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Covering the week ending November 28, 1999

01.12.1999, 08:46 | JANA ANDACKÁ | CHRIS TOGNERI

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PAGE 10A ECONOMY AND FINANCE

Debt Settlement Endangered

Next year Russia will pay Slovakia only $40 mn (38.62 mn EUR) out of its total debt of $1.2 bn (1.1 bn EUR). The news was reported by the Russian ambassador to Slovakia, Alexander Akseňonok. This sum will only partially cover the interest paid on the owed sum. Russia reasons that this year it signed an agreement with the Paris Club of creditors, according to which it cannot favour an individual creditor over other creditors. The Paris Club agreed that Russia can only pay the interest this year and next year. Russia claims that at this stage it cannot stop the production of the rocket complex S-300 and it is likely that it will ask Slovakia to write off $140 mn (128.73 mn EUR), although at the beginning of the process, the country declared it would only cost $18.5 mn (17 mn EUR).

Agreement Between Slovakia And The Czech Republic Brings Property Division Of The Former Federation To An End

An agreement signed by Slovak Prime Minister Mikuláš Dzurinda and his Czech counterpart, Miloš Zeman, ended a dispute of seven years over the division of property of the former Czechoslovak Republic.

In line with article 4 of the agreement, both countries consider the division of the property of the federation, Federal Fund of the National Property and the Czecho-Slovak State Bank to be concluded. In this respect they do not and will not claim any property rights.

According to Zeman, one of the most difficult problems was the exchange of shares in Commercial Bank (Komerční banka, KB) a.s. Prague, owned by the National Property Fund (Fond národného majetku, FNM) for the shares of VÚB a.s. Bratislava that are owned by the Czech FNM. He appreciated the gesture of the Slovak side, which agreed to the exchange "although it is clear that the quote of the KB shares is higher than that of the VÚB shares.``

PAGE 11A ECONOMY AND FINANCE

From Net To Core Inflation

In an effort to distinguish between the market causes of the inflation rate, which can be tackled through a monetary policy, and those which are temporary and/or beyond the reach of the monetary policy, many central banks have decided to eliminate total inflation from the administrative, seasonal and stochastic influence. The ways to do so vary form country to country.

For its own needs the National Bank of Slovakia (NBS) decided in 1999 to exclude regulated prices and foodstuffs prices from the total inflation. It has defined the adjusted inflation rate as net inflation.

In order to improve the analysis of price development in Slovakia and bring the methodology of adjusting inflation in harmony with the practices in surrounding countries, both the Slovak Statistics Bureau (Štatistický úrad SR, ŠÚ SR) and the NBS in co-operation with the Czech National Bank worked out a methodology to calculate the so-called core inflation. This rate will represent the rate of rise in consumer prices lowered by the influence of regulated prices, change in indirect taxes and subsidies.

As of January 2000, the core inflation will be calculated on ŠÚ SR`s consumer basket, from which items with regulated prices will be excluded. A list of these items will be updated once a year. This adjusted basket currently accounts for some 85 percent of the total consumer basket.

For the NBS the core inflation will provide important information on the long-term price impact of its monetary policy. The policy will no longer be veiled by administrative interference of the government in price-making.

For the public and business spheres the development of the core inflation will be a useful means to check on the activities of the NBS. To other countries the difference between core and total inflation will reflect the rate of market liberalisation.

PAGE 21A INFO-COMMUNICATIONS TECHNOLOGIES

The Circle Of Potential Purchasers Of ST Is Getting Smaller

Last Thursday the Ministry of Transport, Post and Telecommunication advertised in The Financial Times, Hospodársky denník and Národná obroda dailies its interest to sell 51 percent of Slovak Telecom`s (ST) shares to a strategic investor.

The date of the tender has for various reasons been postponed numerous times. According to the current plan, the selection of the strategic partner and the sum it will pay for the stake will be known by the end of March 2000.

The Active Operations Manager of the security-trading company Slávia Capital a.s. Bratislava, Viktor Levkanič, said that investors do not think negatively of the delays as long as the reasons for them are rational. Slávia Capital belongs to the Deutsche Bank- -led consortium selected by the government to advise on the ST privatisation.

According to the advertisement, the tender can be bid upon by any company which operates a fixed telephone network with over two million subscribers and which in 1998 generated at least Sk16,400 (377 EUR)-worth of revenues per single telephone line.

KPN Royal Dutch Telecom, Norwegian-Swedish Telenor-Telia and France Telecom have already officially expressed their interest in the ST stake.

According to TREND, the German Deutsche Telecom and Danish Tele Danmark are also interested. However, these companies so far have not officially confirmed their interest.

Based on the recommendations of its advisors neither the Ministry nor ST will announce the price the strategic investor is expected to pay for the shares. "It is not good when in this stage the projections are made for the price as it may cause the offer to be lower,`` said ST`s General Director, Emil Hubinák.

PAGE 2B SLOVAK COMPANIES

Financing Of Production Expansion Still Not Resolved

Representatives of VSŽ-U.S.Steel s.r.o. Košice announced that they will go ahead with expansion plans of both product range and capacity of production of tinplates for the packaging industry. The project has been temporarily halted due to the financial problems in VSŽ a.s. Košice, which - as an owner of 50 percent of the shares - was to find a guarantor for a half of the loan for expansion. However, none of the banks were willing to give the guarantee. Originally the production was to have been expanded by the end of 1999.

PAGE 5B SLOVAK COMPANIES

Vitana Will Open A Production Factory In Slovakia

In April 2000 a leading Czech foodstuffs producer Vitana a.s. Byšice will launch production in Slovakia. At present the company owns 5 production factories in the Czech Republic - in Byšice, Kralupy, Prostějov, Roundnice nad Labem and Varnsdorf - in which it produces over 200 different foodstuffs products. Since 1 January it will transfer the production from Prostějov, in which it now employs 220 people, to Byšice and the new factory in Slovakia.

The new production site will be built in the former rice and pulse packaging company Interpukky s.r.o. Trnava, which will be one of the most modern factories in Central Europe. The construction and total investment into machinery and information technology will cost Sk40 mn (0.92 mn EUR).

The company will produce five to six powder foodstuff products and continue with the Bask rice-packaging. Three kinds of the Slovak-made products will be exported to the Czech Republic.

OMV In Negotiations With Slovnaft

The Austrian oil refinery OMV is in talks with Slovnaft a.s. Bratislava again on its entry into Slovnaft. According to the Chairman of OMV`s Supervisory Board, Oskar Grünwald, OMV and other potential investors received an invitation to discussions from the investment bank Salomon Smith Barney, which Slovnaft charged with the selection of its strategic investor. According to Grünwald, it is vital for OMV not only to provide Slovnaft with financial sources but also to gain a majority stake. However, he failed to specify the exact amount of shares desired.

Only 40 kilometres from Schwechat, Slovnaft has been strategically attractive for OMV since the beginning of the 1990s when OMV`s management first expressed its interest to enter Slovnaft. Apart from OMV, there have been 11 other companies interested in co-operation with Slovnaft since 1992. However, discussions were concluded after the Slovak government withdrew its privatisation intention.

PAGE 9B CAPITAL MARKET

Restitution Investment Fund Brings The Book Value Of Its Property To Reality

Within a two day period at the end of November, the Restitution Investment Fund (RIF) a.s. Bratislava sold and then bought back a part of its shares from the General Credit Bank (VÚB) a.s. Bratislava. The financial plan for 1999, which had been approved by the fund`s Supervisory Board, projected a loss of Sk2.912 bn (66.94 mn EUR). This business operation has been in accordance with the sales-financial plan approved by the fund`s shareholders at the annual shareholders` meeting on 6 May 1999. Its aim was to change the purchasing prices and thus bring to reality the book value of the fund.

The intention to bring to reality the book value of the property significantly changes the business plan and commercial strategy of the fund. Since June 1999 RIF has been selling shares from its portfolio through a public market. As of 31 October the fund managed to sell this way 303,743 shares of 96 companies worth some Sk61.9 mn (1.42 mn EUR), while it suffered a loss of Sk233.3 mn (5.36 mn EUR). Within the fund this loss was decreased (mainly by profits from deposited money) and caused the total loss to reach only Sk103 mn (2.36 mn EUR).

According to information obtained from the Central Securities Register (Stredisko cenných papierov, SCP), RIF`s biggest shareholder is the Slovak Insurance Company (some 40 percent). Other big shareholders include the Slovak Land Fund (22 percent), Central European Privatization Fund (11.5 percent) and the Prague-based company Wood Company (6.58 percent). After making the buy-back trade with the Slovak Insurance Company the National Property Fund (Fond národného majetku, FNM) was left with only a 2-percent share.

PAGE 11B BANKS AND INSURANCE COMPANIES

Revitalisation Of Banks Delayed

Based on a government decision, the Ministry of Finance is to increase the registered capital of the Slovak Insurance Company by Sk2 bn (45.97 mn EUR), Slovak Savings Bank by Sk4.9 bn (112.64 mn EUR) and VÚB by Sk10.2 bn (234.48 mn EUR).

The sources for this purpose are to be provided by the National Bank of Slovakia (NBS), which is ready to dissolve the adjustments of Sk19.4 bn (445.97 mn EUR) that have been created for the redistribution loan that the NBS had given to Consolidation Bank (Konsolidačná banka, KB) š.p.ú. Bratislava, which mainly administrates bad debts from the past.

The inherited bad debts disable KB to pay its debt towards the NBS. For months now KB has been waiting for the government to give guarantees for redistribution loans.

Besides the re-capitalisation, both VÚB and the Slovak Savings Bank need to get rid of a majority of their loss-making loans. The government-passed proposal suggests the sums to amount to Sk45 bn (1.03 bn EUR) and Sk22.8 bn (524.14 mn EUR) respectively. According to the proposal "by the end of 1999 the banks will exchange the set volumes of bad debts for a state-guaranteed loan to the taking-over institutions.`` According to TREND, however, no steps had been taken by the end of November, which would lead to the application of such a solution. Experts think its realisation in 1999 is highly improbable.

The Ministry of Finance wants to enforce that the Slovak Insurance Company, Slovak Savings Bank and VÚB deposit a part of the sources they will obtain through an increase in their registered capital in the Investment and Development Bank (IRB). That would enable the IRB to settle its debt towards the NBS. However, according to observers, the correctness and time-schedule of such a procedure is rather problematic.

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