Slovakia claims it's close to nailing down US Steel

By bne IntelliNews March 26, 2013

bne -

Slovakia is close to agreeing a deal with US Steel that will halt the company's bid to offload its Kosice plant, which employs 13,000 in the country's employment black spot regions to the east.

Following talks at US Steel's headquarters in Pittsburgh, Prime Minister Robert Fico released a statement which claimed: "The Slovak government and representatives of US Steel are very close to a deal on the extension of the company's activities in Kosice."

"We're on a good path to concluding the negotiations later this week," Fico added, according to AFP, without disclosing details. "Experts must finalise some details in the coming hours. If they manage that, we can bring good news to employees and their families this week or perhaps already tomorrow." US Steel spokeswoman Courtney Boone confirmed the talks took place, but declined further comment, reports the Pittsburgh Post-Gazette.

It's widely assumed that Bratislava has offered the US company new incentives - possibly in the form of cheap power - to remain in situ. The investor surprised in late 2012 when it said it was discussing "uninvited interest" in the plant, but declined to add details on why it was ready to consider offloading.

Clearly Europe's continuing economic woes, are an issue for the company, and US Steel sold its troubled Serbian plant to the government for $1 in January 2012. However, a spokeperson for the investor said late last year that Kosice was back to operating at 78% of capacity in 2012, and that it reported an operating profit of $34m after losing $162m the previous year.

While European steel markets are struggling, the Slovak plant benefits from demand from the country's relatively buoyant carmakers. However, Fico has suggested that EU environmental rules, high commodity prices, and the end of a 10-year tax holiday are to blame.

In a securities filing last month, US Steel said it expects to have to invest $400m at Kosice to comply with EU environmental standards that must be met by March 2016. The steelmaker added that it expects to incur additional costs related to changes in the EU's system for trading emissions credit allowances. The filing also noted that Slovakia's corporate tax rate was raised from 19% to 23% at the start of the year.

While it has not been admitted by Bratislava, media reports speculate that the government has put incentives to the tune of $500m on the table in a bid to offset the raised costs.

A change of hands at the country's biggest employer - particularly given that it sits in the blighted east - would be highly alarming for Bratislava however. Despite better-than-expected economic growth in 2012, high unemployment of 13%+ has remained an issue, and is particularly damaging for a populist such as Fico.

The lingering joblessness has dragged on domestic demand to bring it to miniscule levels, leaving exports the only meaningful driver of the economy. That leaves Slovakia highly exposed to the Eurozone crisis.

That Fico is now being forced into offering US Steel fresh incentives is ironic given his instinctive opposition to privatisation. The PM late last year criticized the sale of the Kosice plant - then known as the state-owned Eastern Slovakia Steel Works (VSZ) - in 2000. Now he is having to hand the investor added handouts to tempt it to stay.

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