Sobotka in a hole as coal mine trial begins

By bne IntelliNews October 9, 2015

bne IntelliNews -

 

Over the next few months Czech Prime Minister Bohuslav Sobotka faces the embarrassment of a public trial concerning one of his most controversial decisions: the privatisation of coal miner OKD.

Eleven years after Sobotka, then finance minister, sold the state's remaining 46% stake in the largest Czech black coal miner to tycoon Zdenek Bakala,  three men are standing trial on charges they massively underestimated the value of the company.

The government sold its remaining 46% stake for CZK4.1bn (€151mn) in 2004. An estimate made later by consultants Ernst & Young put the total value of the mining group at more than CZK50bn, indicating that state officials were either incompetent or corrupt. Andrej Babis, the powerful finance minister and oligarch, who also owns several of the country's biggest newspapers, has repeatedly used the OKD case to attack the prime minister.

The people under trial are one employee of Vox Consult, the consulting company that made the expert evaluation of the value of OKD that helped set the sale price, and two high-ranking officials at the National Property Fund, which was in charge of the privatisation. The main charge is that they underestimated the value of the state’s stake in OKD by CZK5.7bn, with the employees at the state holding company failing in their duty to protect the wider public interest.

Commenting on the trial, Sobotka said the ministry acted in the belief that the expert valuation was in order. “When we acted as a government, there were no questions about this evaluation. Those misgivings have come up 11 years later... it is now questioned as part of a criminal process and the court must decide whether during that evaluation the expert made a mistake or not," Sobotka said.

One of OKD’s main assets that appears to have been seriously undervalued was its property portfolio of 44,000 flats in and around Ostrava.  Bakala sold RPG Byty - the owner of the flats – to US private equity giant Blackstone Group last month. The deal reignited criticism of the deal, with opponents claiming it was “another step towards completion of the fraudulent privatisation of the OKD”.  

Bakala, who dropped out of Forbes' billionaire list for 2015, is these days one of the most unpopular figures in the Czech Republic. He is accused of ignoring a pledge made during the privatisation of the company to offer the flats to former miners at low prices.

OKD is now part of New World Resources (NWR) which went through a painful capital restructuring last year to avoid bankruptcy. Bakala is also criticised for extracting some €2bn in dividends from the coal miner during the boom years and then threatening cutbacks when coal prices fell. A plan to shutter the Paskov mine was averted following lengthy negotiations with the government over state support last year. 

The future of the mine is still uncertain because of the continued weakness in coal prices. Sobotka said on October 5 that the government is ready to renegotiate the deal it made with NWR to keep the Paskov mine open.

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