Business News

Czech producer prices have grown again in December. The government is likely to ask coal mine bidders to increase offers. Czech officials put pressure on Boeing over Aero's problems. Czech Airlines open new Prague air cargo terminal. Cabinet shortlists three bidders in Unipetrol privatisation. The Czech Republic has asked the World Bank and the European Bank for Reconstruction and Development to help it upgrade the bankruptcy law.

Producer prices grow fifth month in a row

Czech producer prices have grown again in December, extending their month-on-month gains into a fifth consecutive month. The producer price index grew a little faster than expected at 0.2 percent from November to December, mainly due to a further rise in the costs of the food industry output. This resulted in a 0.9 percent year-on-year increase. December was the second month when producer prices posted a year-on-year gain after 21 months of declines.

Government likely to ask coal mine bidders to increase offers

The Czech government is likely to hold further talks with bidders in the sale of brown coal mine Severoceske Doly after original offers failed to reach expectations. Czech-Slovak investment bank J&T outbid two rivals in the tender in December when it offered around 6.8 billion crowns (or over 260 million USD) for a 55.4 percent state stake in Severoceske Doly. But, that is almost 10 percent below what the government had hoped for. Sources close to the sale said that the government's adviser on the sale sees the value of the stake in Severoceske Doly at around 7.5 billion crowns.

Industry and Trade Minister Milan Urban told the business daily Hospodarske Noviny that none of the bidders offered a market price and the antitrust office has warned that should the government accept the existing offers it could be viewed as illegal state aid to the winners.

Czech officials put pressure on Boeing over Aero's problems

The Czech Republic has criticised the U.S. aerospace company Boeing over its role in the troubled Czech aircraft maker Aero. Boeing is a minority owner in the state-run Aero but has management control. The state holds large debt guarantees in Aero, and Czech Industry Minister Milan Urban said a long-dragging dispute over financing for indebted Aero should be resolved within weeks.

A spokesman for the ministry, which oversees the company, told Reuters the government is disappointed that Boeing has failed to develop the joint venture successfully, and a new strategy for the company is needed. Boeing officials were not available for comment. After the collapse of its former Eastern Bloc market, Aero was forced to challenge major arms exporters for deals in areas such as India, Kenya, the Middle East and South America, but has not been very successful so far and lay-offs in the firm have accelerated. Aero's auditor has said that without state backing the firm would go bankrupt.

A government official told Reuters the Czech cabinet will try to link the issue with an upcoming renewal of the ageing fleet of Boeings used by state-run airline CSA. He was quoted as saying that a purchase of Airbus was certainly something the Czechs could do if Boeing fails to bring a new plan for Aero. The government has considered privatising its stake in Aero but has not taken any concrete steps. New meetings with Boeing are planned for the end of January.

Czech Airlines open new Prague air cargo terminal

Czech Airlines opened a new cargo terminal at Prague's Ruzyne Airport on Thursday with an annual capacity to start at 60,000 tonnes. The state-owned flagship carrier said it expected cargo business to grow in the country joining the EU in May, and that capacity at the 30 million USD terminal could be expanded to 100,000 tonnes. CSA dominates the air cargo transport in Prague. Last year, 25,000 tonnes of cargo passed through its old terminal which was pulled down to expand the passenger section of the Czech Republic's main international airport.

Cabinet shortlists three bidders in Unipetrol privatisation

The Czech cabinet short-listed three of six bidders in a tender for 63 percent of the oil and refinery group Unipetrol.

Two of the three firms - Poland's PKN Orlen and Hungary's MOL - are from neighbouring EU accession countries who themselves are considering a merger. The third bidder that will be allowed to perform due diligence on Unipetrol is Royal Dutch/Shell Group. Russian oil exploration company Tatneft, Kazakh firm KazMunaiGaz and Czech-Slovak financial group Penta all failed to make the shortlist.

Cabinet spokeswoman told reporters that the government took into account mainly the Czech Republic's strategic interests. According to various sources, Tatneft and KazMunaiGaz offered the highest price.

Analysts expect the government to raise around 13 billion crowns or 500 million USD for the package. Indicative bids from the preliminary round of bidding confirmed the estimate was realistic.

A source close to PKN Orlen told Reuters that the fuel firm initially offered around 10 billion crowns for Unipetrol but the bidders are expected to change their offers later in the sell-off, after examining Unipetrol's books.

Royal Dutch/Shell already owns a stake in Unipetrol's leading refinery Ceska Rafinerska. PKN filed its bid alone but has co-operation agreements with U.S. fuel giant ConocoPhillips and Czech chemicals group Agrofert if it wins the tender.

The sale should lead to a consolidation of the industry in Central Europe where most oil players, including Austria's OMV, which decided not to bid, face thin profit margins. Reuters quoted an analyst who believes that sooner or later, Unipetrol, PKN and MOL will be parts of one group. MOL and PKN have already revealed a long-term goal to merge, though they chose to bid for Unipetrol separately.

A spokesman for Royal Dutch/Shell said the company would continue in talks with other investors who are allowed by the Czech government to take selected assets of Unipetrol.

The Czech cabinet also postponed the deadline for the final selection of the winners by one month, until the end of April.

Czechs seek help with bankruptcy law

The Czech Republic has asked the World Bank and the European Bank for Reconstruction and Development to help it upgrade the bankruptcy code. An International Monetary Fund report recently criticised the code for giving creditors inadequate protection in the event of corporate bankruptcy. The World Bank already conducted an assessment of Czech insolvency law in 2001, but planned reforms have been repeatedly delayed.

The Czech Ministry of Justice has now called in the EBRD and the World Bank which are considering extending technical assistance to speed up the reform process. Michel Nussbaumer, team leader of EBRD's legal transition and knowledge management team, said that the Czech government hopes to introduce emergency changes in time for EU accession on May 1 before passing a new law by the second half of 2004.

Countries joining the EU hope the benefits of accession will include much needed foreign cash to help boost growth. But the lack of strong bankruptcy laws could make creditors wary.

The Czechs have also been under pressure from multilateral organisations and rating agencies to adopt a more efficient bankruptcy regime to allow non-viable firms to shut down, creating a more flexible labour environment and helping growth.

One of the problems is that creditors are only guaranteed 70 percent of the sale proceeds of collateral, rather than 100 percent, which has made credit more expensive. Other problems include limited creditor control over insolvency procedures and excessive length of proceedings.