It is typical for the First Communal Bank (PKB), joint stock company Zilina that it strives to introduce standard forms of communal sector funding in Slovakia. Those are commonly used across the world. PKB used the Zagreb economic forum of the Central European Initiative (CEI) to present its pilot project on participation of international financial institutions in communal development in Slovakia. Jozef Mihalik, PhD, PKB President and Vladislav Bachar, PKB Deputy Director General discuss the details of the project.

170 companies attended the first economic forum CEI to introduce their trade and investment plans in the exhibition sector of the forum. What does the PKB project concern?

J. Mihalik: We presented a set of six projects developed in cooperation with the EBRD and concerned Slovak municipalities. Since we are particularly involved in communal funding, the project was on funding of public services or environmental projects. We planned to involve such institutions as the World Bank, EBRD and potential private investors.

V. Bachar: I should stress that it is a pilot project, the first of the kind in the transition economies. It is an example of further opportunities of direct foreign investment. It is important that the funding concerns municipalities, their environment that wasn't funding priority in the past.

What lead you to publicly present the projects at the Zagreb CEI summit?

J. Mihalik: It is no secret that Slovakia lacks long term sources to finance the above activities. Our objective is to address investors capable of bringing 10 to 15 years of funds at good interest rate. The CEI economic forum attracted economists from the 16 member states and representatives of international financial institutions. hat set the basis for our strategy in Zagreb.

What specific activities represent the set of presented projects?

J. Mihalik: The first group includes four projects on construction of solid communal waste stoppages in Ružomberok, Liptovský Mikuláš, Veľké Kapušany, and Veľký Krtíš. The projects are drafted in order to meet the criteria on revenues. Since we intend to involve international financial institutions, they have to satisfy the requirements of investment safety, i.e. to generate income and guarantee returns on investment. The size of the project ranges around SK 400m. The shares have been split directly between the PKB, municipalities and one half to come from the potential investors with whom we negotiate. The second group includes projects on waste water treatment plants for Trenčín and Trenčianske Stankovce. We do realise that the municipal water and sewage companies haven't yet been transformed. However the process is irreversible. Advance planning will help create a model of funding and their sources for the transformation. That faces the absence of funds for reconstruction and construction of the plants and efficient division of segments of the water and sewage plants into units for individual municipalities.

The EBRD participation is clearly one of the decisive success factors of the projects in light of funding and motivation for the potential investors.

V. Bachar: Indeed, the greatest potential is in the EBRD funding. Its participation represents an important signal for the investor considerations: if the EBRD joins, then the project is interesting to funding.

The activities of the PKB are not limited to the presented scope of projects.

V. Bachar: In co-operation with the EBRD we carried out a research that resulted in the interest of the municipalities in USD 85m. This amount will be satisfied according to three factors: the success of the pilot project determines the next tranche and then a proved scope of returns. I am optimistic, since those projects have been designed by experts in cooperation with foreign consultants from the EBRD.

What is the implementation deadline for the project?

V. Bachar: The original date was at the beginning of Summer 1998. Since then a number of factor appeared, such as fluctuating interest rates, exchange risks and a warning by the EBRD about investment risks reflecting the current political situation in Slovakia. Later on we faced the problems of weather. We cannot build storages in the winter. Thus the new deadline has been set together with the municipalities for March 1999.

With your activities you relieve the state budget.

V. Mihalik: That is an important element in the entire process, since the project would sooner or later have to materialise. It also relieves the municipal budgets, as the funding is shared with a number of sources. The return on investment is estimated at 11 to 14 years. Not only are the sources long term, but the interest rates are much lower than those at the financial market.

What is the position of the ministry of environment on your projects?

V. Mihalik: We have long been managing the funds of the ministry allocated for the municipalities and as participants in the revolving fund for the return on funding for ecological processes. We support the efforts to move from direct non-returnable system of allocations to those from the returnable fund. Along with the ministry, the process is to include Kreditkomunal, a strong Austrian bank operating in funding of ecological projects and the PKB. Each partner shall invest funds in order for their sum to provide for cheap loans for ecologisation of municipal environment.

Are you heading to a diversity of directions?

V.Mihalik: We do realise that communal funding through standard tools such as short term loans that is impossible in Slovakia due to high interest rates, has not chance. So we search for all available forms to acquire cheap and long term sources. Classical commercial banks will only hardly join the process. That's why we look at international institutions created and guaranteed by governments. Although we look at long term and cheap loans, we offer public sector projects. Globally they are seen as the safest in light of investment risks, since they are guaranteed by local governments - in our case the municipalities.

Slovak Trade FORUM