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C O N F I D E N T I A L SECTION 01 OF 03 LJUBLJANA 000132 
 
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E.O. 12958: DECL: 03/01/2016 
TAGS: ECON EINV ETRD SI
SUBJECT: NEW FACES, SAME STORY: SLOVENE PRIVATIZATION UPDATE 
 
REF: A. 05 LJUBLJANA 0889 
 
     ¶B. 05 LJUBLJANA 0766 
     ¶C. LJUBLJANA WEEKLY REPORT 10 FEBRUARY 2006 
     ¶D. 05 LJUBLJANA 0489 
 
Classified By: Chief of Mission Thomas B. Robertson, reasons 1.4(b) and 
 (d). 
 
¶1. (C) Summary: The current Government of Slovenia (GOS), in 
office since December 2004, came into power on a platform of 
change.  One of the key elements of the coalition agreement 
was economic reform, including plans to extract the state 
from the economy.  The GOS has said it specifically wants to 
sell off state shares in banking and telecom.  Despite these 
stated goals, the GOS has accomplished little on 
privatization.  A continuing "go slow" approach at the 
highest levels of government, coupled with an unwillingness 
to sell Slovene assets to foreign investors, remain the key 
roadblocks to change.  There may be value in remaining 
conservative on the sale of valuable state assets, however, 
continued lack of action by the government only ensures 
choices not made now will be more difficult in the future. 
End summary. 
 
-------------- 
Current Status 
-------------- 
 
¶2. (C) In office for more than 14 months, the center right 
coalition continues the refrain that economic change is 
necessary, in particular weakening the strong 
government-business connection that has existed since before 
Slovenia's independence in 1991.  The GOS has appointed a 
commission for economic reform (ref A), which has announced 
plans for significant changes to the Slovene economy: 
minimizing the tax burden, creating a more flexible labor 
market, and generally creating a more open economic system 
designed to encourage continued growth in the coming years. 
In line with the coalition agreement, the reform committee 
has also announced that a key part of economic change will be 
privatization of state-owned industries.  Since coming to 
power, however, the government's record on privatization has 
been lackluster.  The sole example of state sell-off of 
shares in Slovene businesses in the past year is the 
back-room deal of retailer Mercator (ref B). 
 
¶3. (C) The GOS, either directly or through state-owned funds 
KAD and SOD, owns significant shares in nearly 60 percent of 
the Slovene economy.  While state-owned firms contribute to 
Slovenia's economic growth rates of 3-4 percent in recent 
years, many of these firms such as leather manufacturer IUV, 
clothing company Mura, and car seat maker Prevent, are in 
industries that are already struggling to be competitive and 
have little future in a well-developed economy like 
Slovenia's.  In recent months, all have announced significant 
layoffs and intentions to move production outside of 
Slovenia.  Post understands that other major Slovene 
businesses, such as appliance maker Gorenje and crystal maker 
Rogaska, are losing competitiveness and could struggle 
financially in coming years.  While privatization is not a 
panacea to solving the competitiveness problems of these and 
other Slovene businesses, the government also has not shown 
itself to be the most effective manager of businesses even in 
the best of times. 
 
--------------------------------------------- ------- 
Finance Minister Bajuk: Maintaining A "Golden" Share 
--------------------------------------------- ------- 
 
¶4. (C) On 10 February, COM hosted a lunch for Finance 
Minister Andrej Bajuk (ref C) during which Bajuk acknowledged 
he was "moving cautiously" on privatization plans for 
Slovenia's two largest banks, Nova Ljubljanska Banka (NLB) 
and Nova Kreditna Banka Maribor (NKBM).  (Note: The GOS owns 
more than half of NLB and 100 percent of NKBM.)  Raised 
abroad and a long time employee of the Interamerican 
Development Bank, Bajuk seems to be a key advocate for 
privatization within the GOS.  Despite more Western leanings, 
however, Bajuk told COM he felt it could make sense for the 
Slovene government to retain a "golden" (i.e., significant, 
but non-majority) share in certain industries, particularly 
in financial services.  Bajuk indicated that he remains 
 
LJUBLJANA 00000132  002 OF 003 
 
 
interested in working with the European Bank for 
Reconstruction and Development (EBRD) on a possible 
"pre-privatization" stake in NKBM.  EBRD sources tell 
Econoff, however, that progress in this area is very slow. 
The GOS (both current and previous) has long discussed plans 
for privatization of the banking sector (ref D), but only 
limited action has been taken. 
 
¶5. (C) In addition to financial services, pundits in Slovenia 
often point to the telecommunications sector as one that 
needs reform and privatization.  Telekom Slovenije, the 
government-owned monopoly landline operator and Mobitel, its 
cellular subsidiary that controls over 70 percent of the 
mobile phone market, have been regular targets of criticism 
by foreign investors and competition authorities from the EU. 
 While Bajuk told COM he was interested in privatizing 
Telekom, he said he would first like to "improve the 
competition situation."  Referring to widely-rumored interest 
by Deutsche Telekom in purchasing Telekom Slovenije, Bajuk 
told COM he did not want to privatize the Slovene phone 
operator merely by "selling to another monopoly."  Bajuk did 
not, however, elaborate on exactly how he might go about 
ensuring an improved competitive environment in the Slovene 
telecommunications sector.  (Note: Despite Bajuk's desire to 
see greater competition in Slovenia's phone market, the 
responsibility for this rests with the Ministry of the 
Economy and the Slovene Competition Protection Authority.) 
 
--------------------------------------------- ----------- 
Comment: Is There Actually A Strategy and Timeline Here? 
--------------------------------------------- ----------- 
 
¶6. (C) Slovenia's record of economic growth since 
independence has been one of steady, if not stellar, growth. 
With many of the key ingredients to support a strong economy 
(healthy infrastructure, well-educated workforce, stable 
political system) existing since 1991, Slovenia has been 
loath to attempt the radical changes that other countries in 
Central and Eastern Europe have undergone.  Slovenia has 
often also shown great reluctance to sell state-owned firms, 
particularly to foreign investors.  Perhaps tellingly, the 
highest levels of government on occasion have expressed 
concern in public fora over what might happen if foreigners 
"take over" (ref B). 
 
¶7. (C) Slovenia's "go slow" conservative approach to economic 
change has, until now, been successful.  Bajuk's efforts to 
remain cautious on privatization indicate that there appears 
to be no agreement in the GOS about making rapid changes.  To 
be sure, the current government's conservative approach has 
been based in part on not wanting to rock the boat and 
thereby risk introduction of the Euro, currently planned for 
January 2007.  Going forward, however, Slovenia will almost 
certainly need to move faster.  After nearly two years in the 
EU, external market pressures continue to force Slovenia's 
economy into a more dynamic and difficult environment.  The 
current GOS professes to understand this and says that 
creating a more nimble, forward-looking economy will be 
essential to Slovenia's success in the coming years.  There 
has been until now, however, little substantial action to 
support these professions.  Privatization, in particular, has 
been slow in coming.  What has been missing, moreover, in our 
discussions with GOS policymakers, has been a clear strategy 
and timeline for the way ahead in privatization. 
 
¶8. (C) While the GOS has talked a good game on privatization, 
popular suspicions about foreign ownership cause the current 
GOS's stated intentions to sound much like those of its 
predecessor.  Post is unaware of any significant effort by 
this government or those previous to counter these suspicions 
and influence public opinion on privatization, at a time when 
there is extensive discussion and debate on tax and other 
reforms.  We are concerned that social and political 
obstacles to economic reform remain as strong as ever. 
Interestingly, Post has on file a letter dated February 2003 
from the Ministry of Finance to the Embassy, stating 
precisely which companies in 2003 and 2004 the state planned 
to privatize, and the share percentages of each that would be 
sold.  Companies on this list included NKBM, Telekom 
Slovenije, IUV, and Slovenia's sole port operator, Luka 
Koper.  Of the more than 20 firms listed in the document, not 
one has been privatized to this date and many could be found 
 
LJUBLJANA 00000132  003 OF 003 
 
 
on the current list of companies the GOS says it plans to 
sell.  A well-planned approach to privatization is certainly 
prudent and lack of traction in this area is not a new story 
in Slovenia.  Outside observers are beginning to interpret 
the government's cautious moves, however, as intractability 
and resistance to change by the GOS itself.  It is time to 
start the ball rolling. 
ROBERTSON