COMMENT: Hostages to fortune in Czech Republic

By bne IntelliNews May 30, 2014

James de Candole of Candole Partners -

 

One of the most intriguing aspects of Czech Finance Minister Andrej Babis’s rise to power is the number of hostages to fortune he is having to give to achieve his ambitions. These people might yet turn against him.

The motives of individuals like Richard Brabec, the environment minister, and Jaroslav Faltynek, the chairman of parliament’s agriculture committee, are clear. Both have a personal interest in the commercial success of Agrofert Holding, and that is partly determined by decisions taken in the environment ministry and the agriculture committee. These people will rise and fall with Andrej Babis the politician.

But Babis has been able to enlist as well some notable independent professionals to his cause, people who are not known for their passivity in the face of power. These include a whistle-blowing auditor, Lukas Wagenknecht, and a public interest lawyer, Robert Pelikan, both of whom now work for the finance minister at the highest level. And last week we learnt that Babis is intending to place the aggressively independent financial analyst, Vlastimil Jirik, on the supervisory board of CEZ in June. 

There can be no doubt that having people like Wagenknecht, Pelikan and Jirik in positions of power is in the public interest, in spite of the legitimacy they confer on Andrej Babis. But for Babis, such people may be considered hostages given to fortune, an unavoidable necessity to achieve his ambitions who might yet be his undoing. Replace the words "wife and children" in Francis Bacon's quotation above with their names and consider how each might become an impediment to Babis’s own great enterprise. 

Here is an example. The finance minister is currently gathering evidence against the management of the giant state-controlled utlity CEZ, in preparation for the annual general meeting on June 27. This evidence will document how former CEO Martin Roman and current CEO Daniel Benes have destroyed shareholder value in transactions ranging from the overpriced acquisition of solar power plants to the underpriced sale of a coalmine. 

Unlike the internal CEZ audits ordered by his predecessor at the finance ministry, Miroslav Kalousek, Babis is apparently determined to do his own audit with his own people. This will be used, finally, to discredit the management of CEZ, if not in a court of law, then at least in the court of public opinion, and to justify the decision of the finance minister to sack Benes. Certainly, if Benes is fired next month, and all the signs now are that he will be, we shall all applaud the finance minister. 

Two birds, one stone

But as we applaud, we should consider what Babis himself is hoping to accomplish besides the removal of Benes. It is far from clear. Perhaps Babis will attempt to kill two birds with one stone, using the disgrace of Benes, a founding member of the Prague chapter of the governing Czech Social Democratic Party (CSSD), to discredit Prime Minister Bohuslav Sobotka as well. This seems possible after Babis's recent assault on Sobotka over his role in the sale of the colamining outfit OKD. Recall that Sobotka was the finance minister who appointed Martin Roman (appropriately enough on April Fools’ Day 2004). And it was only in April that the prime minister declared that the current boss of CEZ had his full confidence. Sobotka may succeed in disentangling himself from OKD, but he will find it much harder to disentangle himself from Radek Pokorny, who for years has been Roman’s lawyer. 

Perhaps Babis might even seek a peaceful settlement with Roman having once eliminated Sobotka and consolidated his control over the resources of the Czech state and its largest company. As for CEZ itself, Babis might wish to reform the institution, by appointing people to the supervisory board that have both the professional ability and the motivation to hold the management accountable in future, regardless of who leads the finance ministry. Or he might decide to take control of CEZ himself, by packing the supervisory board with those like Brabec and Faltynek who depend upon him for everything, people such as the current CEO of Agrofert Holding, Zbynek Prusa.

But whatever Babis has in mind for CEZ, he will have to contend with the team of independent-minded advisers and officials that he himself has assembled to expose the abuses of power by an establishment he now wishes to dominate. And these people, we must hope, are Babis’s hostages to fortunes, future impediments to his great enterprise of remodelling Czech politics in his own image.

 

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