Pressure rising on Czech PM

By bne IntelliNews April 4, 2014

bne -

Just a handful of weeks into his term, Czech Prime Minister Bohuslav Sobotka is already facing accusations of corruption. The source of the allegations appears to be finance minister and head of coalition partner Ano, Andrej Babis. Given Babis’ rising power, the PM could be on shaky ground. 

The mud cast at Sobotka on April 3 says that in 2004 - when he was finance minister in a Social Democrat (CSSD) government led by Jiri Paroubek - he oversaw the state sale of mining firm OKD for a suspiciously low price. The report is the result of a "long term investigation" by Mlada fronta Dnes (MfD), one of the country's biggest dailies, which was bought by billionaire Babis last year. 

Basing its report on apparent internal documents from the ministry now run by its owner, MfD says that the CZK4.1bn (€149m) the state received for the miner from Zdenek Bakala's New World Resources (NWR) was less than half of its value. It says finance ministry documents show that an expert opinion valued the state's 49% stake at CZK10.3bn.

The paper also claims that a police file shows Sobotka had the value of OKD verified by a law firm that also represented the buyer. Sobotka has been criticized in the past for his connections to lawyer Radek Pokorny.

According to CTK, the Paroubek government initially approved the sale at CZK2.25bn, but raised the price following an objection from competition office UOHS. The market price was allegedly about CZK3.5bn, the news agency writes. 

Now the head of the CSSD - to the chagrin of former party leader and current president Milos Zeman - Sobotka rejected the claims. "The state sold its minority stake in OKD in 2004 for the market price, which was higher than that set by the expert opinion and also for a higher price than the UOHS set in its stance," the PM wrote to CTK.

He added that the deal had then also been questioned by Brussels. "The European Commission checked the sale and noted that no unlawful public support was provided," he insisted.

Borrowed time

The PM looks on shaky ground early in his administration, having only taken office at the end of January. The struggling OKD has been a hot political potato for some time, with NWR set to close OKD's Paskov Mine, which sits in the employment blackspot of north Moravia. The PM has recently hatched a plan under which the government would hand over CZK1bn in return for delaying the closure to 2016.

It took months for Sobotka to seal a coalition deal with Babis - who owns the Czech Republic's biggest employer, agricultural and food group Agrofert - and then pass it by sworn rival Zeman. Since then, Babis' fledgling political party Ano - which took just a handful of seats less than the CSSD in elections in October - has jumped to the top of opinion polls. 

That has seen the left-leaning Sobotka and the billionaire already clashing in public. In late March, the PM joined the chorus of voices outside the government that has questioned Babis' conflicts of interest. Sobotka suggested the finance minister should sell his interest in the country's largest company. Babis' response was to effectively dare Sobotka to sack him.

The Ano leader offered little support to his supposed partner in government over the scandal reported by MfD, telling CTK that the buck stops with Sobotka for any losses during the privatisation. "Naturally, he holds responsibility for it. This is why I even less understand why he wants to inject a state billion of crowns into the private OKD," Babis told the news wire.

With Ano now leading the polls, and Zeman waiting for his chance to push his faction of support within the CSSD to the fore, Sobotka looks like he could struggle to last much longer in the PM's chair, although self preservation will inevitably preserve the coalition.

"It is now up to Andrej Babis and Milos Zeman to decide how long to allow Sobotka to continue as prime minister," writes Eric Best in the Fleet Sheet. "If they withdrew their support for him, the coalition could go on its merry way with a new PM. (Sobotka is nearly invisible anyway.) If they really wanted to humiliate him, they could wait for someone close to him to be arrested."

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