Wednesday, February 28, 2001

Unhappy foreign investors discourage others Following Lauder's lead, others protest By Frantisek Bouc Czech Republic: Keep out! Or at least: Enter very, very carefully. A small but growing number of foreign investors are trying to label the country with just such a warning to the international community, after feeling they were burned by their Czech partners. The complaints seem to be gaining momentum just as the country's most famous disgruntled foreign investor, American billionaire Ronald Lauder, prepares to put the government on trial for not protecting his sizable investment in the country's first private TV station. They also come as Industry and Trade Minister Miroslav Gregr is trying to drum up a significant increase in investment in order to boost the country's gross domestic product. The latest business brouhahas to capture international attention involve not TV licenses, but oil, doors and banks. "We are very surprised and disappointed by our experiences in the Czech Republic," said Lisa Newman, corporate affairs director for Ramco, a British oil and gas company that partnered with Moravske naftove doly (MND) in 1993 to explore for oil near Brno. Ramco invested $15 million (570 million Kc) in the company, through its subsidiary Medusa, but claims that after a 1999 management change, MND arbitrarily withdrew from the agreement, blocked Ramco's access to joint wells and cut off communication. Ramco says it wants its $15 million back, and has made statements on the Prague and London stock exchanges, in hopes of warning other investors. MND executives call Ramco's statements slanderous, and say they are ruining MND's reputation with foreign partners like OMV and Agip. The company says it terminated contracts only after continued disagreements on how to solve geological and technical problems with drilling. Both British and Czech diplomats and government officials have discussed intervention, but the matter is now headed for a Czech arbitration court. "There are a number of cases with parallels to ours," said Ramco's Newman. The company also explores gas and oil reserves in Bulgaria, Georgia, Montenegro, Poland, Romania and Azerbaijan. "Investors may well ask whether they'd be better off investing elsewhere. It is only in the Czech Republic that we've come across these kinds of problems." Bad advice? Officials with U.S.-based Private Resources for Industry (PRI) say they can sympathize. The investment company recently filed a complaint against the state-owned Czech Export Bank (CEB), accusing it of misrepresenting information about a local company. "We considered potential problems but never thought the export bank and its very visible and credible executives would mislead us and defraud us," said PRI President Victor Politis. "We would never have moved so quickly if it were not for the credibility of the Czech Export Bank. This is truly a horror story for the movies." PRI helped a Dutch client invest in a Vimperk-based door producer called Intermilp. The Dutch company, CUP, decided to invest here based on guarantees and recommendations from CEB's deputy CEO Miroslava Hrncirova. The Dutch company loaned Intermilp several million crowns using as collateral machinery that was appraised at 38.4 million Kc in 1999. One year later, the same equipment was valued at only 7.3 million Kc. PRI's Politis said Hrncirova ultimately holds responsibility, because she coordinated and certified both appraisals. CUP suffered a 47 million Kc loss because of the altered valuations. Hrncirova was on a business trip and so could not comment on the issue. But she told the Czech News Agency that "CEB has no direct relationship to Mr. Politis' companies," and called it "outrageous" that Politis was "asking CEB to pay for his business failure." The two claims come as Japan's Nomura Securities does everything it can to bring attention to its complaints regarding the government's handling of the takeover of Investicni a Postovni banka, in which Nomura held a major stake. Nomura has recently filed a complaint with the Court of Human Rights, in Strasbourg, France, claiming its property rights were violated. Nomura has even had European Union officials look into whether the takeover and subsequent sale to Ceskoslovenska obchodni banka violated EU rules on state subsidies. Additionally, foreign investors like Mexico's Nemak and Dutch electronics giant Philips are increasingly running into problems with their new neighbors. Residents don't want to give up their land or deal with the potential pollution problems that may arise from the proposed new plants, despite the thousands of jobs they would bring. Affecting perceptions Regardless of whether the foreign investors are victims or, as their critics contend, opportunists trying to take advantage of a still-developing system -- or even bad decisionmakers looking for a scapegoat -- their claims will become part of the international community's perception of the Czech Republic. But officials say that at the end of the day what matters is that foreign companies are still spending money here, and that the investment climate is continually improving. The country had a record 217 percent increase in foreign direct investment last year, according to government agency CzechInvest, with more than 35 investors promising to spend $1.5 billion. News of disputes may catch the attention of potential investors, but many recognize them as disputes that arise between business partners all over the world, said CzechInvest spokeswoman Pavlina Bolfova. And concerns -- whether realistic or not -- are often outweighed by the potential opportunities. "They are interested in this kind of news, but they are far from getting scared of entering this market," she said. "The most important factor is the quality of our incentives and supporting programs, as well as the cheap work force." Frantisek Bouc's e-mail address is fbouc@praguepost.cz More business stories War of wills Long-standing fight between Lauder and Zelezny over TV Nova switches into high gear Former U.S. fugitive has local ties Marc Rich pardon at center of latest Clinton controversy 'Big Bang' or just a big bust? 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