PRAGUE, Dec 3: Several bungled privatizations are costing the Czech government dearly ahead of the country’s entry into the European Union in 2004, risking delays in needed infrastructure investments and even the eventual introduction of the euro.

The latest setback came in late November with the failure of the privatization of Cesky Telecom, which holds a near monopoly over the country’s four million fixed telephone lines.

The privatization fell through because potential buyers Deutsche Bank of Germany and Danish operator TDC, grouped in a joint consortium called C-Tel, could not reach an agreement with existing minority shareholders.

The Czech state was ready to sell its 51.1-percent stake to C-Tel for 1.82 billion euros (dollars), but the German-Danish consortium was unable to strike a deal with TeleSource, which holds a 27-percent stake and is itself owned by Dutch operator KPN and Swiss operator Swisscom.

Finance Minister Bohuslav Sobotka conceded after talks broke down that “Cesky Telecom was not well prepared to be privatized” although the operation had already been postponed in mid-October.

Sobotka later said in a newspaper interview that the expected proceeds from the operation had not been accounted for in the budget, although the government “was counting on a part of the sum” to be used to cover clean-up costs from catastrophic floods last August.

According to sources close to the ministry, about one billion euros were to be used to finance various repairs and reconstruction projects, especially for bridges, roads and railways and building apartments.

However, without the proceeds from the privatization, the government will have to take out a loan with the European Investment Bank.

The minister is to unveil new plans by the end of January for the privatization of Cesky Telecom, which is expected to take place before the government’s mandate is up in 2006.

Aborted privatizations not only risk delaying investments but also could weigh on the country’s public deficit.

In 2002, the deficit reached nine per cent of gross domestic product, excluding privatization revenues.

With such a large shortfall, the Czech Republic will probably be the only EU candidate country not in a position to introduce the euro, a recent study by the International Monetary Fund has said.

The current government of Prime Minister Vladimir Spidla, who came to power last July, faces other privatization difficulties left behind by the cabinet of his predecessor at the head of the Social Democratic Party and of the government, Milos Zeman.

In December 2001 the government decided to sell its 63-per cent stake in chemicals giant Unipetrol for 361 million euros to Czech group Agrofert, run by local businessman Andrej Babis, who said he had the backing of US oil group Conoco.

After several payment postponements and failed talks with Babis, who was asking for a big discount off the price, the deal was abandoned in mid-October.

Spidla’s government has decided to once again solicit bids for the the stake in Unipetrol, which comprises practically all of the Czech oil and chemicals sector.

A new strategy is to be adopted in January, according to industry minister Jiri Rusnok. However, a new attempt to privatize Unipetrol will need at least 14 months, the minister said. —AFP