Slovakia hopes new incentives will tempt US Steel to stay

By bne IntelliNews January 23, 2013

bne -

Offering power and other incentives, Slovakia hopes to have averted an exit from the country by US Steel Corp, which has been looking to offload US Steel Kosice - the country's biggest employer - as part of a European pullback.

Slovak Prime Minister Robert Fico told reporters at a press conference on January 22 that talks to persuade the investor to remain in the country are ongoing, reports Bloomberg. With the economy highly dependent on industrial exports, the government has offered the company incentives related to electricity charges, transportation and environment, Fico said.

"There have been proposals, which U.S. Steel considers interesting and feasible," Fico insisted. "Both parties are strongly interested to continue in talks and find a solution that the investor could stay."

Bratislava is well-versed in satisfying the demands of large foreign industrial investors, with the rapid development of the economy over the past decade or so highly reliant on them. In the recent downturn, some of those investors have been reportedly pushing for further breaks from the state. South Korean giant Samsung was even said to have threatened to pull out of the country altogether unless it received further incentives for its LCD screen plant.

That would be the last thing Slovakia needs right now. Although the economy saw much better than expected growth in 2012 - thanks almost exclusively to production growth at carmakers Volkswagen and Kia - data from the fourth quarter showed output slowing alarmingly.

In addition, unemployment - a persistent problem for years - spiked in December to its highest in nine years at 14.4%. That only exacerbates the reliance on exporters such as US Steel by depressing already feeble domestic demand. Further, the east of the country, where Kosice sits, is particularly blighted by joblessness which is around 20%, which makes any threat to the plant's 11,000 employees even more serious.

Despite the auto boom in the country, US Steel said in November that it was ready to explore unsolicited interest in the plant. Although it declined to name the suitors, Russia's Evraz and Metalloinvest were both reported to be frontrunners. The Pittsburgh-based steelmaker has seen results dwindling in the crisis.

Accompanied by rising energy and raw material costs, the slowdown, particularly in China, dented the Slovak unit's revenue in 2011, sending it to a net loss of €25m, compared with profit of €96m a year earlier. Due to such pressures, US Steel sold out of its plant in Serbia for $1 in 2012.

The usually enthusiastic Europhile Fico illustrated just how rattled he was by the prospect of the investor's departure when he lambasted EU regulations for the difficulties in November. "The key reasons why the company is thinking about quitting are rapid growth in commodity prices and strict EU environmental legislation," Fico said. Those "regulations handicap local firms compared to companies in Ukraine or China, that don't have to abide by these rules," he insisted.

At the same time, Fico's offer of incentives flies in the face of his populist pronouncements on the situation late last year. The left-leaning PM launched a scathing attack on the right-wing government of Mikulas Dzurinda, which originally sold the Eastern Slovak Iron Works (VSZ) to the US company in 2000 for €475m, giving it a 10-year tax holiday into the bargain. "They took everything Dzurinda and his government gave them, used it, and now they're leaving," Fico fumed.

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