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New Economy Minister: $I'm a Supporter of Privatisation$ (interview)

Ljubljana, 29 July (STA) - New Economy Minister Darja Radic has declared herself a supporter of privatisation, which $needs to be completed once and for all$. $The withdrawal of the state from the economy has been absolutely too slow,$ she said in an interview with the STA.

Radic believes this has contributed to a lack of timely restructuring in the Slovenian economy, which has in turn worsened the challenges faced by business in time of crisis.

"When you look at companies with private ownership and those which emerged from common ownership, there is a clear distinction. The former have a vision for 20 years, while the latter have a fairly short-term outlook, mostly for the term of the current management," Radic told the STA.

She thinks that, in this respect, there will be "nothing wrong if a Slovenian corporation or two were to be acquired by foreigners". "The important thing is that...these companies are headed by good managers with a long-term vision of development."

"After all, the ministry has been supporting foreign direct investment. Why? Because FDI injects new know-how and business models into the economy."

She warned that Slovenia stood to gain nothing by closing its borders to foreign ownership. "More than dealing with the question of whether Slovenian companies pass into foreign ownership, Slovenia should be dealing with the question of what to do to make its business environment attractive to domestic and foreign companies."

Moreover, she does not think the current troubles of Slovenian companies will result in mass acquisitions by foreigners. "Solutions will have to be found in Slovenia, among domestic investors, banks and other financial institutions...We're talking about a process of restructuring that will not be completed overnight."

Asked about the Economy Ministry's efforts to help business with new projects, Radic, who has been in office for two weeks, said that the state will have to find new sources for development incentives.

"This is why the ministerial crisis group is discussing the creation of a Slovenian Development Platform through which we would acquire favourable repayable funds from international development institutions such as the European Investment Bank (EIB)," she said.

"I support the switch from...grants to repayable instruments, such as guarantees, loans and venture capital, because this forces those managing projects to be more selective about the projects they enter. For the ministry this means that it will get the funds back and be able to use them for new projects. This provides a sustainable instrument for financing development projects."

Meanwhile, she said the state should focus on providing grants for research and development. "Here it makes sense for the state to assume some of the risk to increase the likelihood of the development of a new product or service."

Radic admitted that the Economy Ministry does not yet know where it will obtain funds for such grants in 2011 and 2012. "We'll do our best to find these funds. I must point out here that the EUR 185m that will be put up this year is intended for such projects."

Asked about the ministry's budgets for the next two years, the minister said that "the priorities are covered". "All we're lacking is provisions for export loans and insurance. We need around EUR 100m."

Asked about the outlook for Slovenian companies, she warned that many were dealing with high indebtedness. Suggesting that there were no companies too big to fail, she stressed that a "development breakthrough will have to be achieved with healthy and newly-emerging companies."

Meanwhile, she promised to work against new tax burdens on companies. Asked about the increase in excise on electricity, which will increase costs for companies, she said that her first task will be to carry out an analysis of the effects of the increase.

"Given the state of public finances I understand that new budgetary sources need to be found. But in times of crisis one must be careful not to additionally burden business. Now is the time to let business breathe so that it can emerge from the crisis."

She pointed to real estate tax as a possible solution for filling the state purse. "I'm a support of higher tax on non-essential real estate. I also support higher rates of tax on non-reinvested profit if the state in turn drops the plan for an increase in taxes that would increase costs for companies."

Quizzed about the state of Slovenian banks, she said the main question was "how to go about clearing toxic investments" from their balance sheets. "The banks must clear out their bad investments to create room for supporting the healthy part of business."

The same is true for the construction sector, which Radic believes has found itself in a bubble. "There will be a contraction. I see a solution in deals abroad, where success will depend on the ability of Slovenian companies to work together in acquiring business."

Radic rejected the possibility of her ministry tightening criteria for the establishment of companies due to abuses stemming from shell companies. "We have been working to simplify the procedures for establishing companies. To take a step back due to few cases of abuse would not be the right approach in my mind."

"The right approach would be to punish those who break the law. The companies act sets down in no uncertain terms the punishment for fraud and false bankruptcy."

Asked about the future of the TES 6 project of constructing a new coal-fired generator in Termoelektrarna Sostanj (TES), Radic said that she saw no alternatives to pushing ahead with the EUR 1bn-plus investment.

"Given that TES generates 33% of all electricity in Slovenia and that nobody has presented an alternative to obtaining this 33% in a realistic period of time, there is no other possibility. Giving up on 33% of electricity production in Slovenia would be a very risk decision."

She said that the priority now will be to study the audit report on the management of the project so far. "This is such a large and demanding project that mistakes are bound to occur. The important thing is for us to uncover them, admit they exist and then start fixing them."

"But an important question also is whether these mistakes happened because of a lack of know-how and incompetence or whether they happened intentionally."

Radic said that for now the government had no clear information warranting the replacement of managers at power utility HSE and its subsidiary TES. "Then again, it is not the government which decides to sack the management - this is the role of the supervisory boards."

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