Business Czech export bank and insurer targeted in police swoop

15-01-2014 | Chris Johnstone

Two state controlled Czech export credit and insurance institutions are at the centre of plans to boost the country’s export growth. But an expected strengthening of their role would appear to depend on dealing with problems from the recent past.

Photo: CTKPhoto: CTK Their mission is to go where other insurers or banks would fear to tread in a bid to boost Czech exports. State insurance company EGAP and the Czech Export Bank (ČEB) are tasked with providing risky loans and insurance for projects in risky countries.

Some bad calls and losses are obviously to be counted on in such a business, especially given the fact that the two institutions have boosted their activities in areas such as Russia, former countries of the Soviet Union, and Turkey to make up for sluggish Czech exports to the European Union.

But Czech police evidently think that some of the past deals are suspicious. They swooped on the Prague headquarters of both institutions in dawn raids Wednesday.

EGAP’s spokeswoman said police were primarily interested in contracts concerning around 10 export projects, which likely included the already well publicized problems concerning insurance for a Czech exporter to build glass works in Russia and Ukraine.

Media reports suggest that EGAP might be liable for around 2.74 billion crowns in insurance payments, including payments to the Czech Export Bank, related to the collapse of that project.

The daily Lidové Noviny reported that one of the cases under investigation is the crashed deal to sell three Boeing 737 aircraft owned by Czech Airlines to Armenian airline Armavia. The 300 million crown deal was financed by Czech Bank PPF but with EGAP providing the very necessary insurance against anything going wrong. The Czech Export Bank came in for some rounded criticism from the national public spending watchdog, the Supreme Audit Office, last year in a report attacking it for making unwarranted loans of around 8 billion crowns.

It’s not too likely the police who took part in the dawn raids had read copies of that day’s Czech business daily, Hospodářské Noviny, over their coffee. If they had, their minds might have been focused by incoming prime minister Bohuslav Sobotka’s comments that the image of the two export promoting institutions had worsened rather than improved over recent years.

Sobotka added that their activities had to be subject to maximum transparency so it was clear that loans and guarantees were not serving specific corporate lobbies rather than the Czech common interest. The stables needed to be cleaned out, Sobotka implied.

The incoming coalition government made up of Social Democrats, ANO, and the Christian Democrats has pledged to expand the role of ČEB and EGAP and use them to the utmost to help direct Czech exports away from the slumbering economies of the European Union to the high growth likes of Brazil, Russia, India, China, and South Africa. Getting the institutions in order first would appear to be the pre-requisite for that to take place.

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