VZCZCXRO7271
PP RUEHIK
DE RUEHSL #0464/01 3071334
ZNR UUUUU ZZH
P R 031334Z NOV 09
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0238
INFO RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHSL/AMEMBASSY BRATISLAVA 0278

UNCLAS SECTION 01 OF 02 BRATISLAVA 000464 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/CE J. MOORE AND M. LIBBY 
 
E.O. 12958: N/A 
TAGS: ECON EINV LO
SUBJECT: SLOVAKIA MOVES TO PROTECT "STRATEGIC ENTERPRISES" 
 
BRATISLAVA 00000464  001.3 OF 002 
 
 
SUMMARY 
------- 
 
¶1. (SBU) The Slovak Cabinet last week approved a controversial 
proposal by Minister of Economy Lubomir Jahnatek to enable the 
government to nationalize distressed companies, starting with 
the Novacke Chemicke Zavody (NCZ) chemical factory.  The measure 
would allow the GoS to nationalize designated "strategic" 
companies with over 500 employees, whose shutdown would have a 
"wide social impact."  The bill is being lined up for express 
passage through Parliament after being passed by the Cabinet on 
the same day it was introduced.  The outcry from various 
business groups, who have criticized the bill's vague language 
and say they fear it impinges on private property rights, may 
move PM Robert Fico to step in and slow things down or soften 
the bill somehow.  End summary. 
 
PROTECTING A PRICE-FIXER 
------------------------ 
 
¶2. (SBU) The proposal reflects the government's desire to 
protect NCZ's 1,500 jobs in the face of bankruptcy proceedings. 
The company is located in a relatively high unemployment area in 
central Slovakia; its financial troubles stem from the European 
Commission's July decision to impose a fine on a number of 
Central European chemical companies for price collusion.  NCZ's 
EUR 19.6 million share of the EUR 61 million total fine--the 
largest share--forced the company to file for protection from 
creditors shortly after the judgment was handed down. NCZ is 
controlled by Cyprus-based Disor Holdings Ltd., having acquired 
its share from the holding company Penta Group.  A number of 
observers see Jahnatek's proposal as a mechanism to bail out 
Disor from the public treasury and then re-privatize the 
company. 
 
¶3. (U) Jahnatek's proposed measure, which now goes to Parliament 
for debate, would have distressed companies notifying government 
120 days before liquidation.  The government would then have the 
option of declaring the company "strategic," which would give it 
the right of first refusal for acquisition, presumably to pump 
cash into the enterprise to preserve employment or to avoid a 
domino effect on other large employers.   Jahnatek has described 
the proposal as a temporary anti-crisis measure which would be 
in force only until the end of 2010. 
 
NOT OKAY WITH INDUSTRY 
---------------------- 
 
¶4. (U) Virtually every industry group and economic commentator 
in the country has registered disapproval of the proposed law, 
saying that it threatens private property rights in any number 
of ways.  The Slovak-German Chamber of Commerce issued a strong 
statement on October 29, saying that because the draft law 
retroactively alters privatization agreements, it "is a bad 
signal to all investors....  With this step, Slovakia will 
seriously threaten its attractiveness as a place for 
investments...."  Germany is a minority shareholder in SPP, 
Slovakia's only natural gas distributor and owner of an 
important transit pipeline handling 70% of Europe's imports from 
Russia.  Prime Minister Robert Fico has on numerous occasions 
threatened SPP with re-nationalization for attempting to raise 
prices to consumers. 
 
¶5. (SBU) Also among those protesting is the Federation of 
Employers' Associations, which criticized the government for not 
consulting with business before submitting the bill for 
approval.  The association's president, Tomas Malatinsky, 
characterized the bill this way: "It disturbs the business 
environment and its content directly contradicts the principles 
of private law and the Constitution."  Similarly, the National 
Union of Employers promised to demand the withdrawal of the 
bill.  Even the government-friendly Klub 500, a group of 14 
formerly state-owned enterprises that regularly belly up to the 
government trough, has offered sharp criticism of the bill. The 
U.S. Chamber of Commerce in Slovakia is formulating a critical 
statement, which it will likely release on November 3. 
 
¶6. (U) Apart from attacking the very notion of nationalizing 
private businesses, critics have also gone after the bill's poor 
drafting.  The criteria for designating a company "strategic" 
are said to be vague to the point of making any company 
vulnerable to takeover.  Similarly, the idea of a government 
takeover as a right of first refusal is cited as very likely to 
violate a company's articles of incorporation, which often offer 
first refusal to its current shareholders.  As well, the law's 
method of valuation for takeover candidates (to be determined by 
a "certified expert") is seen as peremptory and subject to 
 
BRATISLAVA 00000464  002.3 OF 002 
 
 
abuse.  Obviously, any single-source valuation will have 
enormous disadvantages compared with the usual market-based 
methods. 
 
COMMENT 
------- 
 
¶7. (SBU) This proposed law is a typical first offer from 
Jahnatek, whose reflexes consistently steer him back to old 
command-economy solutions: state ownership, centralized 
"strategic" decision making, protection of jobs and the status 
quo at any price.  That it went through Cabinet quickly is no 
surprise, and we would ordinarily expect it to go through 
Parliament on an express schedule, allowing little time for 
public comment.  The outcry from business interests, which is 
unusually uniform and loud, may slow down the much-abused 
express legislative procedures that Fico and his Cabinet clearly 
have in mind.  While it is still possible that the government 
will push it through, we are mindful that Fico has yet to weigh 
in on the issue, and that he is not above suddenly withdrawing 
his support and leaving his minister twisting in the wind.  We 
can only hope that he senses real opposition and will find a 
better way to rescue NCZ. 
EDDINS