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Most countries featured in CEE Legal Matters are also EBRD countries of operations. I am therefore very grateful for the opportunity to contribute the “guest editorial” to this edition of the journal.

   

Norbert Seiler, Deputy General Counsel, European Bank for Reconstruction and Development 

I had the good fortune to join the EBRD’s legal department back in 1991, a few months after the Bank started its operations, and have been part of the Bank’s legal team ever since. Initially I worked as a transaction lawyer on EBRD project financings, sovereign loans, equity investments and Treasury operations. I started the Bank’s law reform initiative the “Legal Transition Programme”, and I eventually assumed responsibility for several legal teams working on investments and loan financings in the Bank’s countries of operations, Treasury operations, and institutional and administrative matters for the Bank’s own needs as an international financial institution. 

The EBRD was established to assist the countries of Central and Eastern Europe in their transition to market economies after the collapse of communism and the fall of the Berlin Wall in the late 1980s. I was based in New York at the time when these dramatic events unfolded, working in-house at the New York branch of an Austrian bank. Along with the rest of the world I was fascinated and amazed by these developments:  Having grown up in Vienna some 60 km away from the “Iron Fence” border between neutral Austria and the Warsaw Pact countries of Hungary and Czechoslovakia, it had been altogether inconceivable that our binary world order, with the free market economies of the West and the closed command economies in the East, would ever come to an end.   

When I first learned about the plans of the international community for a new development bank, which would assist the transition and private sector development in Central and Eastern Europe, I hoped that one day I might be able to join that bank to make my own modest contribution to the region’s transformation. I eagerly followed media reports about the international negotiations culminating in the inauguration of the Bank in London in early 1991, and I eventually submitted my application. I was not aware at the time that I had met the Bank’s newly appointed General Counsel on a transaction in New York, when he was still a senior partner at a prominent Wall Street firm. I suppose I must have left a favorable impression on that deal, because he invited me to join his fledging department, which I gladly accepted.

When I arrived at the Bank it had seven countries of operations – Hungary, Yugoslavia, Czechoslovakia, Poland, Romania, Bulgaria, and the USSR. It was still to make its first loans or equity investments, and it had not yet launched its inaugural bond issue in the international capital markets. The legal department consisted of eight lawyers, most of whom were focusing on institutional and policy matters, setting the legal and policy foundations for this international start-up operation. The other lawyers (including myself) worked on EBRD’s early transactions. I became the lawyer for EBRD’s Treasury Department and assisted with the Bank’s inaugural bond issue, its first derivatives transactions, and its first MTN Program. I also advised on many pioneering EBRD transactions in our countries of operations, such as the Bank’s first syndicated loan, its first equity investment, and its first investment in a private equity fund.   

Since these early days the political and economic landscape of our region of operations has substantially changed. The number of the Bank’s countries of operations currently stands at 35 countries. Three of the original countries of operations – USSR, Yugoslavia, and Czechoslovakia – dissolved, with their successors all becoming EBRD countries of operations. The Bank is now also active in Mongolia, Turkey, Egypt, and other southern Mediterranean countries. EBRD has become the single largest source of financing in many of our countries of operations, and it is universally recognized for its support of private sector development. In 2013, EBRD signed close to 400 projects with a combined financing volume of EUR 8.5 billion. 

My department has evolved along with the rest of the Bank. We have new teams of international transaction lawyers at the Bank’s headquarters in London, as well as in Moscow, Istanbul, and Kiev. We also maintain legal teams specializing in capital market transactions, corporate recovery and litigation matters, and institutional and administrative issues, and our Legal Transition Program has become an important source for expertise and support for law reform initiatives supporting private sector development. 

My own role continues to be as varied and fascinating as ever. The legal department plays an important role in the Bank’s work, and as a member of the department’s senior management team I am now able to contribute to its overall strategic orientation.  

The EBRD remains fully committed to supporting the countries of CEE in their progress towards sophisticated, fully-functioning market economies. I consider myself truly fortunate to have been working in the region since 1991, and I look forward to seeing continued progress in the years to come. I thank CEE Legal Matters for the opportunity to introduce this issue, and I am delighted to see in it another sign of the increased opportunities and continuing economic development of our part of the world.

By Norbert Seiler, Deputy General Counsel, European Bank for Reconstruction and Development

Dentons has advised TEP (Renewables Holding) Limited, a subsidiary of the Irish company Trading Emissions, in connection with a sale of shares in EWG Slupsk, which plans to develop the Potegowo wind farm in northern Poland.

The project is currently the largest wind farm project in Poland to enter the construction phase. The shares were purchased by Winergy Last Mile, a Cyprus-based company. The purchaser and seller signed the contract on July 7, 2014.

The transaction involves the sale of a 64 percent stake and repayment of loans incurred by EWG Slupsk to TEP (Renewables Holding) Limited.

According to Dentons, the Potegowo wind farm will feature 98 turbines with total capacity of 253.5 MW, complete with auxiliary infrastructure. The company has already signed a power grid interconnection agreement, land leases and secured all construction, environmental and other permits needed to commence construction works. 

The project was coordinated by Dentons Counsel Tomasz Janas, Senior Associate Jakub Wieczorek, and Associate Malgorzata Bluszcz.

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Greek banks have successfully attracted substantial private investment and diluted public ownership, only a few months after their recapitalization and ensuing de facto nationalization.

• depositors feared Greece’s exit from the Eurozone (Grexit) and the possibility of  bank insolvency and about one third of deposits were withdrawn from Greece, thereby draining the Greek banking system’s liquidity; 
• non-performing loans (NPLs) and related provisioning needs spiked;
• deterioration of Greece’s sovereign creditworthiness led to a deterioration of its banks’ creditworthiness and capital markets borrowing closed;
• the Balkans and other countries where Greek banks had operations (such as Egypt, Ukraine, Albania etc.) experienced similar recessionary trends or political turmoil and the need for the financial support and liquidity of such operations increased; and
• deleveraging (i.e. accelerating loans and ceasing the provision of new ones) was available only to a limited extent.

Consequently, liquidity was severely affected and Greek banks became wholly dependent on European Central Bank funding. Unprecedented losses incurred from the restructuring of Greek sovereign debt and the increase in NPLs adversely affected capital ratios. To sum up, Greek banks were a threat to systemic stability and in dire need of recapitalization, and radical measures were therefore implemented. 

The Hellenic Financial Stability Fund (HFSF) was created in order to supervise the recapitalization and consolidation of the banking sector and manage the holding of banking shares. HFSF was funded with EUR 50 billion. 

The Bank of Greece (BoG) did not allow the default of any Greek bank on its deposit obligations and enforced an aggressive consolidation agenda whereby weak banks were dissolved and their assets eventually sold to other stronger banks. International banks that decided to exit the Greek market recapitalized and subsequently sold their Greek banking operations (typically for negative consideration). To-date, only four large banks and two smaller banks have survived. 

To address investors’ mistrust on NPL formation and provisioning, BoG engaged Blackrock Solutions to conduct an independent review. Blackrock concluded its work in December 2012 and predicted NPL total losses of approximately EUR 31 billion for the next 3 years. 

The first recapitalization took place between April and July 2013, after the Greek government’s debt restructuring and the conclusion of Blackrock’s review. HFSF contributed EUR 25.5 billion, while the private sector contributed EUR 3.1 billion:

Under the recapitalization law, if: (i) the private sector contributed at least 10% of the total recapitalization amount required; and (ii) the bank complied with its restructuring plan, HFSF would not be entitled to elect a bank’s board of directors and its management and would only exercise veto rights. Accordingly, Piraeus, Alpha, and NBG’s incumbent private management was retained and only Eurobank’s management was replaced (given the absence of private sector contributions). 

As an additional incentive, all private investors that participated in the recapitalization of the aforementioned three banks were allocated free warrants, a listed security granting a call option with a 4.5 year duration on HFSF’s shares at the original issue price (plus interest). 

After the completion of the first recapitalization, market conditions started to improve, international markets became optimistic, political instability and the Grexit talk subsided and investors began returning to Greece. BoG commissioned a second review by Blackrock, which was released in early March 2014 and depicted a more positive outlook than expected in the market at the time. 

The banks quickly seized the opportunity that arose to: (i) raise additional capital; (ii) strengthen capital ratios, particularly given the application of Basel III reforms; (iii) address capital deficiencies under the second Blackrock review; and (iv) with respect to Alpha and Piraeus, partially repay state aid received in 2009. 

The second recapitalization took place between April and May 2014, raising EUR 8.3 billion from the private sector and resulting in the HFSF’s dilution.

The second recapitalization dramatically changed the Greek banking arena. Eurobank, the weakest bank most severely affected, currently has the highest number of private shareholders that include a group of prime international investors that intend to supervise management. Piraeus and Alpha are clearly the two largest players in the market whereas NBG now has ample time to prepare for the sale of its significant Turkish subsidiary, Finansbank. 

The Greek crisis has endured drama and it is impossible to predict its end. However, the above developments constitute a remarkable achievement: the transfer of the Banks from private ownership to public and back again in less than … 14 months! Despite the financial turmoil, the Greek banks succeeded in attracting private investment and are now on their way to recovery.    

By Cleomenis Yannikas, Partner, Dryllerakis & Associates

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The privatization process in Lithuania – which lasted for more than 20 years – is about to end. The most hectic period has already passed and the biggest objects have already been privatized. As the Lithuanian state-owned Property Bank and State Property Fund, which are authorized to perform privatization procedures, do not have the high amount of privatization work they did 20 years ago, the merger of these enterprises is expected in the near future.   

Current Privatization Trends 

One of the recent major privatizations was performed in 2012 when the Lithuanian embassy building in London was privatized and the state budget was replenished with more than EUR 6 million. Lithuania is also trying to sell its embassy building in Warsaw. However, the building in the Polish capital – initially valued at EUR 2.6 million – has gone unsold for a few years now, and real estate experts are advising the government to reduce the price. If the government follows this advice this might be the next interesting privatization object. Another interesting object is a huge territory of 1,8191 hectares in the very heart of the Vilnius old town – the former territory of the Red Cross hospital – which the purchaser may transform into commercial and residential real estate. It will be sold by public auction.

Also in the local market minor objects like apartments, garages, warehouses are popular among buyers, as the prices are usually reasonable and such objects require low maintenance costs. Privatization of the remaining large and more expensive real estate objects is pretty slow as real estate objects are sold along with land plots and the banks refuse to finance such transactions – banks do not finance acquisitions of land – therefore, many public auctions fail.

Common Problems of Privatization

Privatization of the few remaining state objects is problematic. According to a report prepared by the National Audit Office of Lithuania in 2013, many of the objects are not formed as separate units, or formal registration has been performed improperly, or real estate objects are illegally occupied by natural persons and eviction of them is complicated.  

In addition, the National Audit Office of Lithuania has stated that the land plots needed for exploitation of the object have not been formed and properly registered within the state. According to the jurisprudence of the national courts, it seems that the latter problem is quite common. The other common problem is that the object may be situated on a plot possessed by natural person or private legal entity. This situation usually necessitates negotiating lease conditions or even going to court to establish easements. 

Most state entities do not conduct any activities or are being liquidated or bankrupt, and therefore do not interest potential buyers.

Privatization of Strategic Companies

There are several major state-owned strategic companies which could be privatized. It is believed that the privatization of these companies could improve the current condition of these objects and the money obtained would help finance other strategic state projects – and relieve taxpayers from the burden of maintaining them. Such major state strategic companies as Klaipedos Nafta (the state oil company, one of the most up-to-date terminals in Europe), Lietuvos Energija (the state energy company), and Lietuvos Gelezinkeliai (the national railway) would be of great interest of private investors. It must be noted that these strategic companies have special status provided by law, and investment into them must satisfy certain requirements (e.g., a potential investor must be a member state of the EU or NATO). Also, it is not possible to acquire a controlling stake of shares of such companies, as the law requires that the state possess more than half of all voting shares. Moreover, privatization of strategic companies always attracts public attention and involves long political discussions; therefore, the process is inevitably drawn out. As political discussions are still continuing, a decision on a possible sale of these companies has not yet been reached.      

By Ruta Radzeviciute, Partner, and Aurelija Grigoraviciute, Lawyer, Fort

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The recent revival (2013-2014) of privatization in Croatia is, paradoxically, not driven by the country’s recent membership in the European Union, but instead by a simple desire to save the state budget. The budget deficit was (and still is) so huge that the current Government has been forced to put its crown jewels on the table and try to sell them as fast and as efficiently as possible.   

The insurance company sale was closed on April 22, 2014 and the new owner of 39.05% of shares is Adris – the largest Croatian tobacco producer. The sale price had the largest premium on share in Croatia ever (the market price was around USD 700 and the purchase price was around USD 1350) which makes the premium on share 87.4% (the average premium was around 46.5%). Also, the new owner is obliged to make a capital increase of around USD 150 million, whereupon Adris will hold a majority stake (60%), and the State will remain able  to affect only a few major shareholders’ decisions (by holding 28%). Intriguingly, Adris won the tender in competition with a potential strategic investor – the Polish insurance company PZU, which, though being more skilled in the relevant industry, was not ready to offer such a huge premium. Even more interestingly, Adris has in the past five years invested significant amounts of cash in the tourism and agriculture sectors, and is now entering a fourth, completely different industry sector! These moves raise the eyebrows of insurance experts who are concerned about whether the company will be able to, in  light of its potential over-stretching, preserve its market-share. 

The tender for sale of Postanska banka was a different story. Initially, plenty of interest was shown by important players from the regional banking market who lined-up for the tender. However, over  time – and after due diligence – interest started to dim, and at the end, only Erste & Steiermaerskishe Bank and OTP Bank remained in the race. In December 2013 only Erste & Steiermaerskishe Bank submitted a binding offer  –  and it was around USD 37 million lower than the non-binding offer (USD 180 million). The Government decided to reject this offer as inadequate because the offered share-price was 24.5% lower than the market price at the time. Since then, the Government has been striving to find another model (or another buyer) for the bank.

Finally, the largest and the most important privatization (formally called “monetization”) regards a 12500-kilometer network of motorways across the country. The State engaged various advisers who, at the end, concluded that a concession model would best fit the needs and expectations of the State and potential investors. The level of expectations is fairly high – the Government expects to receive around USD 4.2 billion for a 30-50 year concession. Though this number is widely considered as unrealistic, the line-up of bidding consortiums is impressive, and 4.2 billion may not be unreachable after all. Companies such as Goldman Sachs/Vinci, Macquarie, Cintra, and Strabag deserve high respect and promise tough competition and an interesting auction for the winning prize. However, despite the interest of consortiums armed with an army of top international and local law firms and financial advisers, the tender process hit a snag. Reportedly, due to internal disagreements and other administrative problems, the data room is still empty,  no other transactional documentations have been offered for review (such as, in particular, the concession agreement), and there are no firm indications when the process will be started in earnest. Such postponements of process (which in this case started in autumn 2013), usually bring a “the magic has gone” sentiment to the bidders, and passion for the deal evaporates rapidly. 

With public perception of the monetization as a sale of national pride, and upcoming parliamentary elections in 2015, the current Government has less and less time to successfully close this demanding deal. On the other hand, if there are no proceeds from this privatization, what will save the budget and how will the gaps be closed? Will the inevitable need for money be more important than the political future of the current coalition government? 

There are only a few jewels left to be offered instead. One of those is ACI, the largest network of more than 20 marinas on the Croatian Adriatic. The sign that something may be cooking with ACI is the recent announcement that strategic legal, financial, and operational due diligence of the company has been initiated. Then there is the Croatian Electricity Company (HEP). Only Only the production segment of the company can actually be sold under the law, but one may ask if even this is realistic at all, since HEP is the largest state-owned contributor to the state budget.      

By Damir Topic, Senior Partner, Divjak, Topic & Bahtijarevic Law Firm

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In 2004, 65% of the capital of the incumbent telco Bulgarian Telecommunications Company (VIVACOM) was sold to Viva Ventures Holding by the Bulgarian Government in a privatization procedure. In 2005, a public offering of the remaining shares was launched with 34.78% of the company’s capital being offered on the Bulgarian Stock Exchange. During the next few years the company went through several major restructurings, in the process becoming, it claimed, a “leader in developing modern telecommunication services.”   

The existence of a preferential share in the Articles of Association of VIVACOM entailed the limitation of certain significant rights of the shareholders, related both to resolutions of the General Meetings of Shareholders and to decisions of the company’s boards. The preferential share could only be held by the Ministry of Transport, Information Technologies and Communications, a State body, or another representative of the State. The golden share entitled the State to veto a broad range of decisions of the Managing Board, such as resolutions on the disposal of assets of strategic importance for the business of the company, approval of employee support programs, execution or amendment of agreements between VIVACOM and any of its shareholders, persons with an interest in a shareholder, or affiliated parties to the shareholders. The special rights of the State also included the right to veto resolutions regarding amendment of the company’s name, its place of business and address, its term of existence, the scope of its activity, the share classes, number, and percentage of the State’s shares, to name but a few.

In the past two years VIVACOM has undergone a major transformation in that it changed its capital owner and the State’s special rights were obliterated. The Articles of Association stipulated that the preferential share could be redeemed (buy-back) at par value, at the option of its owner or the company, by serving a 14-day prior written notice to the other party. The transfer was possible only upon meeting the investment commitments according to the Privatization Agreement. The holder of the golden share was obliged to accept the company’s offer to redeem the preferential share subject to provisions of the law and the Shareholders Agreement executed between Viva Ventures Holding, the Ministry of Transport, Information Technologies and Communications and VIVACOM back in 2004. Considering that the preferential share played its historical role, the Ministry of Transport, Information Technologies and Communications proposed that the Council of Ministers adopt a decision in favor of revoking  the State’s special rights materialized by the golden share.

Hence, in September 2013 the General Meeting of the Shareholders voted to revoke the special rights of the golden share. They also agreed upon delisting the company from the stock exchange and changing the company’s name from BTC AD to BTC EAD, as a result of the acquisition of all shares of the company by the majority shareholder Viva Telecom Bulgaria EAD. Thus, VIVACOM is no longer a publicly traded company and the State is not entitled to exercise any special rights as regards the management of the company.

Two major consequences stem from this resolution. First, the State has finally come in line with the prescriptions of the European Commission and the case law of the Court of Justice of the European Union in that special rights – while not completely ruled out – should be employed only in special cases and to the extent that they do not distort the free movement of capital. Second, VIVACOM has made the final step towards being a completely independent private entity whose development is shaped by standards set by the company itself.

It is not exaggerating to say that by virtue of revoking its special rights, the State removed the last obstacle to the independent development of the company subject to the rules of free-market competition and regulation. Over the years, the preferential share proved itself an effective tool for restraining the impulses of private investors and protecting public interests. Ultimately, every privatized company should emerge from the shadow cast by the State. In this regard, the revocation of the preferential share was the final step for the incumbent VIVACOM.     

By Sergey Penev, Managing Partner, and Ivo Emanuilov, Associate, Penev Attorneys at Law

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

During the early 2000s, the Hungarian Government strongly supported the implementation of public-private partnership programs (PPPs) in Hungary. At that time, PPPs were considered to be instrumental in the revival and the required upward surge of the Hungarian economy. Thus, Hungary took the lead in the implementation of PPPs in the CEE region.   

We saw a number of successfully completed projects in the infrastructure, education, cultural, and healthcare sectors as well as in judicial execution. The most successful projects were the motorway projects (for example, the M6 motorway stretching from Budapest to the southern borders of Hungary), student dormitories, cultural centers, and prisons. 

As PPPs became more popular in Hungary an ever greater number of State and Municipal projects  were intended to be implemented in this scheme. This artificial promotion of the PPPs proved to be unsustainable when the global financial crisis arrived in Hungary at the end of 2008. Realizing the serious contagious effects of the crisis on the Hungarian economy, the Government of the time suspended all ongoing PPPs.

In 2010, there were general elections in Hungary and the new right-wing Government (winning 2/3 majority in the Parliament) cancelled all ongoing and future PPP projects. Furthermore, they declared all PPP projects to be among the biggest failures of the previous left-wing Government, and accused the program of significantly undermining the growth potential of the Hungarian economy. This approach completely accorded with the economic program of the new Government. They announced their intention to strengthen the state’s position and to minimize the participation and influence of the private sector in the economy. They were of the view that the global crisis was a consequence of the failure of the efficient operation of the markets, which could only be cured if the state became a key player by acquiring a dominant position. They started nationalizing the key sectors of the Hungarian economy (for example, the energy sector) and increasing the weight and influence of state institutions.

As part of its first actions, the State Budget Agency investigated the financial and legal background of all completed PPP projects. The most important conclusion published by the State Budget Agency was that PPPs in Hungary were extremely expensive and imposed significant burdens on the central budget and the budget of local municipalities. The report also asserted that the operation of certain municipalities and state institutions was limited by the maintenance of PPPs. As a result, the report concluded, the Government should provide relief to those municipalities and state institutions.

The Government initiated a complete revision of the contractual framework of all completed and existing PPPs. They announced that they were considering the termination of all PPP contracts and the takeover of the projects by the state. They proposed to establish a separate fund in the central state budget to cover the termination costs of PPP contracts but, as far as we know, this action has never been implemented.

Currently, we are only aware of a few projects that have been terminated. The contracts of the most important projects (for example the M6 motorway project) were left unchanged and appear to be running smoothly. Some of the terminated PPP contracts are subject to ongoing legal proceedings launched by private investors challenging the right of the state to terminate their contracts and/or the amount of compensation offered by the state.

In our view it would not be appropriate to judge all PPPs in the same manner. It is fair to say that there are a number of projects which are probably rightly considered to be unnecessary, expensive, and not offering value for money. However, other projects are undeniably for the benefit of the country as a whole, since they provide value for money. We believe that it is uneconomical to terminate a project if it serves the needs of the people of Hungary and contributes to the development of our country. However, any PPP projects which do not fulfill these principal criteria and thus are not true PPPs should be revised and restructured as soon as possible.      

By Laszlo Hajdu, Partner, HP Legal | Hajdu & Pazsitka

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Since the last large-scale privatizations in the Czech Republic almost a decade ago, the sales of state-owned enterprises have been few and far between. The most recent headline privatization was the 2013 sale of a minority stake in the national airline CSA to Korean Air. The sale had become somewhat crucial as the government no longer wanted to support the loss-making airline. Despite the nominal price paid for the stake, the government successfully secured the future of the airline and potential new business for Prague Airport. With a new government in place since January 2014 there has been talk of privatizing some of the remaining state-owned assets. However, for the time being the government seems to want to hold on to the most profitable assets.   

Although the government secured the effective privatization of a majority of the economy, the country lacked an adequate legal framework to protect investors and secure a successful continuation of business. The Czechs have recently been painfully reminded of some of the failures of the past. A case in point is the privatization of coal mining company Mostecka uhelna spolecnost, which for many Czechs still symbolizes the dark-side of the “wild privatization” of the 90s. It took until late last year for five Czechs held responsible for “tunnelling” that company to be finally sentenced by a Swiss court, which seized USD 725 million from the accused in the process. 

Through some of its ministries the Czech government still controls various companies, including the famous Budvar brewery and companies in the weapon industry, but also more traditional state assets such as the Czech Post, the National Rail, and the key oil distribution and electricity transmission infrastructure. The Ministry of Finance alone owns a share of over 40% in 26 companies, including the CEZ energy producer, the Cesky Aeroholding aviation holding, and the CEPRO fuel distributor, representing a combined share value of about CZK 100 billion.

It has been the policy of successive governments to reduce the number of state-controlled companies, especially those without much strategic importance. But in recent years the actual number of state-owned companies is only slowly declining, and mostly as a result of either mergers or the liquidation of smaller companies.

The current government, which is a coalition between the Social Democrats, the Christian Democrats, and the central right Action of Dissatisfied Citizens, is not pursuing a very active privatization agenda. Although there have been rumors around private companies being interested in acquiring the Czech Post or some of the military equipment producers, it might take some time for such deals to come to fruition – if they do at all. 

However attractive it may be to sell off some of these assets, the annual incomes they generate currently make a significant contribution to the state budget. Czech Finance Minister Andrej Babis is trying to maximize the contribution to the state budget from state-owned companies, including the Czech Post, the National Forestry Company, and oil pipeline operators MERO and CEPRO. He publicly called for a full dividend pay-out by the CEZ energy company, in which the state holds about 70%. The proposed State budget for 2015 is based on a contribution of several billion crowns from state-run companies.

Moreover, in an effort to save some of the struggling coal mines nationalization is back on the agenda. A particular case is that of the OKD coal mining company, owned by New World Resources, a UK-listed coal miner based in the Czech Republic. OKD’s loss-making Paskov mine is threatened with closure by its owners, putting 3,000 jobs at risk. In the end the government has offered financial support to keep the mine open for three more years, but nationalization had been on the table as a serious alternative. The situation is politically sensitive as many hold current Prime Minister Bohuslav Sobotka, who was the Czech Finance Minister at the time of OKD’s privatization in 2004, responsible for selling the government’s stake in that company far below market value. The European Commission is currently investigating whether the sale was indeed undervalued and as such could be considered illegitimate state aid to the buyer. 

Although foreign investment into the Czech Republic is expected to pick up again over the coming years and many domestic investors have the funds to invest in acquisitions, it remains to be seen whether the Czech state will use these favorable conditions to put some of the remaining assets on the block. Current debates over past privatizations might make the government proceed with additional caution.      

By Lukas Janicek and Radim Kotlaba, Senior Associates, CMS Cameron McKenna

This Article was originally published in Issue 3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.