers of commerce had sent a joint letter asking President Gašparovič to return the law to parliament for further review. The president’s subsequent decision to sign the law came as a bitter disappointment. “We strongly believe that this law should have been withdrawn from the legislative process,” AmCham told The Slovak Spectator.

According to Halt, the German-Slovak chamber believes that such a law could justifiably be introduced as a stabilising, anti-crisis measure. However, he added that with the exception of the banking sector, there is not any other economic branch in Slovakia whose decline could destabilise the whole economy.

“As the Slovak banking sector has been healthy throughout the crisis, there was no need for such legislation at all,” Halt told The Slovak Spectator. “Through this law the government has opened a gateway for state interventionism in the private economy. The task of the state in a market economy is not to take over private companies but to set the rules for doing business.”

Slovakia and deters them from making further investments in Slovakia,” Slovak Democratic and Christian Union (SDKÚ) deputy Ivan Štefanec told The Slovak Spectator. “By taking such steps the current ruling coalition is chasing work opportunities away from Slovakia and is worsening the country’s position in the fight for new investments.”

Štefanec called the law a tragicomic attempt to nationalise private property in Slovakia and said the whole idea of the law is scandalous and that he does not think that it could be fixed by removing certain parts of the legislation.

Štefanec insisted that in the process of adopting the legislation that parliamentary rules had been violated several times. For example, he said the draft did not go through the legislative council of the government before it was submitted to parliament.

“The draft did not go through the tripartite meeting and thus it violated the law on collective bargaining,” Štefanec said. “Also the law on parliamentary discussion was violated because all the parliamentary committees had not reviewed the law as it was approved. The law and the whole process has become a shame on Slovak legislation which the world can now see.”

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