Over the past 20 years Slovakia has gained extensive experience in privatisation as part of the process of transferring state property into private hands. Slovakia's privatisation backlog started shortly after the fall of the Iron Curtain, continues to the present day and, apparently, will have to be dealt with for some time to come.
Over those years, Slovakia saw a number of privatisations and experienced a range of privatisation policies: from the conviction that the state is a good owner to the exact opposite; from preferring voucher privatisation in favour of "all citizens" to preferable privatisation to selected "domestic capitalists".
The golden age of privatisation
The golden era of privatisation was during the two terms of Prime Minister Dzurinda, between 1998 and 2006, when for the sake of tackling the country's economic lag, a liberal attitude prevailed that led to the extensive privatisation of substantial parts of the economy. Due to this, reputable international players managed to acquire principal local enterprises in the energy, telecommunication and banking sectors, as well as other industries, such as the Enel acquisition of 66% in Slovenské Elektrárne, the E.ON Ruhrgas and GDF Suez acquisition of 49% (in aggregate) in SPP (the main Slovak gas company) and the Deutsche Telekom acquisition of 51% in Slovak Telecom.
A return to the view of the state as a good owner
After Prime Minister Fico came to power in 2006, the runaway privatisation train was suddenly derailed. This related in particular to Rail Cargo and Bratislava Airport, where the privatisation processes were abandoned almost at the last minute. Once again, the theory of the state as a good owner prevailed.
Naturally, the idea of the state as a good owner cannot be labelled as being without merit. After all, some of the foreign investors that acquired majority holdings in Slovak enterprises in privatisation proceedings are partly state-owned themselves. Unfortunately, a number of scandals at Slovak state-owned enterprises have been revealed, indicating that this might not be the right way for Slovakia.
A limited about-face
Prime Minister Radicova has now turned back towards privatisation, although not without limitations. The Government's Programme Declaration proclaims entry of a strategic business partner into Rail Cargo or Bratislava Airport, as well as the denationalisation of six state-run heating utilities and the remaining shares in bus transport companies. Discussions are still underway about the sale structure, the amount of equity the government is considering retaining and the overall timeline. On the other hand, state-owned shareholdings in partially privatised monopolies remain taboo, and the same holds true for other attractive Slovak family silver assets, such as Tipos (the betting company) or Transpetrol (oil transporter).
Consequently, even though the current government demonstrates the clear political will to privatise, the question remains of whether the proposed extent of privatisation can significantly help the financially strained state budget. Regrettably, the current financial condition of the privatisation candidates contrasts negatively to 2006. The results of the economic crisis, the decline in the number of passengers and some recent dubious trades (e.g. the unprofitable exchange of the airport`s real estate and the lease of the airport`s car park spaces) have raised concern that Bratislava Airport will not be an overtly attractive target. Moreover, the decline in the amount of transported freight, repeated occurrence of losses and loan debts towards the Slovak state all indicate that the current condition of Rail Cargo is also not too promising.
Evidently, the biggest temptation will be the state-run heat utilities in Kosice, Bratislava, Zilina, Trnava, Zvolen and Martin that might attract attention due to their relatively good financial status as well as investments made to increase the quality and environmental friendliness of their heat production facilities. Market observers estimate that foreign investors' interest in the six state-run heating utilities could potentially mirror the 2005-2006 scenario. In particular, the adjoining Austrian and Czech regional utility companies may express a renewed interest. Whether Rail Cargo Austria or Deutsche Bahn will be sufficiently motivated to again take part in the race for Rail Cargo Slovakia remains to be seen.
The Privatisation Act of 1991 and the National Property Fund
The procedural framework of privatisation will continue to be shaped by the "grey-haired" Privatisation Act of 1991, along with the National Property Fund – both successful survivors of all Slovakia's democratic regimes. The Act vests responsibility for drafting a particular privatisation project with the founder, which is usually the ministry that governs the state enterprise at stake. The decision on privatisation is subsequently taken by the Ministry of Economy, except for decisions on privatisation by direct sale, which are within the competence of the government. The government may reserve the right to also decide in other cases. Consequently, the enterprise to be privatised shall be transferred to the National Property Fund that carries out the privatisation, in the way as approved in the decision on privatisation.
Having learned the lessons of the past, Slovakia is being asked to demonstrate stable political conditions and the government's ability to transpose the Government's Programme Declaration into reality. Moreover, the ultimate success of the upcoming privatisation efforts will largely depend on two factors: (i) the attractiveness of the privatisation package put up for sale and (ii) the transparent procedures applied by the authorities with the aim of enhancing competition among bidders while minimising the risk of bribery and nepotism.
This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit: http://www.schoenherr.eu/roadmap.
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