Center for Environmental Public Advocacy
Friends of the Earth – Slovakia
CEE Bankwatch Network - Slovakia


February 2002

This study points to a number of systemic deficiencies in the government’s approach towards state aid, and identifies several elementary mistakes made by the government in building an institution that should be dedicated to preventing the misuse of public funds. At the same time, the study outlines the consequences of these deficiencies and proposes solutions. Through this study, the authors hope to prevent the recurrence of the problems described below, regardless of what the State Aid Office (“SAO”) will be like in the future or which institution, should the SAO be abolished, will take over its functions.  Equally importantly, this study strives to prevent the government from silencing those who insist that consequences be drawn whenever irregularities are found. This effect is accomplished by shifting the focus of public discussions to immaterial details and presenting non-systemic solutions intended to distract public attention from the most pertinent problems.

Introduction

The Center for Environmental Public Advocacy (CEPA) and the Friends of the Earth Slovakia (FoE-S) believe that the misuse of public subsidies and violations of the state aid rules represent a problem which may impede Slovakia’s further development. This topic has become a part of both organisations’ programme entitled “Sustainable Economy” which, among other things, analyses the state-aid tools devised by the government to facilitate regional development and stimulate employment. Both organisations insist that state aid should be under consistent public scrutiny in terms of its purpose and efficiency. This study points to a number of systemic deficiencies in the government’s approach towards state aid, and identifies several elementary mistakes made by the government in building an institution that should be dedicated to preventing the misuse of public funds. At the same time, the study outlines the consequences of these deficiencies and proposes solutions. Through this study, the authors hope to prevent the recurrence of the problems described below, regardless of what the State Aid Office (“SAO”) will be like in the future or which institution, should the SAO be abolished, will take over its functions. [1] Equally importantly, this study strives to prevent the government from silencing those who insist that consequences be drawn whenever irregularities are found. This effect is accomplished by shifting the focus of public discussions to immaterial details and presenting non-systemic solutions intended to distract public attention from the most pertinent problems. Content Introduction I. Context II. Formation and tasks of the state aid office Organisational structure Financial resources of the SAO III.Systemic deficiencies of the SAO Misconceived concept of state aid Unclear priorities and criteria for the provision of state aid Poor organisational structure Insufficient record-keeping Absence of control Staffing Poor management Absence of a strategy for SAO’s institutional development IV. Recommendations V. Consequences of state aid problems for Slovakia´s economic development Annex 1: Findings of inspections at the SAO Annex 2: State Aid for VSZ a.s. and VSZ Ocel a.s.

I. CONTEXT

The acquis on state aid and compliance with the state-aid rules represent rather sensitive issues for the EU. The Treaty establishing the European Communities [2] prohibits any type of support from public funds that prevents, distorts or restricts competition by favouring certain sectors or economic operators. Quite obviously, the EU pays special attention to making sure that the legislation of candidate countries is fully aligned with the relevant EU regulations and directives. Under Article 64 of the Europe Agreement [3], the Slovak Republic committed itself to adopt implementation rules for state aid. The draft of these rules, prepared by the Commission is, basically, uniform for all candidate countries. The Slovak government approved the draft rules in 1996 and their revised version in 1998, committing itself (among other things) to set up an institution for the assessment, control and monitoring of state aid. The task of establishing the State Aid Office is also presented in the National Programme for the Adoption of Acquis Communautaire in the Slovak Republic [4] and in the Partnership for Accession [5] as a short-term priority. State aid issues constitute and important part of Chapter 6 “Competition Policy”, which is one of the most important chapters for Slovakia to conclude prior to accession. However, the omnipresent problems connected with the provision of state aid represent a major obstacle that impedes the progress of negotiations on this chapter.

II. FORMATION AND TASKS OF THE STATE AID OFFICE

The State Aid Office (“SAO”) was established on the basis of Act No. 231/1999 on State Aid [6] as a separate body of state administration for the assessment, evaulation, authorisation and registration of state aid. The Act defines ‘state aid’ as aid in any form provided by the provider, directly or indirectly from the national budget or its own resources, to the entrepreneur for business purposes or in connection therewith. [7] State aid may only be provided under the conditions found in this Act. The main role of the SAO is to assess whether the provision of specific state aid is in compliance with the law; on the other hand, the SAO controls the provision of state aid on both ends of the process (providers–beneficiaries). Organisational structure SAO is headed by the director, who manages the business of the institution and has the authority to approve or reject every application for state aid. Apart from the Director’s Department (responsible for co-ordination, control and communication of the SAO with other institutions) and the Legal Department, the State Aid Office consists of five sections: Section for General Administration – responsible for SAO’s human resources management, payroll administration, budgeting, finance and operations; Section for Information Flows and External Relations – responsible for communication within the SAO and the development of a database compatible with EU requirements (system of applications, system of approvals, system of control and system of registration of state aid). The section should monitor the state aid provided, ensure transparency, identify problems connected with the provision of state aid, and co-ordinate communication with the European Commission in preparing and implementing PHARE programmes. Section for Regional Assistance reviews and evaluates proposals for state aid from the territorial perspective and regional development, support to small and medium-sized enterprises, the de minimis rule, municipal budgets, taxes, customs duties and the related sanctions imposed by customs and tax authorities. Section for Horizontal Aid evaluates and assesses proposed state aid in the area of privatisation, revitalisation and restructuring projects for companies in trouble, research and development and the environment. Section for Economic Sectors evaluates and assesses proposed state aid for heavy industries (steel, shipbuilding, automobile and machinery sectors), mining and transport (ore and coal mining, rail and road transport, telecommunications, utilities – power, gas, water), light industries (textile, paper, pharmaceuticals and synthetic fibres), export support and bank guarantees. Financial resources of the SAO SAO’s personnel and technical build-up was completed by the end of September 2000, when the office employed 30 staff (as planned), of which 14 were directly involved in reviewing applications for the provision of state aid. [8] The SAO is funded from the budget of the Ministry of Finance. Capital expenditures on the office amounted to SKK 17.2 million in 2000, while current expenditures are on SKK 11.2 million (salaries and wages representing SKK 4.7 million). [9] In addition, the 1999 Financial Memorandum allocated 1.5 MEUR from the PHARE programme to support the establishment of the SAO. A twinning project aimed at institution building and technical assistance represented 800,000 EUR and a related sub-project represented 700,000 EUR.

III. SYSTEMIC DEFICIENCIES OF THE SAO

The SAO has always been accompanied by numerous problems with various causes, but one common effect: instead of acting as a safeguard against the misuse of public funds, the new institution is creating opportunities to funnel public funds in support of causes that are often not in the public interest. Misconceived concept of state aid The underlying principle of the EU directive on state aid is that state aid is prohibited and can only be rendered where circumstances are exceptional and certain precisely-defined criteria, conditions and procedures are met. Nevertheless, the practice in Slovakia is in contradiction with this principle. SAO practices show that instead of conducting a thorough assessment of each individual application for state aid (i.e., preventing deliberate and inefficient spending of public funds), the Office has been used as a vehicle for clearing various state-aid applications in conflict with the law (see Annex 2). Slovakia has no state aid policy (neither national nor sectoral) that would define public interest and the related priorities for individual regions or sectors. This broadens the already wide spectrum of opportunities for cronyism, corruption and the pursuit of private objectives at the expense of public interests, particularly when there is no efficient public control and the system obscures the process of decision-making. According to the information available, SAO employees who pointed out problems and requested that lawful practices be adhered to came under pressure, subjecting themselves to various unfair practices from the side of SAO management [10]. In several cases, resignations and departures from the SAO followed. Unclear priorities and criteria for the provision of state aid The priorities and criteria for the provision of state aid are laid out in the State Aid Act. According to §4(1a) of the Act “state aid may be provided to stimulate the economic development of those districts where the standard of living is exceptionally low or where unemployment is high”. However, the reality is somewhat different. For example, in the first half of 2001, SAO approved state aid worth some SKK 28 billion. Of this, SKK 13.5 billion was released in the form of state guarantees for bank loans extended to companies with pan-national operations (10.5 bln to Slovak Railways and 3 bln to Slovak Electricity Company) and SKK 10.85 bln to the National Property Fund. From the remaining SKK 3.4 billion, more than 75% ended up in the Bratislava Region while the seven other regions of Slovakia shared the remainder (see Table 1). Table 1. State aid approved in the first half of 2001 by regions SKK % Bratislava region 2,563,218,700 75.4 Banska Bystrica region 196,311,627 5.8 Kosice region 261,134,370 7.7 Nitra region 51,507,200 1.5 Presov region 38,119,901 1.1 Trencin region 200,816,409 5.9 Trnava region 20,688,000 0.6 Zilina region 68,075,360 2.0 Total 3,399,871,567 100.0 State guarantees 10.5 bln (SR)+10.85 bln (NPF)+3.0 bln (SEC) Source: SAO Report for the 1st half of 2001. Bratislava, August 2001 Also, government officials admit that the west of Slovakia enjoys a more preferential treatment in granting various forms of state aid than the rest of the country. According to Slovakia’s chief negotiator with the EU Jan Figel “the east of the country is far away, does not have enough information, maybe it’s slower at times and thus pays for it”. [11] Such disproportions are not only in conflict with government declarations on the need to remove unhealthy regional disparities, but also in conflict with the EU strategy for regional development. Poor organisational structure The current organisational structure of the SAO overemphasises the importance of administrative departments whose main function is to service the SAO’s technical sections. The three technical sections – Regional Aid Section, Horizontal Aid Section and Section for Economic Sectors – that should decide on the nature and quality of state aid, do not enjoy sufficient administrative and service support. According to former SAO employees, none of the technical sections received any secretarial support, so the officers had to do all clerical work themselves. This caused chaos (e.g. in the registration of incoming/outgoing mail) and inconsistent caseload administration. SAO’s internal rules failed to create conditions for co-operation between individual sections of the Office. For example, there was no system for the circulation of documents within the SAO, which is a must for good teamwork in this type of institution. In 2000, a technical assistance project funded from the PHARE programme [12] proposed a more efficient organisational structure for SAO – one that could improve the efficiency in the spending of public funds. In the final report of the project, EU expert Prof. Dr. Siegfried Klaue suggested the dissolution of some redundant departments (e.g. Section for Information Flows and External Relations). Since the conclusions of the report were not binding, the SAO never accepted them and the changes proposed therein have not taken place. On the contrary, during the first half of 2001 the SAO Director requested the parliament to amend the SAO’s bylaws and organisational rules. In his report to the parliament, the SAO director – in contradiction with the recommendations of Prof. Klaue’s report – demanded the strengthening of the administrative and service departments at the expense of technical sections. He suggested that the existing Legal Department be transformed into a separate Legal Section and that the three technical sections be merged into one. There are grounds to believe that the proposal was motivated by the director’s effort to increase his own salary and, at the same time, weaken the position of his opponents from the SAO technical sections. In the end, the Financial, Budgetary and Monetary Committee of the Slovak Parliament refused to discuss the document at its session in April 2001. This was because some MPs received complaints from SAO employees and were thus resolved to withdraw the document from parliament’s agenda. Insufficient record-keeping Section 28 of the State Aid Act clearly stipulates the types of registries that the SAO must keep. This includes the register of applications for state aid, register of approved and dismissed applications for state aid, and the register of de minimis state aid. Each record must contain the sequence number, date of approval, identification of the provider and beneficiary, the approved amount of aid, form of aid, purpose of aid, reference to the relevant provision of the law under which the aid was approved, period of time between the reception and approval of application, etc. Each register is also defined in a greater detail in the SAO’s bylaws and organisational rules. Nonetheless, the responsible section does not keep individual types of registry (save for the de minimis register). What’s more, no-one from SAO has been commissioned to keep such registries. The absence of binding and clear internal guidelines that ensure the transparency of operations has been one of the main causes of voluntarism in the conduct of the Office. For example, the conditions for the granting of state aid were published on the SAO webpage only after the auditors from the Government Office and the Ministry of Finance published their conclusions. According to the information available to us, the SAO officers would usually visit selected companies and encourage them to file applications for state aid. Table 2 shows that almost 50% of the total volume of state aid granted in the 1st half of 2001 was approved without proper specification of purpose. In their report for the 1st half of 2001, SAO officials specified the form of state aid instead of the purpose for which it had been granted, which is at variance with the State Aid Act. It is reasonable to assume that when reviewing the applications, SAO officials were in fact unable to identify the purpose for which state aid was sought. A former SAO employee commented: “In eight out of 10 randomly-selected cases, the auditors from the Government Office ascertained that Mr. Hladik had violated Act 231/1999 on State Aid. What would the picture be like if the auditors scrutinised all state aid transactions? There were 90 of them by the end of May 2001. Just to give you a full picture, there are 22 cases where the documents on state aid approval do not contain any reference to the relevant provision of the law based on which the approval was granted. In other words, those approvals were illegal.” [13] Table 2. State aid approved in the first half of 2001 by purpose Purpose SKK % Without specification of purpose (or without proper specification of purpose) 13,850,000,000 49.91 Transport 13,012,554,061 46.89 Regional development 69,849,697 0.25 Restructuring 188,387,880 0.68 SMEs 170,607,100 0.61 Joint EU-SR project 6,111,000 0.02 Environment 18,126,820 0.07 Ore mining 339,996,609 1.23 Research and development 66,659,000 0.24 Social purposes – manufacturing cooperatives [14] 25,000,000 0.09 Compensation of damages – natural catastrophy [15] 2,578,400 0.01 TOTAL 27,749,870,567 100.00 Source: SAO report for the 1st half 2001 The aforementioned report also contains cases where state aid was approved in conflict with the law (see Annex 1), as well as other misleading information. For example, the aid granted to VSŹ OCEL , a.s. was categorised as having been rendered to the steel sector, even though the company was inactive at the time (see Annex 2). According to a former SAO employee, it was often impossible to trace documents and identify who was responsible for their execution. Strangely enough, these types of irregularities could easily have been rectified by the reorganisation of the SAO. The existing organisational chaos increased the backlog of work and led to the deterioration of interpersonal relations within the institution. Absence of control Neither the structure of SAO nor its organisational rules create proper preconditions for an efficient system of internal audit and performing those external control functions that SAO is required to perform under the State Aid Act (§21 and §24) in respect of the state aid being granted/received. This was confirmed by an inspection carried out by auditors from the Government Office in June 2001 that tried to verify SAO’s compliance with the State Aid Act. According to its findings, the control function – the main reason for which the Office was established – was not regulated by the SAO’s internal directives. None of the organisational units of the SAO has been commissioned to perform a control function and “there is no specification of responsibilities, authorisations and delegations concerning the performance of SAO’s control function”. [16] Apart from breaching the government’s Resolution on Organisational and Technical Establishment of the State Aid Office, [17] this was in contradiction with the SAO’s own bylaws and the State Aid Act. Given the importance of the control function within the SAO, it would be logical to expect that this in the hands of a team of well-trained professionals. In practice, however, only one SAO employee is authorised to perform this function. The SAO is an example of a failing state institution that, apart from being reluctant to act on the feedback it receives, rejects any criticism or suggestions for improvement in the first place. The SAO has no system of internal audit, nor is it able to monitor the quality of its own performance. Moreover, there is no systemic external control of the SAO’s conduct. Although their power is vested in the Supreme Audit Office, the Ministry of Finance and the Government Office, these institutions audited SAO only when the problems broke out. They acted in response to the initiative of four SAO employees who petitioned the Prime Minister in April 2001 (the Supreme Audit Office has not yet performed the audit of SAO). [18] Staffing Shortly after the 1998 parliamentary election, the ruling coalition led by Mikulas Dzurinda followed the same path as its predecessors concerning the staffing of key public institutions. Based on backroom formulations, the SAO ended up in the hands of the Green Party of Slovakia (SZS), regardless of the lack of capacity on the part of the SZS to nominate qualified professionals to the helm of the State Aid Office. This led to the formation of an incompetent and poorly co-ordinated team that lacked a vision for the efficient development of this institution. Following the rapid-fire resignation of the first SZS nominee, Andrej Huorka, from the post of SAO director [19] the SZS nominated and the parliament elected Miroslav Hladik as his replacement on 15 March 2000. Curiously, the ruling coalition never defined any qualification requirements for the performance of this exceptionally important function. Thus the government’s staffing policy has smacked of amateurism in the case of the State Aid Office. In reply to a question from Slovak Radio on names of the experts that the SAO director intended to approach with job propositions, Hladik said he would ‘ask his buddies’.[20] According to one SAO employee, only one out of seven members of the SAO managing board had previous experience from a managerial post in the system of central administration. Former SAO employees claimed that recruitment procedures were competitive only formally, as applicants had been selected and appointed also on the basis of other than qualification criteria. The lack of professional competence in SAO management is obvious from the quality of internal directives and instructions from its director. [21] The interest of the SAO director to participate in specialised international conferences and seminars was lukewarm at best. According to former SAO employees, their director preferred a trip to the Olympic Games in Sydney to attending the “Sixth Annual Competition Conference Between the Candidate Countries and the European Commission”, which took place in Tallin at the level of ministers and directors of state aid offices. Staff from the lower tiers of management represented SAO. Also interested in this respect is the finding of Finance Ministry controllers, who concluded that the State Aid Office had wasted public funds to purchase the publication of “Sydney 2000” (see Annex 1). Under normal circumstances, the Director of the Section for Information Flows and External Relations should be responsible for all the outbound SAO communications. Nevertheless, according to former SAO employees, this person often did not participate in the finalisation of documents, transferred the responsibility to staff of other sections, and usually missed the deadlines. He masked his incompetence by absenteesim and, typically, when the deadline for the performance of a specific task was drawing near, he would travel abroad. [22] This is one of the reasons behind serious deficiencies in the documents relased by the SAO to the outside world. The quality of these documents can be characterised by a quotation from the rationale section of the 1998 State Aid Report in Slovakia, according to which ”The granting of state aid has no impact on the state budget, nor has it an impact on unemployment”. In the 1998 State Aid Report in Slovakia, the sentence was reformulated as follows: ”The approval of this Rationale Report on the Provided State Aid for 1999 has no impact on the state budget, nor has it any impact on unemployment”. [23] Poor management The quality of human resources and organisation of public institutions automatically determine the quality of management and efficiency of how public funds are spent. In SAO’s case, the audit perfomed by Government Office in June 2001 identified serious deficiencies in the management of this institution. Apart from the already mentioned absence of external and internal control, the SAO failed to keep mandatory registers on state aid, made irregular assessment, evaluation and authorisation of state aid, published misleading information on the state aid provided and violated the State Aid Act in a number of cases. The inspection performed by the Finance Ministry in April 2001 ascertained a breach of budget discipline, plus unauthorised, uneconomic and irregular spending of funds from the state budget and the violation of a variety of laws by the SAO. Some of the breaches documented by the inspectors seem almost absurd. (See Annex 1) In reaction to the findings of the inspection, the SAO director stated that the violations came as a result of political pressure and bad relationships between the SAO and the Ministry of Finance. [24] Despite the gravity of the findings by both inspections, the ruling coalition failed to take appropriate measures to rectify the situation. On the contrary, the coalition tried to sweep the facts under the carpet and redirect media attention to bizarre details (such as the purchase of a ping-pong table or a massage shower stand installed in the SAO premises). Although these details are scandalous in nature, they seem to be less of a problem in comparison with the illegal granting of state aid worth more than SKK 11 billion, as concluded by auditors from Government Office. Some public officials were obviously interested in keeping these problems hidden from the public. When two members of parliament wanted to inspect SAO’s books, not only did they never receive answers to their questions, their initiative was challenged by another MP, a member of the Party of the Democratic Left (SDL) [25]. That MP was later found to have been a partner in ZVL Kovo Lipany at a time when state aid worth over SKK 2.5 million had been approved for this company. [26] Although the cabinet formally agreed (on 23 August 2001) with the dismissal of Hladik from the post of SAO director, during the September session of parliament the ruling coalition failed to table the proposal for Hladik’s dismissal, so parliament did not even vote on the motion. It was probably due to the inability of the Green Party to nominate a new candidate for the post and sort out the mess. [27] The ruling coalition got moving only eight months after it had received the serious findings of inspections at SAO, i.e. at the dawn of the election campaign. On 6 February 2002 the cabinet approved a proposal to abolish the SAO and transfer its powers to the Anti-Monopoly Office. It is in the public interest to make sure that this formal intention is implemented in practice, and that the entire system of decision-making and granting of state aid is revamped and political consequences against those responsible are drawn. Absence of a strategy for SAO’s institutional development The SAO management never accepted any critical suggestions (presented by various experts in writing) aimed at improving the efficiency of SAO, and even ignored the recommendations contained in the aforementioned analysis funded from the PHARE program (see section “Poor Organisational Structure”). The employees of the SAO had no clear career prospects, let alone any basic certainty as to how long they would keep their jobs. Hence, the very point of investing in their training was questionable. While some attended courses in the area of protocol lasting several weeks, others were denied this possibility. According to former SAO employees, the determination of who would attend which training course was at the director’s sole discretion, and the criteria for selection were never published. All employees worked on the basis of annual contracts. Allegedly, none of them had a proper job description available even by the end of May, so their work was based on proposed job descriptions. The annual term of the contracts was a tool through which the SAO director generated pressure on those who called for transparency, efficiency and legality of procedures for the approval of state-aid applications. On the one hand, section directors enjoyed various benefits (e.g., cellular phones, service cars, cameras). These perks were used as means for ensuring their loyalty toward the SAO management or, where necessary, as a means for their discreditation. The media reported that some SAO senior officials, found to be directly responsible for the irregularities detected during the inspections, attended long-term study programmes in Brussels within the framework of a twinning contract. [28]

IV. RECOMMENDATIONS

The SAO is built on mislaid foundations. Decision-making procedures must be completely reformed in a way that eliminates any interface with the state power. The problems described herein cannot be solved by simply dismissing the SAO director or transferring SAO powers to another institution, although personnel and organisational changes can facilitate the implementation of some systemic changes. However, under the current arrangements, when the Coalition Agreement puts the SAO into the hands of the Slovak Green Party, the mere replacement of political nominees at the helm of the SAO will not suffice. In order to solve these problems, the following measures must be taken: de-politicise the formation and administration of the SAO (or a successor institution to which its competencies might be transferred) and other significant institutions of the state; prepare a strategy and methodology for state aid in conformity with development policies in individual sectors, using a democratic process based on the broad participation of a well-informed public; harmonise domestic legislation in the area of state aid with the acquis; reform the organisational structure of SAO (or a successor institution to which its competencies might be transferred) in a way that ensures democratic management and consistent internal audit and external control; adopt binding and enforceable internal regulations at the SAO (or a successor institution to which its competencies might be transferred) that ensure transparency and eliminate opportunities for corruption, cronyism and malpractice; increase the professional skills of personnel responsible for providing a service to the public with respect to state aid. It is furthermore necessary to: amend the State Aid Act by incorporating the exceptions to the provision of state aid, pursuant to Article 87 of the TEC, and by making it fully compatible with the relevant EU directive on state aid (this also applies to the Act on Investment Incentives, Act on Industrial Parks and other laws pertaining to state aid); strengthen the staffing of SAO or a successor institution to which its competencies might be transferred (e.g. it is necessary to hire internal auditors, PR Officer and qualified service staff); ensure regular training programmes aimed at enhancing the professional competence of SAO staff (e.g. through efficient implementation of the present twinning contract); review, in a consistent fashion, all historical decisions on state aid and, where gross violations of the law are ascertained, draw political and legal consequences against the persons responsible; where a company receives state aid other than through regular process, it must return the funds to the state budget; publicise the results of inspections performed so far and ensure that the findings of any future inspections of the SAO are made public; publish a concise and reader-friendly explanation of the State Aid Act and print brochures for the beneficiaries and providers of state aid containing information on the procedures related to the filing of applications, decision-making process, roles and competencies of individual parties to the process in Slovakia, as well as on the commitments ensuing from the association agreement with the EU, etc.

V. CONSEQUENCES OF STATE AID PROBLEMS FOR SLOVAKIA’S ECONOMIC DEVELOPMENT

Within the framework of their pre-accession negotiations, Slovakia and the Commission have not yet closed the chapter on competition policy, partly also due to problems connected with the provision of state aid. Failure to address these issues, or willingness to make only minor cosmetic changes, may have far reaching international and political consequences for the Slovak Republic. The impact of misdirected state aid on Slovakia’s economic development is equally significant. Appropriate policy of support to small and medium-sized enterprises and reasonable programmes for the reduction of unemployment and regional disparities are essential to building a stable and sustainable economy. Unfortunately, the economic policy of the Slovak government is going in the opposite direction. Various forms of state aid are mostly provided to large export-oriented corporations; when it comes to criteria, the size of investment prevails over the quality of business plan in relation to clearly defined public interests. The recently-adopted laws [29] and the history of state aid in Slovakia serve as examples. In the context of the economic difficulties facing Slovakia for quite some time, it is striking how the government tolerates the lavish spending of such dimensions as with SAO. Monitoring is called for on whether state aid provided in conflict with Act No. 231/1999 on State Aid will be refunded (to the state budget), in accordance with the law. Also, whether legal consequences against the public servants responsible for this situation will be drawn, and whether the shift of SAO competencies will change things for better needs watching. The amounts at stake are not negligible – if used properly, they can contribute to the revival of Slovakia’s economy and support the development of underdeveloped regions. Annex 1 Findings of inspections at the SAO Inspection by the Ministry of Finance (MoF) In April 2001, the Internal Control Department of the MoF performed inspection of the SAO focusing on the spending of state budget funds in the period between 1 January 2000 and 30 April 2001. The inspection concluded that the SAO acted in breach of the state budget rules, spent SKK 4 million without proper authorisation, and violated a number of laws. What follows are several examples from a long list of dubious transactions: The SAO purchased six cars which were (according to the inspectors) mostly used for private purposes. The bill for the cars shows that the SAO also paid for such useless add-ons as metallic finish (almost 29,000), pearl effect (over 16,000) and seat covers (almost 12,000). However, seat covers were never used due to “difficult installation”. Even though every office within the SAO had a fixed telephone line, there were 13 cellular phones per 30 SAO employees, which were largely used for private purposes. In November 2000, the SAO purchased Olympus digital camera with accessories for more than SKK 146,000, although the Office already possessed one Nikon camera. Olympus was assigned to the Director of the Section for Information Flows and External Relations, who took it to Brussels where he was on a long-term internship. In December 2000, the SAO paid the installation of a hydro-massage shower stand worth SKK 37,500. In January 2001, the SAO purchased 60 books “Sydney 2000” worth over SKK 14,000. The Director of the Section for General Administration explained: “The reason behind the purchase of these publications was to promote Olympic ideas, as documented in the book, and present these publications to our employees on the occasion of the New Year’s speech delivered by the SAO Director”. Some time before the book on Sydney, the SAO purchased one thousand New Year’s greeting cards worth almost SKK 28,000. According to the director of the General Administration Section “the season’s greetings cards were purchased in order to make the SAO more visible … establish informal contacts with organisations active in the economic competition and the European Commission”. In addition to incorrect categorisation of some SAO employees into salary grades (income brackets), the MoF inspectors concluded that three SAO employees received illegally, during 2001 and 2001, a 25-percent surcharge to their salaries as a compensation for not engaging in private business activities (the total amount thus paid reached almost SKK 104,000). Inspectors also ascertained that the SAO concluded part-time contracts with some SAO employees for the performance activities specified in their job descriptions. In other words, the SAO paid twice for the same work done. Inspection by the Government Office (GO) In May and June 2001, the Control Section of the Government Office inspected the SAO for compliance with the State Aid Act in the period between 1 January 2000 and 30 April 2001. The inspection ascertained material deficiencies in the management of the institution. According to the inspectors, the SAO’s rules of organisation were in conflict with both the SAO’s bylaws and the State Aid Act, because “[the rules of organisation] do not contemplate the performance of some basic tasks for which the SAO was established”, namely the external control and internal audit functions. “There is no functioning system of internal audit in place”, similarly as there is no “ex-post control of the state-aid providers and verification of beneficiaries”. Inspectors concluded that the SAO’s claim (stated in the Annual Report) about ‘continued systemic effort to develop the structures and procedures for the provision of state aid’ was at variance with the reality. The SAO thus “fails to perform one of the basic functions for which it has been established”. The SAO even failed to keep the mandatory registers of state aid. Its employees were not able to demonstrate the “completeness, accuracy and credibility” of the information published. The files containing individual SAO approvals “are not registers within the meaning of the law” because “they give no certainty as to whether the data are complete and verifiable, nor is possible to trace references to the relevant provisions of the law, based on which the aid can be granted”. The most serious conclusions concerned the illegality of assessment, evaluation and approval of state aid. In eight out of ten randomly selected cases the inspectors held that the state aid had been approved in conflict with the law. The total value of these transactions represented more than SKK 11.5 billion. [30] (see Annex 2) The inspection also confirmed that the SAO released distorting information about the state aid granted and failed to act as the law requires when it determines irregularities in the administration of public funds (although SAO did have knowledge about irregular provision of state aid to a number of companies, it remained inactive). Annex 2 State Aid for VSZ a.s. and VSZ Ocel a.s. Background “State Aid” is any measure which, directly or indirectly, favours selected economic operators vis-à-vis their competitors. State aid thus either distorts or has a potential to distort economic competition as it gives specific undertakings certain advantages that are not available to other undertakings (e.g. provision of government subsidies for the manufacture of certain products, or exemption of specific companies from tax liability). Act 231/1999 on State Aid says that ”for the purposes of this Act, ‘state aid’ as aid in any form provided by the provider, directly or indirectly from the national budget or its own resources, to the entrepreneur for business purposes or in connection therewith”. [31] State aid may only be provided in conformity with the State Aid Act and – if granted under separate laws – always subject to the relevant provisions of the State Aid Act. State Aid to undertakings in difficulties According to §12 of the State Aid Act, state aid may be provided to salvage or restructure certain undertakings in difficulties. [32] The government thus has a tool to salvage or support the undertakings that contribute to the creation of new jobs or stimulate regional development. The underlying philosophy of the State Aid Act is that it is sometimes more advantageous for the government to grant a subsidy that saves a firm operating in a strategic industry or a less-favoured region than to deal with the problem of soaring unemployment in the troubled region. An undertaking in difficulty is understood to include entrepreneurs whose profits, sales, inventory, cash-flow or net worth have been declining, or whose losses, debts and excessive production capacities have been increasing on a long-term basis. [33] A state aid may be granted if the undertaking in difficulties faces imminent threat of bankruptcy and an independent analysis of financial indicators and the circumstances to which the difficulties are attributable demonstrates that restructuring can restore the economic viability of the enterprise on a long-term basis. [34] The state aid designed to salvage an undertaking in difficulties may only be provided on a one-off basis, either in the form of a loan or credit guarantee. The amount of such state aid, which may also be disbursed in instalments, shall not exceed the amount necessary to cover the cost of keeping the undertaking in operation for a period of time necessary to prepare the restructuring plan, however, for not more than six months. [35] The state aid for the purpose of restructuring may only be provided on a one-off basis to support the implementation of a restructuring or conversion plan aimed at restoring the long-term viability of the undertaking within a reasonable period of time, however, without increasing the production capacity of such undertaking. [36] Where the restructuring entails reduction or closure of certain production capacities, state aid may be used to cover the cost of severance payments connected with redundancies. [37] In order to prevent the abuse of these provisions, the Act stipulates that state aid to an undertaking in difficulties may only be granted subject to specific conditions, [38] i.e. when: a) the continuation of production is in the public interest, b) the undertaking submits a restructuring plan that contains a realistic programme capable of restoring its long-term viability and competitiveness, c) the implementation of the plan restores the profitability of the enterprise, d) competition is not materially restricted, e) the amount of state aid is limited to the necessary minimum and reflects the costs and benefits of restructuring, f) the undertaking presents a written commitment: 1. to implement the restructuring plan in a comprehensive manner, 2. to submit monthly reports on the progress of restructuring and an annual report on the fulfilment of the restructuring plan, 3. to enable the relevant authorities to inspect compliance with the restructuring plan and check the accuracy of the monthly and annual restructuring reports, 4. to meet additional criteria for the provision of state aid, 5. to refund the state aid received and pay sanctions pursuant to a separate regulation if the undertaking breaches any of its commitments referred to in paragraphs 1 to 3 or fails to meet the criteria for the provision of state aid. Who in fact received state aid? On 28 September 2000 the State Aid Office approved state aid in the form of a tax relief for the companies of VSZ a.s. Kosice and VSZ Ocel a.s. Kosice pursuant to §12 of the State Aid Act as follows: for VSZ, a.s. Kosice: 1,137,561,000 SKK [39]; for VSZ, a.s. Kosice: 28,819,800 SKK [40]; for VSZ Ocel, a.s. Kosice: 217,999,000 SKK [41]; for VSZ Ocel, a.s. Kosice: 29,999,000 SKK [42]; for VSZ Ocel, a.s. Kosice: 2,000,000 SKK [43]; Total for both companies: 1,416,378,800 SKK Based on the analysis of the document obtained by the Center for Environmental Public Advocacy it is reasonable to conclude that the funds granted to VSZ a.s. and VSZ Ocel a.s. in the form of state aid pursuant to §12 of the State Aid Act were approved in conflict with the Act. There are solid grounds to believe that rather than to maintain steel production – as indicated in the SAO annual report for 2000 – the real intention behind granting state aid to VSZ a.s. and VSZ Ocel a.s. was to clear the debts accumulated in the group of VSZ a.s. prior to selling its core business (i.e. steel production) to US Steel and thus have the Slovak taxpayer bear the cost of the bailout. Two weeks before the SAO approved state aid for the two companies in the form of a tax relief, the Slovak cabinet had endorsed agreement with U.S. STEEL GROUP, VSZ a.s. Kosice and STEEL Kosice s.r.o., [44] wherein the government committed itself (based on the information available) to relieve VSZ a.s. of its overdue tax liabilities, including interest and penalties thereon. Only through the relief of tax liabilities the indebted VSZ a.s. was able to free up some cash to repay a portion of its bank loans and thus have the creditors approve the sale of STEEL Kosice s.r.o. to the strategic investor, i.e. U.S. Steel. STEEL Kosice s.r.o. was a subsidiary of VSZ a.s. created for the sole purpose of serving as a vehicle to which the metallurgic and steel making business of the VSZ group was transferred prior to selling the group to the US concern. The strategic investor then, together with Steel Kosice s.r.o., took over the remaining debts of VSZ a.s. in the amount of USD 325 million. The decision-making of the SAO on the case was thus reduced to a straightforward administrative act by which the political decision adopted by the ruling coalition was formally executed. State Aid “the Slovakian way” The applications for the provision of state aid to both companies were initially reviewed by the SAO’s Section for Regional Aid, which was supposed to assess their formal compliance. However, the results of inspection indicate that the Regional Aid Section never issued any document to confirm the formal and technical compliance of the two applications with the State Aid Act, nor did it issue any opinion as to whether the applications met the criteria for giving clearance to state aid for the purpose of restructuring. In fact, the Regional Aid Section forwarded the entire dossier without appending its opinion to the Horizontal Aid Section for assessment in terms of purpose, because the transaction involved the ‘salvage of undertakings in difficulties’. In its minutes of meeting the Horizontal Aid Section concluded that the applications and supporting documents were incomplete and that the restructuring plan, whose submission is mandatory, was missing. The councillor for restructuring issued a written opinion which stated that the documents presented for the purpose of state aid approval pursuant to §12 of the State Aid Act were incomplete. By the date of final approval, the Horizontal Aid Section issued no further opinions on the case. According to §12(7) of the State Aid Act, state aid for the purpose of restructuring may be granted to an undertaking in difficulties only where all six conditions stipulated in sub-paragraphs (a) to (f) are met (see “State Aid for Undertakings in Difficulties”). In the case of applications for state aid to VSZ a.s. Kosice and VSZ Ocel a.s. Kosice, the compliance with these conditions should have been assessed separately for each company, because according to the record of incorporation in the Companies’ Register, VSZ a.s and VSZ Ocel a.s. were two independent legal entities. However, the inspection performed by the Government Office ascertained that the SAO treated both applications jointly and that the whole dossier was ”difficult to follow, inconsistent in terms of chronology, and non-authenticated” and thus ”the control authority cannot give its professional opinion thereon because it has no certainty as to the completeness of the documentation, whose inventory was taken only on 26.10.2001, i.e. after the state aid had been approved; moreover, the documentation does not contain a single record of formal or informal discussions”. [45] Provisions of §12(7) were not met either. The way in which the documentation was presented to the SAO is also noteworthy. Inspectors from the Government Office identified a number of inconsistencies in terms of timing, registration and essence of the documentation based on which state aid to VSZ a.s. and VSZ Ocel a.s. was approved. In the aforementioned document the inspectors concluded that ”the SAO received practically all the documents used for the assessment, evaluation and approval of the state aid concerned on 27.9.2000 at the earliest, i.e. one day before the approval”. In addition, ”the dossier was forwarded to the coordinating unit – the Horizontal Aid Section – only on 4.10.2000, i.e. after the date of approval”. In spite of this, the SAO director signed his approval of the state aid applications on 28.9.2000. Inspectors also concluded that ”none of the approved documents contains a reference to §4 of the State Aid Act, i.e. the purpose and the form of the state aid have not been defined. It is therefore impossible to determine from the approvals which provision of the law was used as a basis for the assessment and evaluation of the applications and supporting documents thereto”. The official reports on the approved state aid [46] nevertheless read that state aid for VSZ a.s. Kosice and VSZ Ocel a.s. Kosice was approved for the purpose of restructuring/salvage of undertakings in difficulties. In other words, the applications should have met the criteria of §12 of the State Aid Act. They never did. Undertakings in difficulties? Under the law, each applicant must present its own restructuring plan. In reality, just one day before approving the applications the SAO received one common Plan of Reorganisation dated 18.9.2001 (only in the English version). It was unclear from the document whether or not the Plan can provide for the restoration of economic viability and competitiveness of each of the two applicants. Likewise, it was impossible to determine the compliance of both applicants with the criterion of ‘restored profitability’ [47], or the criterion of ‘material restriction of competition’ [48], nor was it possible to determine whether the state aid sought was limited to the necessary minimum and whether such amount was adequate to the costs and benefits of restructuring. [49] Since no restructuring plan was submitted, neither of the two companies made a written commitment as per §12, paragraph 7(f) of the State Aid Act. Moreover, the state aid applications contained no explanation as to why maintaining production in the two companies should be in public interest, as required by §12, paragraph 7(a) of the State Aid Act. In a letter addressed to the Ministry of Finance and forwarded for reference to the SAO, the Finance Vice President of VSZ a.s. explicitly stated that ”neither VSZ a.s. not VSZ Ocel a.s. perform the activities listed in the Companies’ Register to the extent that would justify the use of state aid for the purpose of restructuring their production and activities. The purpose in the case of VSZ a.s./VSZ Ocel is to indirectly maintain the production in subsidiaries.” [50] However, according to experts, state aid pursuant to §12 of the State Aid Act cannot be used to settle the debts between various entities within a holding company; it must be provided solely to the benefit of the entity in respect of which the aid has been approved, i.e. the beneficiary. The purpose of aid is to maintain only such production that is in public interest. In addition, as indicated above, VSZ a.s. Kosice transferred the production and employees of VSZ Ocel a.s. to another company -- STEEL Kosice s.r.o. This transaction turned VSZ Ocel a.s. into an indebted legal entity without any production or employees. On the other hand, STEEL Kosice s.r.o. acquired all assets and activities connected with metallurgical production (land, buildings, machinery and equipment) already before VSZ a.s. sold it to US Steel. Not only that metallurgic and steel production was not the core business of VSZ Ocel a.s. at the time of state aid approval, but the company was completely inactive and obviously destined for extinction [51]. This was confirmed by the Finance Vice President of VSZ a.s. in the aforementioned letter to the Ministry of Finance: ”...from this date VSZ Ocel a.s. is an empty shell without production program and employees, which has outstanding tax liabilities toward the state”. Although these facts were known to both the SAO and the state aid provider (Ministry of Finance), the SAO approved the provision of state aid for the restructuring of VSZ Ocel a.s. Kosice in the total amount of almost three quarters of a billion Slovak crowns and registered this aid in the category of steel industry. State Aid and the pre-accession process The European Union keeps a close eye on the irregularities that have become a part of the state aid practice in Slovakia. In its common position on the chapter “Competition Policy” the EU stated that despite the adoption of the State Aid Act, state aid is provided “in contradiction with the EU criteria”. The European Commission (EC) repeatedly stressed that “according to the Europe Agreement, the state aid acquis should be implemented already at this stage” [52] and that any state aid that distorts or endangers competition by favouring selected undertakings is in gross conflict with the provisions of the said agreement, which Slovakia signed. In its 2001 Regular Report on Slovakia’s Progress towards Accession the EC states that “a competition discipline akin to that of the EU still needs to be further developed” and also “administrative capacity needs strengthening and enforcement remains sketchy and less than transparent.” [53] In January 2000, EU Commissioner for Competition Mario Monti warned some candidate countries that the irregular provision of state aid to industries may frustrate their ambition to become EU members. [54] He called on the governments of these countries to align, without any delay, their practical policies and domestic rules with the EU rules in this area. According to Monti, inconsistency and lack of transparency in the provision of state aid is a part of the problem. [55] In addition to the controversial favours granted to Volkswagen, the tax reliefs granted to VSZ Kosice and U.S. Steel represent a particular problem. [56] Both cases, described in this study, may have far- reaching international and political consequences. Conclusion The primary mission of the SAO should be to prevent the misuse of state aid. Paradoxically enough, the SAO has become a tool for the misuse of state aid in Slovakia. The two cases just mentioned cost the national budget more than SKK 1.4 billion worth of state aid (1,166,383,800 to VSZ a.s. Kosice, and 249,998,800 to VSZ Ocel a.s. Kosice). How state aid, in both cases, was approved calls for a fundamental institutional and personnel reconstruction of the State Aid Office. Adoption of a new mechanism for decision-making and the evaluation of state aid applications that ensures transparency, a professional approach, and legality, and eliminates cronyism and arbitrary decisions taken by public servants is needed. Under normal circumstances, if irregular provision of state aid to VSZ and VSZ Ocel is ascertained, the funds granted, plus applicable sanctions, must be paid back to the state budget. This is what the law says. Whether it will happen and whether the results of a potential investigation into the two cases will change state-aid practice in Slovakia will soon be evident. Slovakia could have used those SKK 1,400 million in support of better causes. There are many worthwhile projects that could create a large number of stable jobs in the most needy regions and, at the same time, bring a number of economic and non-economic benefits. Investments in heat insulation for buildings, energy conservation programmes, utilisation of renewable energy resources, development of micro-loan schemes, development of modern forestry practices, recycling programmes, organic food production, enhancement of public transport, support to SMEs are just some of the examples of the projects what was overlooked. Implementation of these projects is either postponed or is insufficient, mainly due to an alleged chronic lack of funds. On the other hand, various enterprises that can hardly be of any contribution to sustainable economic development continue to enjoy massive support. What has been described is reminiscent of the notorious manipulative practices of the Communist era, when decision-makers devised and applied a wide range of financial and administrative incentives to support gigantic, centrally administrated companies. Their production was deemed vital to the survival of whole regions. So, behind closed doors, without participation of the public and in sharp conflict with elementary logic and agreed practices, such decisions were and are made. The formerly protected state collosi have been replaced with private giants whose economic power (similarly to political links to party structures in the Communist era) enables them to enjoy benefits lobbied for within a deformed business environment. Yet the outcome is much the same: the strength of these “flagships” increases as the ability of the government and civic society to direct the development of the country in line with its long-term needs decreases. Commensurate to their growing influence, these firms are getting more and more assertive in claiming bigger and bigger subsidies from public funds at the expense of public interests. Since the cases described above are only a drop in the bucket of published cases involving malpractice and abuse of public funds in Slovakia, there are grounds to conclude that, rather than a shortage of public funds, the problem lies elsewhere. In Slovakia, the real problem is the massive draining of public funds to the benefit of private companies. NOTES: [1] Due to serious irregularities in the conduct of the State Aid Office the government asked the Minister of Finance (in September 2001) to prepare a plan for merging the State Aid Office with the Anti-Monopoly Office. The cabinet endorsed the plan in early February 2002. [2] Art. 92 of the TEC. [3] The Slovak Republic ratified the Europe Agreement in October 4, 1993. Consequently, the agreement was signed by both European and Slovak Parliaments. [4] National Programme for the Adoption of Acquis Communautaire defines the strategy of the government in the process of approximation of Slovak law during the pre-accession phase, as well as short-term and medium-term priorities for the implementation of harmonised legislation. [5] Along with Agenda 2000 and the White Paper, the Partnership for Accession is a basic document that regulates the process of EU enlargement and criteria for the accession of candidate countries. [6] The State Aid Act was approved in August 1999 and entered into force as of 1.1.2000. [7] Under the law, the providers include: bodies of state administration, state financial institutions, municipalities and other legal persons competent to provide state aid pursuant to a separate law. [8] Annual Report of the State Aid Office for 2000. SAO Report for the 1st Half of 2001. [9] Protocol of Inspection focusing on the management of public funds by the SAO between 1 January and 30 April 2001. Ministry of Finance – Internal Audit Department [10] According to former SAO employees, the SAO director hectored them in various ways (e.g. attendance control, performance assessment or reports from business trips) those individuals who pointed out deficiencies in documents and those who protested against practices used at the SAO. According to the information available, the SAO director frustrated the establishment of a trade-union organisation within the SAO even though most SAO employees indicated an interest in being organised. [11] Gabriela Kaliska: The State Aids the Rich (Stat pomaha bohatym), Pravda, 18 January 2002. [12] Technical Assistance to State Aid Legislation SR 9808.03.01 [13] J. Pokorny: Aid to VSZ is Tip of the Iceberg (Problem pomoci pre VSZ je len vrcholom ladovca). TREND 15.8. 2001. [14] State aid is not prohibited where it is of a social nature and is provided to individual consumers and is not based on any discrimination against the origin of the product or service (§2, paragraph 2 of Act 231/1999 on State Aid). In this particular case, however, the beneficiary of aid was not an individual, but manufacturing cooperatives. Under the law, the SAO should not have cleared these applications in the first place. [15] State aid is not prohibited where it is used as a compensation for damages caused by natural disasters or other extraordinary events (§2, paragraph 2 of Act 231/1999 on State Aid). [16] Protocol of inspection focusing on public administration and compliance with Act No. 231/1999 on State Aid. Office of the Government, Control Section, June 2001. (See Annex 2 for more information) [17] Government Resolution No. 1087/1999, which contains a proposal for setting up a system of internal audit and external control. The government commissioned the SAO director to set up the system and issue internal guidelines for audit and control within the SAO. [18] All four employees were subjected to various unfair practices by SAO management (e.g. threat of not extending employment contracts, articles in the media, etc.). One of the complainants eventually withdrew his signature from the petition, while the employment contracts of the remaining two were not extended and they quit in May 2001. [19] Mr. Huorka refused to take responsibility for SAO management due to insufficient material and technical conditions at the beginning of the SAO’s operation. Huorka resigned from his post in December 1999, barely two weeks after his election in parliament. [20] G. Kaliska: V uradoch neschopni partajnici (Incompetent Partisans in the Administration). Pravda, 19 June 2001. [21] Instruction of SAO Director No. 05/2001is quite remarkable: “May the registration of arrival, interruption of work, registration of departure, and the legibility of these data become a matter of honour for every employee of the Office … I shall draw appropriate consequences against those who do not comply with my appeal.” Internal Regulation No. 7/2000 of the PR Directive is equally interesting “Avoid mistakes: Don’t put the telephone receiver on the desk too loudly when looking for some information.” [22] For example, according to former SAO employees, due to the absence of Head of Section for Information Flows and External Relations (who was on a business trip at the time), the SAO Report of 11 May 2000 intended for Deputy Prime Minister Pavol Hamzik was prepared by somebody from another SAO section, even though the head of section knew about the task. Similarly in October 2000, when a report for the Anti-Monopoly Office was due, the Head of Section for Information Flows and External Relations sojourned on a business trip abroad. The same situation occurred when the SAO was due to prepare its 1999 and 2000 State Aid Reports for the European Commission, as well as state aid reports for 2000, when the section director left for a six-month study stay to Brussels. [23] http://www.government.gov.sk [24] Hladik said this to some media (e.g. K. Cikovsky: Zakon komplikuje plnenie slubov investorom, TREND 9.5.2001; Peter Visvader: Premier sa chvali, riaditel pada, Narodna obroda 21.7. 2001; K. Cikovsky: Urad kontrolovali jeho spoluvinnici, TREND 25.7.2001; M. Hladik: Kontrola nepotvrdila ziadne prechmaty, TREND 15.8.2001). [25] G. Kaliska: V state ruka ruku umyva. Pravda 15 May 2001. Excerpt from the article: “On 2 May, Members of Parliament Tatar, and Ambros, party leader of the Greens, came to inspect the SAO. They asked Hladik to answer 31 questions and hand over the SAO’s accounting documents. What a surprise when they came back on 10 May to pick up the answers. Four other MPs were sitting in the Director’s Office. One of them, Viliam Sopko, challenged the inspection of the MPs, so Tatar and Ambros never got answers to their questions.” [26] According to the extract from the Commerical Register. [27] Although the SZS management nominated a former SAO employee to the post of director, the Prime Minister expressed reservations about the professional capacity of the nominee. SZS has not presented another nomination. [28] G. Kaliska: Za neschopnost do Bruselu (The Incapable Off to Brussels). Pravda 11. 9. 2001. [29] E.g. Act on Support to Industrial Parks, Act on Investment Incentives. [30] The transactions included the following: approval of state aid No. 313/00 of 24.5.2000 for Slovak Electricity Company of total 3.0 bln SKK; approval of state aid No. 682/00 of 27.6.2000 for Slovak Electricity Company of total 4.1 bln SKK; approval of state aid No. 1528/00 of 3.4.2001 for Slovak Electricity Company of total 3.0 bln SKK; approval of state aid No. 1812/2000 of 28.9.2000 for VSZ a.s. of total 1.137 bln SKK; approval of state aid No. 1816/2000 of 28.9.2000 for VSZ a.s. of total 28.8 mil SKK; approval of state aid No. 1813/2000 of 28.9.2000 for VSZ Ocel a.s. of total 217.999 mil SKK; approval of state aid No. 1814/2000 of 28.9.2000 for VSZ Ocel a.s. of total 29.999 mil SKK; approval of state aid No. 1815/2000 of 28.9.2000 for VSZ Ocel a.s. of total 2.0 mil SKK. [31] §1, paragraph 2 of Act 231/1999 on State Aid. [32] §12, paragraph 1 of Act 231/1999 on State Aid. [33] §12, paragraph 2 of Act 231/1999 on State Aid. [34] §12, paragraph 3 of Act 231/1999 on State Aid. [35] §12, paragraph 4 of Act 231/1999 on State Aid. [36] §12, paragraph 5 of Act 231/1999 on State Aid. [37] §12, paragraph 6 of Act 231/1999 on State Aid. [38] §12, paragraph 7 of Act 231/1999 on State Aid. [39] Approval of state aid No. 1812/2000 of 28.9.2000 for VSZ a.s. [40] Approval of state aid No. 1816/2000 of 28.9.2000 for VSZ a.s. [41] Approval of state aid No. 1813/2000 of 28.9.2000 for VSZ Ocel a.s. [42] Approval of state aid No. 1814/2000 of 28.9.2000 for VSZ Ocel a.s. [43] Approval of state aid No. 1815/2000 of 28.9.2000 for VSZ Ocel a.s. [44] Government Resolution No. 698/2000 concerning Draft Agreement between the Republic of Slovakia and USX CORPORATION, acting through its organisational unit, U.S.STEEL GROUP, VSZ joint-stock company Kosice, STEEL Kosice s.r.o. dated 5.9.2000. [45] Protocol of inspection focusing on the compliance of the State Aid Office with Act 231/1999 of State Aid, Office of the Government, Control Section, June 2001. [46] Commercial Journal No. 4/2001 and also Overview of Approved State Aid in 2000. Section for Information Flows and External Relations, State Aid Office, 2001. [47] §12, paragraph 7(c) of Act 231/1999 on State Aid. [48] §12, paragraph 7(d) of Act 231/1999 on State Aid. [49] §12, paragraph 7(e) of Act 231/1999 on State Aid. [50] Letter from the Finance Vice President of VSZ, a.s. addressed to the Director General of the Tax and Customs Administration Section of the Slovak Ministry of Finance dated 28.9.2000. A copy of the letter was simultaneously delivered to the SAO which, on the same day, decided on the provision of state aid to VSZ a.s. Kosice and VSZ Ocel a.s. Kosice. [51] VSZ Ocel a.s. Kosice was deleted from the Companies’ Register as of 30 March 2001. Source: extract of from the Companies Register at Kosice I District Court. [52] For example a letter by A. Schaube dated 24 July 2000. [53] http://www.government.gov.sk/eu/dokumenty_zoznam.php3?id_stranky=33 [54] Deborah Hargreaves: Europe & Middle East: Candidate EU members warned over industry aid. Financial Times, 20 January 2001. [55] Editorial Comment: Cutting Subsidies. Financial Times, 22 January 2001. [56] EC advised Slovak Republic that any tax holidays granted to U.S. Steel in conflict with the rules applied in the EU would constitute a serious impediment to the closure of the chapter on Competition Policy.