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“We know how to make the best out of limited resources”

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Milan Vesely & Rudolf Knapp in 2001.

Milan Vesely in 2002.

Rudolf Knapp in 2003.

Every day is an opportunity for improvement at the Slovak aluminium producer Slovalco

Milan Vesely and Rudolf Knapp, Slovalco industry managers, speak with EBRD press officer Axel Reiserer in Ziar nad Hronom.

When Czechoslovakia split up in 1993, the new Slovak Republic faced an uphill battle to convince the world of the wisdom of the divorce. It was not immediately obvious how the 5 million Slovaks might benefit from a separation from the 10 million Czechs, when Slovakia was the much poorer, less developed and much less promising part of the once common state. That the split was strongly driven by a populist and nationalist government in Bratislava generated serious concerns in Europe, which did not help Slovakia’s image either.

Eleven years on, the Slovak Republic is bustling ahead with audacious reforms and is today earning praise for being a frontrunner of transition. Nowadays the country aims to become the biggest automobile manufacturer in the world in per-capita terms. Volkswagen is already producing cars, and new Peugeot and Hyundai plants will become operational in a few years – at which point the Slovak Republic will be producing 1 million cars a year.

If one company can serve as a showcase for the country’s successful transformation, it is the aluminium producer Slovalco in Ziar nad Hronom. The company is an offspring of the giant ZSNP factory, still situated next to Slovalco and employing 600 people today, and created by government decree in 1951. The choice of location was highly influenced by political considerations during the Cold War.

Using bauxite, the first tonne of aluminium was produced in 1953 and in the ensuing years ZSNP expanded rapidly. No attention was paid to potential environmental effects. As the chimneys kept belching out smoke, the pile of toxic waste grew and grew.

Life expectancy declined, animals died, and eventually a whole village had to be evacuated. When aluminium production from bauxite finally stopped, an enormous area of 40 hectares with a perimeter of 11 kilometres was covered with toxic waste. The treatment of this ecological scar remains a major concern and financial burden to this day.

After the “Velvet Revolution” that ended communist rule in Czechoslovakia in 1989, it quickly became clear that ZSNP could not continue to exist in its previous form. Negotiations with Norway’s Hydro Aluminium and the EBRD eventually led to the establishment of Slovalco in 1993. A first $40 million loan provided a state-of-the-art aluminium smelter in 1994, allowing polluting and inefficient production to cease. In 2001 the EBRD and Citibank arranged a $75 million syndicated loan for expansion of the company.

At the end of 1989, Milan Vesely and Rudolf Knapp, today General Director and Chief Financial Officer of Slovalco, respectively, were doing their military service. “The only scary moment I remember is when we were handed live ammunition, to protect the airfield where I served from attacks by protesters,” Knapp says.

In recent years Slovalco, supported by high demand and high prices for its products, has done extremely well. Last year the company reported a profit of $11 million. With annual production of 160,000 tonnes of liquid metal, production is approaching maximum capacity. Ninety per cent of the exports are shipped to the EU. But nothing would be more out of place at Slovalco than complacency: “We still have to improve a lot,” Vesely says.

The EBRD has helped. “The Bank has brought a transfer of management culture,” Vesely says. “We grew up in a command economy, where everything was top-down. Now we are a team, we have discussions, we communicate. People are happier to work in this environment.” Being a well-paying employer makes Slovalco additionally attractive in a region with 20 per cent unemployment.

The company had to reduce its workforce in recent years, to 630, but it was largely done by retirements and not replacing vacancies. A strong sense of social responsibility is obvious. It is striking how neat and clean the whole production area is. “We do believe that people work better in a clean environment,” says Rudolf Knapp.

This is only one facet of the broader picture. But it illustrates the understanding that things have had to change dramatically since 1989, and that it hasn’t always been easy. Rudolf Knapp says: “We all lived in small houses and had small cars. Today 90 per cent still live in the same houses, which are now quite old, while 10 per cent have big new houses and drive huge Western cars.”

There is no quick fix. “We have to be patient”, says Milan Vesely. Despite recent progress, complete transition remains a long-term goal for a small country with limited resources such as the Slovak Republic. But adds Vesely: “If there is one useful thing we learned under communism, when everything was scarce, it is how to make the best out of limited resources.”

4 November 2004