THE LONG-STANDING steel overproduction dispute between the European Commission, the eastern Slovak steelmaker US Steel Košice (USSK), and the Slovak government has finally been resolved.
Slovak Prime Minister Mikuláš Dzurinda and EU Commissioner for Enlargement Gunter Verheugen announced on March 19 that the parties had reached an agreement over the effective date to reduce the production of flat-rolled products at US Steel's Slovak subsidiary in Košice. The US corporation confirmed the announcement on the same day.
To compensate for the overproduction of steel, the tax breaks promised to the company by the Slovak cabinet will be cut by $70 million (€57.05 million) from the originally planned $500 million (€407.5 million) by 2009.
In addition, the steelmaker agreed to pay a $16 million (€13.04 million) tax to the Slovak government in 2004 and to pay an additional $16 million tax in 2005, reads the official statement provided by the United States Steel Corporation.
While the company is still reviewing the agreement to determine the appropriate accounting, it could record a tax charge of up to $32 million (€26.08) in the first quarter of 2004, USSK spokesman Ján Bača told the SITA news wire.
Prime Minister Mikuláš Dzurinda called the agreement, which must still be confirmed by the European Commission, a reasonable compromise. Dzurinda assumes that the process should not take longer than a couple of weeks.
Under Slovakia's Treaty of Accession to the European Union, USSK is entitled to $500 million in tax breaks. The European Commission (EC) insisted that production quotas for USSK came into force at the end of 2002 when the Accession Treaty was signed. However, USSK had assumed that the quotas would become valid from May 1, 2004, the day Slovakia officially joins the EU.
All parties involved in the negotiations acknowledged that "the dispute arose out of a good faith misunderstanding of the language of the Accession Treaty that dealt with production limitations."
The steelmaker agreed that the production limitation provisions, which are based upon USSK's 2001 flat-rolled production and provide for annual increases of 3 percent, would be honoured by the company from January 1, 2004, through the end of 2009.
In 2001, USSK produced 4.05 million tonnes of steel. The year after, its production rose by 8 percent to 4.39 million tonnes, and in 2003 the steelmaker rolled out 5 million tonnes.
USSK President Christopher Navetta said the Slovak government had initially pledged that all limitations concerning the growth of USSK steel production would become effective only after the country joins the EU in May 2004.
The overproduction of steel in USSK has been one of the EC key objections leading up to Slovakia's accession to the European Union.
Last year, the company swallowed the largest portion of aggregate state aid, the news wire SITA reported.
The Slovak government's condition for the aid is that the company maintain its labour force of 15,500 people, which makes it the biggest employer in the country.
The company accepted this commitment in the privatisation contract through which it acquired the core business of the ill-fated VSŽ steelmaker in 2000.
According to the privatisation treaty, USSK is also committed to a 10-year capital investment plan in Slovakia, which should result in expenditures of approximately $700 million (€575.23 million).
Between 2000 and 2002 the company invested $259 million (€212.84 million) and in 2003 the sum was $110 million (€90.4 million). This year, USSK plans to complete projects worth $160 million (€131.48 million).
"Next year we will be one year ahead of schedule in capital investments. We have more than fulfilled our commitments to the government, our employees, and our community, and we expect, and fully anticipate, that the Slovak government will do the same," Bača told the press.
Marta Ďurianová contributed to the report
