Tom Nicholson in Bratislava -

Ever since the privatization sales of most of Slovakia's major enterprises to foreign investors, the left-wing Smer party of Prime Minister Robert Fico has waged a war of words against the new owners. They paid only a pittance for their assets, Fico claimed after coming to power in 2006; they were holding Slovak consumers to ransom with hefty price increases; they had no loyalty to Slovakia or to their workers.

Now, companies like Germany's Ruhrgas, Italy's Enel and US Steel of Pittsburgh have a real threat to contend with - a bill on "strategic companies" that would limit their ownership rights.

On October 28, the Fico government approved a draft Strategic Companies Act that would outlaw mass layoffs at companies with over 500 employees or that are major suppliers of gas or electricity. The measure would also require owners to "ensure the uninterrupted operation" of their companies, and would give the state pre-purchase rights on their holdings if they wanted to sell; the price would be determined by a state-appointed evaluator, not by the market. The state would reserve the right to define which companies it regarded as "strategic" and thus as bound by the law. The measure now heads to parliament for approval in accelerated legislative proceedings, which means no debate. It should be in force by the end of the year.

Special cases

The Economy Ministry, which scripted the bill, says it will be applied only in special cases, and only for a limited period, such as until the end of 2010. Independent analysts said the measure seemed to be a populist response to rising unemployment, which at 12.5% has reached a four-year high and looks set to spike with the threat of mass layoffs at chemicals firms Chemlon and NCHZ. The latter, which has 2,000 employees, is a key employer in economically depressed central Slovakia, but has recently entered bankruptcy.

However, critics of the bill say it will do little to address joblessness because it contains too many legal stumbling blocks. For example, it does not address more complex ownership structures, such as multiple shareholders who may already be mutually bound by existing pre-purchase agreements written into their shareholder agreements. If one shareholder in a "strategic" company wanted to sell, it is not clear which pre-purchase obligation would apply.

The bill is also seen as increasing room for corruption by giving bureaucrats the power to decide which company is "strategic" - and in the event of a state buyout, how much the owners would be paid. Friends of the government could receive sweetheart buyout packages for failed companies, while others could be bullied with the threat of a government takeover of healthy enterprises. "If the government has chosen to follow the economic policy of Venezuela and its president Hugo Chavez, one has to ask whether it also aims to bring the standard of living in Slovakia down to that of Latin America," says Jozef Spirko, a partner in the Penta private equity group and vice-president of the local employers' association.

Foreign investors, whose spending fuelled economic growth that peaked at over 10% in 2007, see the bill as ingratitude. "The economic boom that Slovakia was enjoying before the global economic crisis was due to the heavy engagement of foreign investors," says Markus Halt, spokesman of the local German Chamber of Commerce. "With this bill, the government is risking the trust of investors."

Economy Minister Lubomir Jahnatek, in an interview with a local business paper published November 2, said that changes to the bill would probably be made in parliament to eliminate its legal flaws. He denied, however, that its aim was more political than economic. "This law is not a marketing move. Elections are next summer, but people could lose their jobs next month."

Send comments to The Editor