James de Candole of Candole Partners -
Vaclav Klaus Junior, the former president's son and academic head of the Czech Republic's most elitist private school PORG, was unceremoniously dumped a few days ago by the chairman of the school's board, Martin Roman, formerly of CEZ and Appian, the owner of Skoda Plzen.
The row brings to an end a business partnership that has lasted some 15 years. And although the cause of the quarrel is not exactly clear, it is most likely to be a dispute over money or politics - in so far as either Roman or Klaus is able to separate the two things. What would you expect? The great wealth of both families is built entirely on politics. Indeed, there are no better examples of the rewards that Czech state capitalism confers upon its champions.
And yet the school's marketing material, without a hint of irony, describes PORG as a "truly independent school: an ivory tower unbuffeted by the gales of politics." This statement is both ridiculous and untrue. In the last few years, the political gales have hardly stopped buffeting this particular ivory tower.
First, there was the revelation in the tabloid Blesk that President Milos Zeman's daughter, Kacenka, had left the school after failing her mathematics exam. Kacenka is more famous abroad than even her father after she was filmed at a sex party. Then Klaus Junior joined his mum and dad in publicly mocking the presidential aspirations of Karel Schwarzenberg, who he described as a Nazi sympathiser. And a few weeks after that, PORG's school building in Prague was daubed with a red star and swastika in a cheeky reference to Mrs Klaus' family history. And now Klaus Junior has resigned after rowing with one of the family's most trusted advisors - and investors.
Someone should calculate how much Martin Roman has sunk into the Klaus family. Both sons have been on the Roman payroll for years, one at PORG, the other at CEZ. And the parents? I wonder how much Roman has invested in the careers of Mr and Mrs Klaus since he got his first big break in 2000 as the boss of state-owned Skoda Plzen, acquired by the murky Appian in 2003.
PORG claims to be an independent school. But a closer look at its management and funding suggests otherwise. PORG's board of directors speaks for itself. It is packed with Roman's family members and business associates. However, if we are to understand on whom PORG really depends, we need to follow the money -something that the Czech media has started to do.
PORGY and CEZ
PORG's revenues for the period 2010-2012 totalled some CZK335m (€12m). Of this, 50% came from tuition fees, 30% from donations and 20% from state subsidies. The fees and subsidies are transparent. The donors are not. PORG lists in its annual reports the names of its donors. But nowhere does it make public the actual size of their individual donations. For example, its annual report for 2012-2013 reveals that a certain Daniel Benes (I assume this is the Daniel who took from Roman as head of CEZ) has given money to PORG, but no further details are provided. PORG received over CZK23m in donations in that year. How much of that was donated by Benes remains a secret.
Estimates of how much Roman has given the school vary. Roman has claimed in the past that he has given CZK100m, but it seems he was telling a pork pie. The Czech media claimed in January that Roman has only given CZK15m to PORG since 2006, as well as funding scholarships from the income of his family foundation. The value of these scholarships in 2012-2013 amounted to some CZK1m, according to the annual report.
The newspaper also claimed that Skoda JS has donated a staggering CZK40m to PORG. To remind readers, in 2004 Appian, the new owner of the recently privatised Skoda Plzen, sold its nuclear division to a Russian state company. Skoda JS acknowledges that it supports PORG, but provides no details of how or how much. Skoda JS is one of CEZ's largest suppliers of course.
Other sponsors include Telefonica, known locally as O2, another CEZ supplier, which has given CZK30m, according to the media; Metrostav, which is currently under criminal investigation for its Blanka tunnel project, is a sponsor, although it has not been willing to reveal how much it has given; and there is even an obscure family of Prague property developers of Persian origin called Samii among PORG's sponsors. The Samiis are currently under investigation for their part in the sale of a building late last year to the Czech labour ministry for CZK300m.
In the period 2010-2012, PORG received approaching CZK100m in donations. But we have no idea how much of this money came from Roman's business partners and how much from the proud parents of the school's alumni. In other words, it is possible that some donors are acknowledging their appreciation of Martin Roman and perhaps of CEZ, but not of the school.
As for in-kind donations, at least those publicly acknowledged by PORG, these include the donation of legal services by Martin Roman's family lawyer and CEZ legal counsel, Radek Pokorny; and the donation of basketball shirts and shorts by Miroslav Jansta of CEZ Basketball Nymburk, the country's most successful basketball club funded by CEZ.
PORG states that it spent almost CZK38m on procuring services between 2010-2012. Some CZK23m of this sum was spent on unspecified services bundled up under the heading "other". This is where PORG's spending on IT and advertising is hidden.
The Czech weekly Reflex has claimed that Roman owns one-third of BigBoard, the country's largest billboard business. If true, it would help explain why PORG, which is apparently turning students away it is so popular (at least until this week), smothered the streets of Prague last year in fatuous advertisements for the school.
Who paid for PORG's advertising campaign? If Roman is a beneficial owner of BigBoard, then any money PORG paid to BigBoard goes into Roman's pocket. Imagine a situation in which a business associate of Roman's donates money to PORG, which then pays BigBoard, which then pays Roman. And if no one paid for the advertising campaign on BigBoard's billboards, then BigBoard should be listed as an in-kind donor in PORG's annual report for this year - regardless of who owns it.
The dispute between Roman and the academic head of PORG is of great public interest, and not only because the head is the son of Vaclav Klaus. The dispute matters because it might help shed light on Roman's hidden business interests by encouraging PORG to be more open about its donors.
In an effort to appease angry parents and teachers, Martin Buransky has now been put on the school's board of directors as a parent representative. Buransky is indeed a parent. But he is also a longstanding supervisory board member of PORG with close ties to CEZ. For eight years, he was responsible for Deloitte's public sector business. Needless to say, CEZ is a key Deloitte client. In fact, I am surprised it has not appeared as a PORG sponsor yet.
Without a public record of how much individual donors have given in cash, we can hardly rule out the possibility that this high-end "independent" school is no different to any overpriced fancy goods boutique on Parizka, Prague's most expensive shopping boulevard: namely, a place for its owner and his business partners to wash their money.
In all cases, it is a supreme irony that this self-consciously private school is funded partly by the Czech state, partly by Russian state companies, partly by the suppliers of the state-owned energy utility and partly by a man whose wealth is derived entirely from his former sinecures in state-owned companies.
If PORG is a tower of anything, it is of crony capitalism. And it is wobbling.
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