Slovenia Business Week no. 02/2006 Table of Contents

HEADLINES

Riko To Build Hydro Plant in Macedonia

Civil engineering company Riko has won a EUR 41m tender to build a hydro power plant in Macedonia, the Ljubljana-based company said in a press release on Thursday, 5 January.

For the project of constructing the Sveta Petka (Matka 2) plant and an accompanying 70-metre dam, the company will have to take out a loan with Ireland's Depfa Bank, while additional cover has also been guaranteed by the Slovenian Export Corporation.

Riko intends to hire sub-contractors from Macedonia and Slovenia for the project, the company added.

The Macedonian government published the tender in 2005. A special commission of the Macedonian power producer Elektrarne Makedonija found Riko's offer to be the best.

The government in turn accepted the commission's choice. Macedonia will repay Riko's loan over 15 years, the company wrote.

Commerce Chambers Bill Envisages Voluntary Membership

The government adopted on Thursday, 5 January a bill on commerce chambers that will introduce voluntary membership of such organisations. The document will replace the current Chamber of Commerce and Industry (CCIS) act, which sets down mandatory membership of Slovenia's lone chamber of commerce.

"The goal of this bill is to ensure democratic pooling of companies into different chambers on the basis of voluntary membership," Economics Minister Andrej Vizjak told the press after the government session.

Under the document, a chamber of commerce is defined as an independent, voluntary, interest and non-profit association of legal and private entities, operating independently on the market, Vizjak said.

He added that apart from voluntary membership the bill does not set the minimum number of companies necessary to establish a chamber of commerce.

Moreover, the government believes the bill could greatly increase the efficiency of chambers, allow better cooperation of companies in pursuing their interests and decrease the burden on the economy, he stressed.

Furthermore, under the new legislation, the CCIS will have to modify its statute within five months after the new law enters into force.

While the CCIS was initially supposed to be abolished on 31 December 2006 if its assembly did not bring the statute in line with the new legislation, the latest bill does not mention this possibility.

As its own legal successor, the CCIS will remain the owner of the chamber's assets until they are divided among other newly-established chambers.

Contrary to present mandatory membership, voluntary membership will enable those members that wish to exit a commerce chamber to do so with a written statement.

Meanwhile, the CCIS labelled the bill contrary to the expectations of its members, who expect a strong and influential umbrella organisation.

Besides abolishing the chamber as a public institution, the bill also fails to preserve the good sides of the current chamber system, the CCIS said.

The bill moreover abolishes tasks, such as vocational education, internationalisation, encouraging technological development, and so on that the chamber performed in favour of all companies.

Indeed, the membership fee was an important source to finance such tasks, which would, according to the bill, cease to be performed.

Moreover, a recent survey among CCIS members showed support for the chamber's own plan of transformation which envisages new tasks, a lower membership fee and a changed electoral system.

Slovenian Tolar Enters Its Final Year

Slovenia has entered its last year with the Slovenian tolar (SIT) as legal tender. After the country has recently met the last convergence criteria by curbing inflation, it is clear that it is on course to introducing the euro with the onset of 2007.

According to the Bank of Slovenia, Slovenia, which met all Maastricht convergence criteria at the end of 2005, is not likely to have any major difficulties in the run-up to the euro changeover because it can rely on a stable domestic economy.

"Among the new member states, Slovenia, besides Cyprus, is closest to the average EU level in terms of development. It has also been established that the country's economic structure - an important convergence element - is similar to the EU average," the central bank told STA.

The Slovenian Finance Ministry expects the European Commission and the European Central Bank (ECB) to draw up a convergence report which should form the basis for the final go-ahead by the EU Council by the end of the summer at the latest.

"Austria, currently presiding the EU, has expressed full support for our efforts to discuss the matter at the June session of the Council," the ministry confirmed for STA.

According to the central bank, preparations for the changeover are running according to plan, with expenses for the information campaign in 2006 and the beginning of 2007 being forecast at SIT 330m (EUR 1.4m). A portion of this money is expected to come from the European PRINCE programme.

Informative double pricing is set to start on 1 March 2006, the actual double pricing phase, on the other hand, will start a day after the final tolar/euro exchange rate is set, and would end at the end of June 2007.

The new currency will be introduced with 1 January 2007, with the changeover period, when both euros and tolars are in circulation, lasting through 14 January 2007.

After February 2007 the exchange of tolars without commission will only be possible at the Bank of Slovenia, with no time restrictions for the exchange of bank notes while coins will only be accepted until 2016.

INTERNATIONAL COOPERATION

FM Says Fishing Zone Decree Meant to Facilitate EU-Croatia Deal

The decree on the Slovenian fishing area is meant to facilitate a deal between Croatia and the EU on fishing provisions from the Slovenia-Croatia border transport and cooperation agreement (SOPS), FM Dimitrij Rupel said on Thursday, 5 January.

Commenting on the decree adopted by the government earlier in the day, Rupel added that the document would be in place only until the two countries either implement the SOPS fishing provisions or reach a border deal.

The decree was well-thought out and comes as a direct response to Croatia's move to extend on 15 December the borders of its fishing zone to the middle of the Bay, he told the press after the government's session.

Furthermore, according to Slovenia's foreign minister, the government would not have adopted the decree if the SOPS fishing provisions were in place or if Croatia had not passed its own fishing zone rules.

Upon being asked whether Slovenian fishermen would need any protection when fishing south of the middle line, as, according to their statements, they do not dare to cross that line even today, Rupel responded that special protection will not be necessary.

Moreover, Rupel said that Slovenia and Croatia have concluded a number of agreements on incident avoidance, all of them based on SOPS, which was ratified by both countries.

The decree encompasses the whole of the disputed Bay of Piran as well as open seas included in its protective ecological zone in the Adriatic.

Agriculture Minister Marija Lukacic, whose ministry has drafted the document, meanwhile said that the decree gives Slovenian fishermen a legal basis to fish [south of the middle line].

She added that the decree is based on the 2002 sea fishing act. It furthermore puts Slovenian fishermen on a par with their Croatian counterparts and guarantees them their historical [fishing] rights.

The rules in the Slovenian fishing zone are in line with European legislation, and will come into force about a week from now, Lukacic added.

The decree breaks down the Slovenian fishing area into three zones: Zone A incorporates internal waters covering the whole Bay of Piran; zone B covers territorial waters adjacent to the Italian and Croatian borders; and zone C covers the Slovenian ecological zone at open seas.

As the maritime border between Slovenia and Croatia is the subject of a dispute between the countries, Slovenia has used a provision from the border agreement reached by the former prime ministers of Slovenia and Croatia, Janez Drnovsek and Ivica Racan, as the southern limits of zone B.

The Drnovsek-Racan agreement was never ratified due to widespread opposition in Croatia, which has since rejected the document.

Slovenia Still Mulling over Adriatic Gas Pipeline

Slovenia as well as many other EU member states has not yet stated their opinion on the need to construct a gas pipeline through the Adriatic Sea to Central Europe, the Economics Ministry told STA on Thursday, 5 January.

"There was plenty of talk about the need to diversify gas suppliers and pipelines, but no project was specified" at a meeting of the natural gas coordination group composed of EU experts, according to the ministry.

The ministry responded to a report by the French press agency AFP which said that at the meeting Slovenia, alongside several other EU members, supported the plan to decrease the level of dependency of Central European states on Russian natural gas.

The EU imports over 40% of its natural gas, with half of its imports coming from Russia. Some areas in Central and Eastern Europe are almost entirely dependent on Russian exports.

The Adriatic gas pipeline initiative was reportedly given by Hungary's Economics Minister Janos Koka, who, according to AFP, said that "the idea of an alternative gas pipeline has already been debated on the EU level".

According to Koka, a feasibility study would be completed by the end of March, when the financial aspects of the Adriatic pipeline initiative would come under scrutiny.

PM Jansa Meets Montenegrin Counterpart Djukanovic

Slovenian PM Janez Jansa met his Montenegrin counterpart Mile Djukanovic at the fringes of the women's skiing world cup meet in Maribor on Sunday, 8 January, discussing cooperation between the two countries.

According to a press release by PM Jansa' office, they also discussed topical issues in the Western Balkans and called for solutions that would guarantee stability and prosperity of the region.

Jansa and Djukanovic also agreed that such issues would need to be discussed in the spirit of tolerance and European perspective of the region.

Jansa also supported the Montenegrin PM's efforts to bring Montenegro closer to Europe, while Djukanovic called for an in-depth cooperation between both countries on all levels, the press release reads.

EUROPEAN UNION

Jansa Believes Pace of EU Presidency Preparations Is Adequate

PM Janez Jansa believes that if compared with other states which were to take on EU presidency for the first time, the pace of Slovenia's preparations for the task is adequate, he told a traditional meeting of Slovenian diplomats on Wednesday, 4 January.

He stressed that alongside the implementation of economic and social reforms, the preparations for EU presidency are the government's top priority, as he addressed the meeting focusing on EU presidency preparations.

Jansa added that Slovenia is already working together with Portugal and Germany as the two countries preceding it at the helm of the EU, as well as with other EU members which could help with experience.

FM Dimitrij Rupel, on the other hand, stressed that the country's successful OSCE chairmanship was a good test of state and international credibility and capability ahead of EU presidency, which is due in 2008.

Rupel moreover said that the experience gained during OSCE chairmanship was a solid basis for leading the EU. Preparing the contents of Slovenia's EU presidency will be one of priority tasks of the Foreign Ministry, he added.

According to Rupel, the Western Balkans and neighbourhood policy are the most likely issues on which Slovenia would focus as EU chair-in-office. Slovenia also intends to give priority to the role of the EU as global player, inter-civilisational dialogue, energy and regions.

In their respective addresses, both Jansa and Rupel touched also on current foreign policy issues, which are also on the agenda of the two-day meeting of diplomats.

According to the prime minister, there was no essential progress regarding Slovenia's relations with Croatia in 2005, although Ljubljana did show its readies for a fresh start with Zagreb.

After a promising start in the first half of 2005, Croatia took an "unreasonable" step by entering bilateral talks with Italy on the division of continental shelf in the Adriatic, Jansa said.

"This act was fatal," Jansa stressed. He however believes that Croatia's EU accession talks have opened a new field for settling the relations with Zagreb.

Meanwhile, Rupel stressed that Croatia should understand that its negative policy toward Slovenia influences public opinion, and this could also affect Slovenia's decisions in Brussels.

He is convinced that the two countries should agree on and respect certain common principles. Slovenia will continue to support Croatia's EU and NATO accessions, Rupel said, adding that he expected Croatia to act in line with EU and NATO standards.

The foreign minister also pointed to the need for "the country to speak with one voice" in foreign policy, which is defined by the government and parliament. Moreover, diplomats are obliged to represent Slovenia's official foreign policy.

Furthermore, Rupel believes the diplomats should bring Slovenia's official standpoints closer to the public, especially in the countries with which Slovenia still has some unresolved issues.

Plassnik: Austria Will Try to Restore Trust in the EU

During its stint as EU president, Austria will make an effort to restore the trust of the citizens in the bloc, Austrian Foreign Minister Ursula Plassnik told a traditional two-day meeting of Slovenian diplomats at Brdo pri Kranju on Wednesday, 4 January.

After 2004, a successful year for the EU, marked by enlargement and adoption of draft constitution, there was 2005, which was a year of soul searching, Plassnik said. In the next six months, it will be Austria's task to answer the burning questions facing the bloc, she added.

Austria will try to clarify as many issues regarding the EU's future as possible, she said, pointing to the need of bolstering communication with citizens and answering the challenges of globalisation.

One of its priorities will also be the Western Balkans, the future of which lies in being part of Europe, she stressed, adding that this region needs to stay on the EU's political agenda.

Vienna furthermore intends to focus on the European neighbourhood policy, with Austria scheduled to host the EU-Latin America summit in May. Plassnik admitted that the summit would be a big challenge for her country.

In the first days of its EU presidency, Austria has already had to react to the gas dispute between Russia and Ukraine which endangered European gas supplies. Plassnik sees the EU's reaction as satisfactory, and is moreover pleased that Moscow and Kiev managed to reach an agreement.

Except for a brief meeting with her Slovenian counterpart Dimitrij Rupel, Plassnik did not meet other Slovenian officials.

Following the meeting with Rupel, Plassnik said that the two always talk openly about bilateral issues, including bilingual town signs in Austria's province of Carinthia. "A mutually-acceptable long-term deal must be reached on the issue, however, this takes time," Plassnik added.

Plassnik moreover expressed Austria's readiness to help Slovenia in its preparations to hold the EU presidency in the first half of 2008. This was also the main topic of the 12th meeting of Slovenian diplomats.

Slovenia to Face Schengen Scrutiny This Year

The evaluation of Slovenia's preparedness to enter the Schengen border regime will get underway in 2006, with the country hoping to enter the system in October 2007, State Secretary for European Affairs Marcel Koprol told STA recently.

Slovenia's readiness to enter the Schengen regime will be evaluated in two rounds and will encompass an assessment of the control of the land, sea and air border, as well as police cooperation, data protection and visa policy, the Interior Ministry explained for STA.

The first round will take place between February and July 2006, whereas the second will be carried out in the first half of 2007. It will also assess whether the Schengen aspirants comply with the second generation Schengen Information System (SIS II) standards.

If SIS II is implemented by the EU by spring 2007 and the EU Council finds that the evaluation procedure has been completed successfully, Slovenia could join the Schengen border regime in October 2007, the ministry added.

After Slovenia joins the Schengen regime, the border between Slovenia and Croatia will become the external border of the Schengen system, while Slovenia's border with Italy, Austria and Hungary will become an internal border in the system.

According to Koprol, the evaluation includes an extensive questionnaire, which Slovenia sent to Brussels on 1 December last year. Moreover, EU evaluation teams are expected to pay a number of visits to the country.

Between April and September 2007 the EU Council is scheduled to review the results and decide on expanding the regime to include the EU newcomers. "So far Slovenia is on schedule," Koprol added.

His view was echoed by the Interior Ministry, which said that the country will be ready for the regime if the Schengen implementation programme that deals with the drawing of EU funds for the project is fully implemented.

The EU has set aside EUR 119m to Slovenia for measures that will allow Slovenia to meet heightened border security standards demanded by Schengen. Slovenia must use up the funds by October 2007.

If evaluations or the EU Council establishes that Slovenia does not fulfil all the necessary conditions, the country will have to draft and implement an action plan to remedy the deficiencies, whereupon a new evaluation would be carried out, the ministry said.

According to the ministry, Slovenia currently faces difficulties in ensuring the necessary infrastructure at airports and seaports. Also, finding the required number of police officers for the external border could pose a problem for the country.

However, the police has already drafted a staffing plan, which is based foremost on taking up new recruits and making internal transfers to bolster the force on the external border.

The Schengen candidates are, however, not the only ones needing to get ready for Schengen system expansion. The EU must still implement SIS II, which should be ready by March 2007.

EU Survey Shows Slovenians Pessimistic about Economic Outlook

According to the latest Eurobarometer poll, 45% of Slovenians believe that the economic situation in the EU will worsen in 2006, while only 15% expect better times ahead.

Residents of Slovenia are even more pessimistic regarding their position on the labour market, as 52% believe that it will worsen, while a paltry 12% expect it to improve.

However, the citizens of the EU 25 are generally satisfied with their lives, with the biggest differences occurring between the old and the new members.

While 82% of residents of old member states said that they are generally happy, the percentage in the ten new members was 69%.

The pessimists meanwhile prevail regarding the economic outlook, with those that say that the economic situation in the EU will worsen standing at 39% (19% believe it will improve) and 40% fear for their status at the labour market (20% believe that it will improve).

The optimists are predominantly found in Estonia, Lithuania, Ireland and Denmark, while over 60% of Portuguese, Greeks and Cypriots believe that the economic situation will worsen in the next twelve months.

The poll was conducted between 10 October and 5 November on 29,430 people.

STATISTICS/FORECASTS

Overnight Stays in Ljubljana Rise 12% Y/Y

According to estimates by the Ljubljana Tourism Board, the number of overnight stays in Slovenia's capital rose 12% to 565,000 in 2005 compared to 2004.

Data from the tourist information centres meanwhile shows a 9.7% increase in overnight stays in the same period, reaching 497,106 in 15 hotels and other lodging facilities in the city centre.

On the basis of the increase in the number of overnight stays, the Tourist Board also estimated that tourists spent EUR 66.67m while staying the city last year, a 12.7% increase on the year earlier.

Meanwhile, Ljubljana's tourist information centres were visited by 219,167 visitors last year, a 17% increase on 2004. While the number of foreign tourists soared by 22%, the number of domestic visitors rose by a more modest 3%.

Official data on the number of tourists in Slovenia's capital is expected to be published by the National Statistical Office in March.

Slovenia Advances 7 Places on Economic Freedom Index

Slovenia has gained seven places on the Index of Economic Freedom for 2006 to take 38th out of 157 countries surveyed by the Heritage Foundation, a Washington think tank, and the Wall Street Journal. Slovenia received mixed marks in the 10 surveyed categories for a combined rating of "mostly free".

The country's overall score on a 1 to 5 scale (one being the best) was 2.41, a touch better than the 2.64 received last year. The score puts Slovenia ahead of such European economic giants as France and Italy as well as ahead of fellow EU newcomers Poland, Hungary and Latvia.

Slovenia got its best scores in trade policy, government intervention, wages and prices, monetary policy, foreign investment, and regulation; in each category it got grades of 2.

The study found improvement in government intervention, with government consumption falling from 20.2% of GDP to 19.8% of GDP in the period surveyed; and monetary policy, as a result of a drop in the inflation rate.

Slovenia also got a better mark this year in foreign investment, with the study concluding that "Slovenia has opened most sectors to foreign investment". Nevertheless, it notes that there are still "practical impediments" to FDI inflow.

Of the ten categories studied, the country got its worst score in relation to fiscal burden of the government, where it was given 3.6. This is 0.2 points worse than the year before. The report concluded that Slovenia has very high income tax rates and moderate corporate tax rates.

The report also found a moderate level of restrictions in the banking sector, although the system is labelled as "sound", "well capitalised" and "well developed by Central European standards".

Furthermore, there is a moderate level of protection of property rights, with the main problem still being the fact that "the Slovenian court system is marred by inadequate staffing and slow procedural progress, and is in need of further reform".

The report concludes that "Slovenia must complete its privatisation process and continue to liberalise its monopolistic industrial base" if it wishes to maintain its economic edge.

Topping this year's index is Hong Kong, followed by Singapore and Ireland.

FINANCE

Oil Price Only Threat to Euro Adoption, Central Bank Governor Says

The price of oil is probably the only threat to Slovenia's efforts to be ready for eurozone membership by the end of this year, Slovenia's central bank governor has said.

Slovenia finally succeeded in November in meeting the inflation criterion for the eurozone, Gaspari told the daily Dnevnik in an interview published on Saturday, 7 January.

According to him, Slovenia should be able to stay within the inflation limit required for eurozone membership. The only real danger is presented by the price of oil, which could again raise inflation.

Asked about a lack of interest by the old members in the expansion of the eurozone, Gaspari said that it was impossible to claim that the old members were not interested in expansion.

"If the euro was being adopted by a bigger newcomer, there would probably be more general interest. The members abide by a general rule: if a country meets the conditions, there is no debate about whether it can enter or not," he told Dnevnik.

Gaspari pointed out that Slovenia must watch out for wage growth. We have attempted to explain this to the social partners, he said, adding that greater flexibility of the wage systems would also be positive for job creation.

Moreover, Gaspari expects that the adoption of the euro will lead to greater competition between banks in Slovenia, because they will be reliant on eurozone financial instruments.

The central bank governor believes that Slovenian banks had a good year in 2005, although they will have to improve their returns on equity in the future. The current average of 13% to 15% returns is still below the 17% to 20% average yields in Europe, he said.

Ljubljana Stock Exchange

Drug maker Krka was the only strong performer in what was otherwise a dismal week for Slovenian blue chips. The SBI 20 benchmark index ended the week down 41.02 points (0.89%) at 4,589.08.

Brokers had little to do in a holiday-shortened week, as only SIT 2.81bn (EUR 11.7m) worth of stocks changed hands, including a third of that in block deals.

Krka was the lone star on the Ljubljana Stock Exchange last week, surging 2.3% to SIT 104,723 (EUR 437.07) on the back of news that investment bank JP Morgan raised its stock value target for the Slovenian company to SIT 120,000 (EUR 500.83).

Other big names did not fare as well. Fuel trader Petrol, which was in second place in terms of turnover in the week, dropped 0.16% to SIT 70,624 (EUR 294.76).

Conglomerate Sava (-1.7% to SIT 42,482/EUR 177.30) and airport operator Aerodrom Ljubljana (6% to SIT 9,512/EUR 39.70) were the biggest losers last week. Aerodrom was hit by selling after news that no-frills carrier Easyjet was thinking of dropping its Ljubljana-Berlin line.

The action on the free market was lacklustre. With popular investment funds taking their cue from blue chips, the PIX investment fund dipped 22.26 points (0.56%) to 3,940.03.

Meanwhile, the BIO bond index lost 0.4 points (0.33%) to 122.71.

Foreign Exchange

Euro (EUR) - SIT 239.58 (+0.00)

U.S. dollar (USD) - SIT 198.13 (-4.30)

Swiss franc (CHF) - SIT 155.00 (+0.97)

British pound (GBP) - SIT 347.77 (-0.91)

BRANCH INFORMATION

Slovenian Internet Users Browse Mainly for Info

Slovenian Internet users mainly search for information and follow the news in the fields of music and film, according to a survey conducted between August and September 2005 by the polling firms Iprom and Cati.

The results have also shown that almost half of the 3,300 people surveyed use Internet several times a day, mainly at home. Men remain the most frequent Internet users, Iprom said.

The survey has also shown that the user's Internet access influences the frequency of Internet use. Those with a broadband connection, whose use has been on the rise, browse more often than those with other types of connection.

The Internet moreover influences shopping habits, with half of those polled searching for information before a purchase and 10% opting for net shopping at least once a month.

The most popular web service is free e-mail, which is used by 80% of respondents. Half of all users moreover communicate with the help of quick messaging systems, such as MSN Messenger, ICQ and Yahoo Messenger.

The most advanced communication systems, such as Skype, are used by only 20% of Internet users in Slovenia, as they have only just been introduced.

In general, Internet users are young people with higher education who live mostly in an urban environment. They moreover have quite an active lifestyle: they do sports, enjoy reading and going out.

They feel that because of the Internet they are less interested in traditional media and rarely go to the cinema. However, they believe that the Internet has a positive influence on their personal relations with friends.

The purpose of the survey was to outline the habits of Slovenian Internet users, their attitude toward marketing and their lifestyles, Iprom added.

Ban on Free-Range Poultry in Slovenia Relaxed

Slovenia's veterinary authority has decided to relax the ban on free-range poultry which it imposed in October 2005 after it was confirmed that the bird flu virus discovered in neighbouring Croatia was the lethal H5N1 strain.

In line with the decision of the Veterinary Administration (VURS), Slovenia's poultry farmers are no longer obliged to keep their animals indoors, VURS director Vida Cadonic Spelic told the press on Thursday, 5 January.

"As there have been no new cases of bird flu in Europe or near Slovenia, we have established that the situation is favourable enough for the ban to be relaxed," Cadonic Spelic explained.

Nevertheless, in 14 municipalities in the northeastern area of Ptuj, Dravsko Polje and Ormoz, free-range poultry will still have to be kept in confined spaces, she continued.

Moreover, water from sources where contact with wild birds is possible must be boiled, Cadonic Spelic also said.

According to her, these measures are only temporary. VURS intends to monitor the situation in Slovenia, Europe and the rest of the world until 31 May. Only then will they decide whether to extend or completely remove the ban.

Cadonic Spelic also said that Slovenia's neighbouring countries already relaxed the ban on 15 December in line with the decision of the European Commission.

Ornithologist Tomi Trilar of the Natural History Museum said that although wild birds will be migrating toward north and northeast in the spring, he does not expect wild birds from high-risk areas coming to Slovenia.

Meanwhile, Tomaz Mihelic of the Slovenian birdwatching society (DOPPS) said that wild birds are only one of many possible reasons for the spreading of bird flu. He believes that there is still a great need for the supervision of transport and trade.

COMPANIES

Droga Kolinska CEO Talks about Company's Plans for 2006

Slovenia's largest food company plans a breakthrough to new foreign markets, strengthen its production network and increase its market share in Southeastern Europe, Droga Kolinska CEO Robert Ferko has told STA.

"One of our priorities are markets in former Yugoslavia, where we will make an effort to achieve a 10% to 15% market share," Ferko said.

Although many of the company's products are already well known in SE Europe, Droga Kolinska intends to focus on marketing its coffee brand Barcaffe more, Ferko continued.

Therefore, Droga Kolinska plans several partnerships with regional companies. It has already purchased a majority share in the Serbian coffee giant Grand Prom, and is cooperating with Serbia's Soko Stark.

Moreover, Droga Kolinska plans to achieve a 50% market share on the coffee market in Macedonia, Ferko added.

The company sees the Slovenian market as important, however, it also believes it is too small, Ferko also said.

The food company is already present in 50 countries, including Austria, Switzerland, Germany and Sweden. Furthermore, it would like to strengthen its position on the Russian market.

In 2005, Droga Kolinska exported 1,200 tonnes of products to Western Europe, and it would like to increase this figure to 1,800 tonnes in 2006, Ferko said.

One of the company's strategic plans is also a breakthrough to Arab markets. For this purpose, Droga Kolinska has already received the certificate Halal which ensures that the product is made in line with the Islamic laws, Ferko noted.

Droga Kolinska moreover plans to enter the Turkish market, as in Istanbul and its vicinity live around three to four million emigrants from the countries of former Yugoslavia, who are already familiar with the company's products.

Ferko also touched on the layoff plans by the company, saying that 285 workers will be made redundant, with around 150 given the pink slip in 2005, after the company was created with the merger of Droga and Kolinska in May.

Ferko moreover said that Droga Kolinska plans to have 960 employees by the end of 2006, which is 110 less than at the end of 2005.

In the past year, the company generated a total of SIT 37bn (EUR 154.44m) and the entire group SIT 47bn (EUR 196.18m) of revenues. Ferko expects the company to increase its revenues to SIT 44bn (EUR 183.66m), and the group to SIT 82bn (EUR 342.27m).

In 2006, the company's net profit is to amount to SIT 1.9bn (EUR 7.93m), while it plans SIT 10bn (EUR 41.74m) in investments. According to Ferko, Droga Kolinska annually invests around SIT 1bn (EUR 4.17m) in purchasing and modernising mechanical equipment.

Celje Dairy Changes Merger Partner

After dairies Mlekarna Celeia and Ljubljanske mlekarne backtracked on their plan to merge by the end of 2005, the beginning of 2006 has brought merger talks between Mlekarna Celeia and Pomurske mlekarne.

The head of Celeia supervisory board Srecko Cater told STA on Wednesday, 4 January that a merger with Ljubljanske mlekarne, which would have resulted in the country's largest dairy, was put off after the two companies failed to see eye to eye on a share swap ratio.

According to Cater, Celeia would have found itself with less than a 13% stake in the joint company with Ljubljanske mlekarne, meaning that it would have no say in determining its future.

Cater sees the merger with Pomurske mlekarne as an opportunity to improve Celeia's position, also with regard to a potential future merger with Ljubljanske mlekarne, which is by far the largest Slovenian dairy.

Pomurske mlekarne is Slovenia's largest producer of butter and powdered milk after it has consolidated by joining forces with Ljutomerska mlekarna.

Cater confirmed that Celeia finished 2005 deeply in the red. He also pointed to a potentially disastrous effect of the planned 20% flat tax rate, which, according to him, could mean the end of the Slovenian dairy industry.

Mercator Wants to Remain Market Leader in Slovenia

The new management board of Slovenia's leading grocer, Mercator, met with the press on Wednesday, 4 January in Ljubljana. According to chairman Ziga Debeljak, the company wants to remain the leader on the Slovenian grocery market by holding on to its 40% market share.

The company also wants to become the leading grocer in the markets of the former Yugoslavia, reaching a 12% share in Croatia, 10% in Serbia-Montenegro and 5% in Bosnia-Herzegovina, Debeljak told the press.

According to Debeljak, the current market share of Mercator in the above-mentioned countries is fairly low, standing at 4% in Croatia, 2% in Bosnia-Herzegovina and 1% in Serbia-Montenegro.

By 2010 Mercator wants to reach a steady 5% annual growth in euro-based revenues, although strategic partnerships could increase this number.

"Our rate of investment will remain at between EUR 120m and 150m a year, and will be divided equally among all of our four key markets," Debeljak added at a press conference.

Mercator will also continue with its policy of cooperation with Slovenian suppliers. "Our shops currently stock between 70% to 75% of Slovenian products," Debeljak explained.

He also added that the company will present its business results for 2005 and plans for 2006 by late January or early February.

Debeljak also praised the previous management of Mercator, which enabled Slovenia's leading grocer to develop successfully. Two members of the previous management board will also continue to work with the current board, he told the press.

Meanwhile board member Peter Zavrl explained that Mercator will take part in a constitutional challenge against the law that bans shops from keeping Sunday opening hours.

However, the new law, which has been vetoed by the upper chamber of parliament, first "has to be re-passed [by parliament]".

Apart from Debeljak, who will also be in charge of development and investment, IT, and finance, controlling and accounting, the board is made up of Vera Aljancic Falez (personnel, organisation, legal and general affairs); Mateja Jesenek (marketing and procurement); and Peter Zavrl (retail, wholesale and logistics).

Mercator has also increased its share capital by SIT 24.4bn (EUR 102m) to a total of SIT 33.56bn (EUR 140m). The increase was already entered into the Ljubljana district court registry on December 28 last year, the company said on Wednesday, 4 January.

According to Mercator's press release, two out of the four buyers have already fully paid for their stakes.

The Pension Fund Management (KAD) bought 106,950 Mercator shares for SIT 4bn (EUR 16.69m), while the KLM company, owned by the Mercator management board, paid SIT 1.56bn (EUR 6.51m) for 40,700 shares.

However, KLM will have to pay additional SIT 10.63bn (44.36m) by 31 January for the remaining 280,150 shares. By the same date, investment firm KD Group will also pay for its 106,650 shares.

Meanwhile the Restitution Fund (SOD) already paid its stake of 106,650 shares in December.

Mercator issued a total of 641,700 new shares with a nominal value of SIT 10,000 (EUR 41.74). The shares were sold at SIT 38,000 (EUR 158.61).

Fleet Overhaul Key to Getting Adria Back in Black, Boss Says

Slovenian flag carrier Adria Airways has made fleet restructuring the centrepiece of its plan to overcome mounting losses, acting chairman Iztok Malacic told the press in Ljubljana on Thursday, 5 January.

According to him, the fleet is not suitable for the carrier's needs. Adria requires aircraft with 70 to 120 seats, while it currently operates two Airbus A-320 planes with 162 seats and as many as eight Canadair CRJ-200 Regional Jets with 48 seats each, Malacic said.

The first measure aimed at overhauling the fleet is the lease of a two turboprops, a 30-seat commuter version and a cargo version, he added.

Malacic rejected any wrongdoing in the lease of the Embraer 120 turboprops from Aurora Airlines, a company run by a former Adria pilot. According to him, the contract with Aurora will be signed only after Adria gets to inspect the planes.

He added that cooperation with the company of former Adria pilot Boris Praprotnik would generate savings of up to 150,000 euros a month for the flag carrier. According to Malacic, the deal incorporates crew and maintenance costs.

The contract will have a provision allowing Adria to cancel cooperation with a four month notice period; this was not the case with some of the leases for the Canadair jets, he added.

In turn, Adria plans to back out of one of the leases for a Canadair jet and is considering leasing out one or both of its Airbus A-320 aircraft. Adria expects to take long-term measures to overhaul its fleet in the next 24 months, Malacic said.

According to him, Slovenia's flag carrier generated revenues of SIT 32.8bn (EUR 137m), with net losses standing at around SIT 2bn (EUR 8.3m). The loss is not yet disastrous as it represents a small share of revenues, he added.

With the crisis management measures that are being implemented and other measures that are planned, Adria could be out of the red in 18 months, Malacic told the press.

Malacic, who has run Adria since 1 January after his predecessor resigned in early December over a dispute with trade unions, said that he was willing to step down if the planned measures, including the lease of the turboprops, do not produce the desired results.

He reiterated his claim that bad strategic decisions and mismanagement in general had turned Adria into a loss-making company.

According to him, the cost of labour rose by SIT 500m (EUR 2.1) last year without any additional staff having been hired. The company has already cut some benefits of its employees on personal contracts, he explained.

Titus International Publishes Takeover Bid for Lama

Titus International, one of the world's leading furniture fittings manufacturer, published a takeover bid for Slovenian fittings producer Lama, offering EUR 1.516 per share.

The bid in which the English company wants to acquire all of Lama's shares will run out on 6 March. Titus International did not state how many shares it needs to acquire to consider its bid successful.

The development comes after Titus concluded a contract on the purchase of 78.41% of Lama with the Slovenian bank Banka Koper. The contract, signed in early December, sets down that Titus would pay EUR 1.515 per share, meaning some EUR 2m for the entire stake.

The English company also intends to continue to acquire Lama shares outside of the public bid as well, but under the same terms.

One of its goals is moving the Titus production to Slovenia, by which Lama would become a leading technological and development centre for furniture fittings, automation and tool making in Europe.

Lama, based in the coastal town of Dekani, believes that the friendly takeover bid will positively influence its performance, and does not expect any layoffs.

Lama employs 425 workers and produces fittings, tools and automation systems. It exports over 80% of its products, mainly to the USA, Germany, Italy, Spain and France.

According to unaudited results, Lama's revenues amounted to just over SIT 6bn (EUR 25m) in 2004. The company made an operating profit at SIT 106m (EUR 442,441).

Carmaker Revoz Ends Year with Record Output

Novo mesto-based carmaker Revoz had a record year in 2005, as it produced a total of 177,945 of Renault's popular Clio II compact model, which is 46,184 more than a year earlier.

Output was increased after Renault's French-based Flins factory began producing the new generation Clio III in the middle of 2005, leaving Revoz as the only Renault factory making Clios for the European market.

To increase production, Revoz took on an additional 200 workers at the end of February in addition to 500 workers that were employed in late 2004. The carmaker now employs around 2,600 workers.

Revoz is now getting ready to launch the production of a new generation compact to succeed the highly-successful Twingo model. The new model is to hit the production line in 2007 - until then Revoz is to continue making the Clio II.

Istrabenz Chairman Reflects on Successful Year

Speaking for the daily Delo on Saturday, 7 January, chairman of holding Istrabenz Igor Bavcar assessed 2005 as the most dynamic year for his company to date. According to Bavcar, the Istrabenz group has already met most of its 2003-2007 business objectives.

Reflecting on Istrabenz's performance, Bavcar said that not many Slovenian companies could match its incredible transformation and growth in 2005.

Istrabenz recorded 80% growth in total capital, finishing the year with some SIT 210b (EUR 876m). Its revenues amounted to SIT 130b (EUR 542m), which is an increase of 170% over the year before.

Outlining future plans for the group, which currently runs 60 companies in tourism, energy, food and trade sectors, with a total of 5,220 employees, Bavcar announced the consolidation of its food business.

The main goal will be to tap into growth prospects on SE European markets, like Croatia and Bosnia-Herzegovina, he said.

Istrabenz also sees opportunities in the deregulation of the energy market and is looking to double the capacities of its natural gas business, he told Delo.

The former interior minister and a senior member of the opposition Liberal Democrats (LDS) also pointed to the importance of the government's diplomatic and political role in opening the door to former Yugoslav markets.

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