Battle over Czech coal miner MUS lost during Tošovský’s caretaker administration

The key battle over miner MUS was lost under Josef Tošovský when state holding company bosses failed to remove the managment

Last-ditch attempts by National Property Fund (FNM) managers to block the hostile takeover of mining company MUS collapsed during the caretaker administration of Josef Tošovský foto: © ČESKÁ POZICE © ČTKČeská pozice

Last-ditch attempts by National Property Fund (FNM) managers to block the hostile takeover of mining company MUS collapsed during the caretaker administration of Josef Tošovský

While much of the focus about Mostecké uhelné společnost (MUS) has been on the privatization of the Czech mining company in 1999, the key events that led to that step came a year earlier during an extraordinary general meeting of the company on April 25, 1998 on the outskirts of the northern Bohemian mining town of Most.

At that crucial meeting the Czech state lost control of MUS, paving the way for everything that followed and the main events probed by the Swiss authorities.

To recap on the situation at the time, an expert government headed by the then Czech National Bank (ČNB) governor Josef Tošovský was coming to the end of its term in power at the head of a caretaker administration following an internal revolt which had unseated Vacláv Klaus (Civic Democrat, ODS) in November 1997.

The Cabinet was composed of five members of the ODS, three from the Christian Democrats (KDU-ČSL) and three from the Civic Democratic Alliance (ODA), which has since ceased to exist. The main role of the left-of-center Social Democrats (ČSSD) only began a year later.

Czech Position has obtained documents from the state holding company, the National Property Fund (FNM), from the period immediately preceding the crucial MUS extraordinary meeting. The then FNM chairman, Roman Češka, and a member of the holding company’s executive committee, Jaroslav Borák, described the situation surrounding MUS quite clearly and the manner in which the state mining company was being tunneled and the subject to a hostile takeover.

Češka and Borák informed the Ministry of Finance, headed by Ivan Pilip, one of the main rebels who had brought about Klaus’ fall, and Minister of Industry and Trade, Karel Kühnl [currently Czech ambassador in Croatia] and state bodies responsible for dealing with criminal proceedings.

Proposals were “to change the company and supervisory board, in which the position of shareholders would have been strengthened against the management.”

In the crucial MUS meeting, important FNM proposals were outvoted by other shareholders. Documents from the time show the proposals were “to change the company and supervisory board, in which the position of shareholders would have been strengthened against the management.”

Soon after, Jiří Valtr, the lawyer who was supposed to represent the FNM’s interests within MUS, was sacked. “The problem was that he voted against the instructions of the FNM, and we dismissed him for that. Apparently that dismissal did not bother him that much,” Češka told Czech Position.

Češka never gave any testimony to Czech Police since the scandals concerning MUS erupted after he left his post with the state holding company. His comments have surfaced now following the Swiss investigations.

The main architect of the financial machinations which the FNM managers drew attention to in 1998 were those by MUS’ then strategic director of development, Antonín Koláček, now thanks to developments at the mining company one of the Czech Republic’s top billionaires. In the days and weeks preceding the general meeting, at least Kč 3.5 billion was siphoned from MUS, mostly in the form of loans, to a series of private companies created by Koláček. The money was then used to buy shares in MUS, mostly from local councils, under the second wave of the famed Czech coupon privatization program.

Thanks to these moves, the former union leader and member of the MUS board, Luboš Měkota, also became a billionaire in the same fashion as Koláček, eventually obtaining a 40 percent stake in the mining company. The FNM proposal at the April general meeting was supposed to block these ongoing moves by the management to usurp the state’s control, but it failed to succeed.

It was thus possible that just a little over a year later, in 1999, the Swiss company Investenergy, representing Koláček, had more than a 50 percent stake in MUS. Prime Minister Miloš Zeman (ČSSD) that autumn sold off the rest of the state’s shareholding of 46.29 percent for the relatively low price of Kč 650 million. According to the then ongoing “Opposition Agreement,” under which the ODS agreed to tolerate a minority ČSSD government, the sale had to be approved by the main leaders of the ODS, i.e. Klaus [the current Czech president].

All these were criminal acts focused on moves with regard to “the tunneling of MUS” and “the hostile takeover” of MUS.

In a series of moves, MUS later came under the control of financier Pavel Tykač, who, according to various sources, paid Kč 20 billion for the company (which he had never confirmed this figure and shows no intention of doing so). The loans granted by MUS in 1997 and 1998 were gradually repaid by the new owners — albeit, as reports by the weekly Respekt suggest, with money taken from the mining company. The difference between the Kč 20 billion paid by Tykač and Kč 650 million paid to the state is astonishing.

The case was, of course, investigated by Czech police and regional state prosecutors without anything concrete being brought before a court. “It was immoral, but not at all criminal,” was the conclusion of the former supreme Prague prosecutor, Vlastimil Rampula, according to the daily Mladá fronta dnes (MfD).  

The FNM documents prepared on the eve of MUS’ April extraordinary general meeting outlines how some of its managers tried to safeguard the billions of crowns at stake for the state.

In January 1998 the FNM received information which led to suspicions that some of the members of the MUS management were involved in misusing commercial information, abusing responsibility for management of third-party property, and the criminal act of fraud. All these were criminal acts focused on moves with regard to “the tunneling of MUS” and “the hostile takeover” of MUS.

The tunneling was prepared using various investments and using financial reserves totaling almost Kč 3 billion. Management of these funds, according to available information, should be carried out for MUS by the company Newton Financial Management Group, whose co-founder a board chairman is MUS’ director of strategic development, Antonín Koláček.

The hostile takeover of the company was based on the use of firms with personal or property links to Newton creating a network of smaller shareholders, who are fundamentally acting together, and through which they tried to gain a majority. Funds of MUS itself were used directly or indirectly for this takeover according to information available to the FNM. These companies had a list of MUS shareholders and were buying shares either on the open market or directly from individual shareholders.

The FNM’s suspicions of a hostile takeover surfaced at a time when no other publicly available information pointed to such a scenario. There was only one major shareholder at the time – IKS KB, a subsidiary of Komerční Banka, which at the time was controlled by the state. Unofficial information, however, talked about the existence of an interlinked group that was already capable of outvoting the FNM and taking over MUS. Signals from the share price of MUS were already typical of the actions of such a group seeking to take over control.

Support for the FNM management’s bid to brake the ongoing action by MUS’ management came from the Finance Ministry and on March 2 the FNM gave notice of its intention to call an extraordinary general meeting. It also called on the Czech counter espionage agency, BIS, and other state organs tasked with combating crime to start investigations into what was happening at the mining company.

The MUS managers attempted to convince the FNM to hold off convening an extraordinary general meeting and wait instead for the regular general meeting. The request was refused by the FNM, and as a result pumping up the tension between the state body and mining company managers.

Mining company managers started to try to intimidate FNM staff, with MUS board member and ČSSD member of the lower house of parliament, Josef Hojdar, being used to launch a political attack on FNM leaders, including Češka. Unions were later recruited to put the pressure on FNM bosses by warning that they would take strike action. The action culminated with the ČSSD leading a campaign to removed the leadership of the FNM and teaming up with the Communist Party (KSČM) in putting forward a motion to drastically cut its funding.

Preparing for the upcoming battle, the state holding company looked into the availability of MUS shares on the market and found that hardly any could be bought, with small shareholders saying that they could not sell because the shares had in fact been purchased by third parties and not for themselves.

FNM inquiries found out that the shares had been “parked” there by Newton, already controlled by Koláček.

The FNM tried, but failed, to coordinate action with the biggest apparent shareholder, IKS KB. The bank subsidiary said MUS shares were just “parked” with it but it had no voting rights connected to them. FNM inquiries found out that the shares had been “parked” there by Newton, already controlled by Koláček.

The FNM then tried to team up with the company Synergo Suisse CZ, which presented itself as the foreign representative of a consortium of Swiss investors. The state company tried to work out who the members of the consortium were but kept coming up with one sole investor, Jiří Diviš, the creator of the “Swiss” company Investenergy. [As a joint owner of the Appian Group, Diviš is currently subject to criminal proceedings in Switzerland regarding MUS]. The company had brought a 10 percent stake in MUS by buying up shares held by local councils. The transfer of shareholder rights was conditional on agreement from the MUS board, which was duly given.

Synergo Suisse initially cast itself as a serious shareholder with an interest in cooperating with the state. But the FNM was never able to tie the firm down to a binding agreement and Synergo Suisse eventually turned coat and attacked the state holding company. Approaches to Diviš on April 20, five days ahead of the extraordinary general meeting, to renew the suggested joint approach went unanswered. On the same day, Synergo Suisse came clean and admitted that its shares had not been bought by a group of Swiss investors but by a unknown private US investment fund, The Appian Group.

Appian’s about turn

Appian Group told the Czech government that a former executive of the International Monetary Fund (IMF), Jacques de Groote, was their interlocutor. He seemed keen to talk with the FNM about a joint move to change the board, supervisory board and management of MUS with representative from the FNM and Appian as replacements. But De Groote’s warmth towards cooperation soon evaporated once he began to talk with the real investors facing the state. He eventually came out with a declaration that he would support the current status quo at MUS and oppose the state.

The defeat of the FNM attempts to force through changes at MUS was ample enough proof, not just to the bosses at the state holding company but also state judicial and police organs, that suspicions of MUS tunneling and the management-led takeover were correct. The question of who benefitted is now quite plain to see for all.