Slovakia could re-nationalize Russia-EU gas pipeline

Fico came to power in 2006 on a welfare platform including a pledge to better protect workers and stop utility price hikes -- a major concern among many in the ex-communist country, who fear their wallets will be pinched when Slovakia adopts the euro. He has since extended that to a threat to expropriate utilities if they try to overcharge Slovaks and jail retailers who may take advantage with price hikes when the European Union newcomer swaps its koruna for the single currency.

On Friday, Fico told shareholders of gas pipeline operator and domestic distributor SPP, E.ON Ruhrgas and GDF Suez SA, he would buy their 49% controlling stake back if they were unhappy with profits made since its 2002 sale. “The government is ready to take SPP back under state control... We will pay the purchase price,” Fico told a news conference. He added SPP made 16.7 billion koruna ($780 million) in profit in 2007. “If you don’t like to do business here go and do business somewhere else,” he said. E.ON and GDF were not immediately available for comment.

Analysts doubted whether Fico would actually make good on his offer but expressed surprise at his comments and said they were more reminiscent of Venezuelan President Hugo Chavez than a European leader who has said he would uphold EU values. “This is Chavez-like populism and there’s economic xenophobia and anti-capitalism sentiment behind it,” said Grigorij Meseznikov, head of the Institute for Public Affairs. “If Fico actually does what he says he would do, it could hurt Slovakia’s credibility.”

 
BATTLE WITH UTILITIES

In what was one of the region’s biggest privatization of its time, German E.ON and GDF bought a 49% stake with management rights in SPP for 130 billion Slovak koruna ($6.14 billion), or $2.7 billion in 2002 exchange terms. SPP moves around 70% of the EU’s total consumption of Russian gas, or 20% of the EU’s total consumption -- and it is one of Slovakia’s most lucrative firms.

The sale of control in the pipeline operator was seen by analysts and diplomats as key to financing important structural reforms that were crucial to Slovakia’s joining the EU in 2004. SPP asked this week for permission to raise prices 19.8% for households, citing higher gas prices from Russia, following the rejection of an earlier request by the independent state regulator (URSO).

“SPP has requested an increase of prices only due to rising costs and not to raise profit,” an SPP spokeswoman said. Fico indicated SPP would not be allowed to raise prices. “This is an actual offer in reaction to hike proposal,” he said. “To raise money for the buy-back of SPP (49% stake) would be the easiest thing in the world.”

 
FIGHTING PRICES

Fico has also angered some businesses. Market watchers said that, in particular, Fico’s challenge could spook foreign investors, who have boosted the country of 5.3 million from the poor man of central Europe to one of its fastest growing economies with Q2 growth of 7.6%. Fico has more or less kept price growth in check, although higher food and fuel prices still drove it to 4.4% in July. But many Slovaks fear an even bigger jump, like that seen in euro zone newcomer Slovenia, where inflation hit a six-year high of 6.9%.

But analysts said his activism sent the wrong message to EU institutions like the European Central Bank, giving them reason to pause before allowing other states like Slovakia’s neighbors the Czech Republic, Hungary, or Poland into the euro zone. “If Fico really does it, it could threaten admission of other countries to the euro zone as it could be a warning sign for the ECB and other institutions,” said JP Morgan analyst Miroslav Plojhar. (Reuters)