Business, June 2012

Foreign investment: South Stream project in Slovenia

Photo - source: Geoplin Plinovodi

June 2012

It is encouraging to note that Russian companies are seeking investment opportunities in Slovenia, particularly in transport infrastructure. The largest Russian investment in Slovenia, worth one billion euros, is the South Stream gas pipeline. Works on this project are expected to start by the end of this year.

The South Stream pipeline project is the project of national significance and will have a positive impact on energy security in Europe.

The establishment of the South Stream Slovenia joint venture, which is jointly owned by Gazprom and the Slovenian company, Plinovodi, is in its final phase. The contract for establishing the venture was signed by Alexey Miller, the CEO of the Russioan energy giant, Gazprom and the CEO of Plinovodi, Marjan Eberlinc, on 31 May in Portorož, where they met at the opening of the European Business Congress , where more than 200 delegates and guests from 24 Member States of the Organization for Security and Co-operation in Europe (OSCE) discussed energy security and new opportunities for natural gas.

Gazprom and Plinovodi will each have a 50% share in the venture, which will have its registered office in Slovenia. The company will be managed by two directors, one from each partner. According to Mr Eberlinc, the feasibility study for the South Stream pipeline route in Slovenia has been developed and approved by both partners, and will be specified in more detail during the course of the siting procedures, in accordance with Slovenian legislation. The total investment is worth approximately EUR 1 billion.

The final decision on the route of the whole length of the South Stream pipeline will be known by November. The final map of the route is expected to include Bulgaria, Slovenia, Serbia and Hungary, while Austria has not been included thus far. In January, Gazprom decided to begin construction in December this year, and not in 2013 as previously planned. The pipeline, the construction of which is estimated to be worth approximately EUR 16.5 billion and which should have a capacity of 63 billion cubic metres of natural gas per year, is to be completed by 2015, and the first supplies of gas are expected to arrive by the end of that year.

Economy: Slovenian economy to contract this year

The European Commission's spring forecast for Slovenia is that Slovenia will record a 1.4% reduction in GDP and a fall in the fiscal deficit to 4.3% of GDP this year. For the euro zone and the entire EU, the European Commission confirmed its February growth forecast – GDP in the euro zone will decrease by 0.3% and overall GDP growth in the EU will be zero.

The European Commission's forecast for Slovenia next year is that it will record 0.7% growth in GDP, and that its fiscal deficit will be reduced to 3.8% of GDP. Next year, the euro zone is expected to record 1% growth, while Europe as a whole will record growth of 1.3%. In addition, the European Commission's general forecast for the euro zone is that the fiscal situation will improve.
According to the European Bank for Reconstruction and Development (EBRD), Slovenia will record a 2% decline in GDP this year and a further 1.1% in the next. In its forecast, the EBRD points to the credit crunch and a reduction in economic competitiveness as the two biggest difficulties, and is the most pessimistic of all international institutions in its forecasts.

These forecasts are slightly different from the forecasts of the Institute of Macroeconomic Analysis and Development (IMAD), which predict a 0.9% drop in GDP. According to IMAD, the European Commission's lower forecast concerning the movement of Slovenian GDP is, in particular, a consequence of differing expectations in terms of import and export trends and the resulting contribution of international trade to GDP growth. Economists also estimate that Slovenian GDP will not fall below 1.4%, as predicted by the European Commission, because cost-saving measures have been already included in the stability programme, which serves as the basis for economic growth forecasts.
The cost-saving measures adopted by Slovenia have succeeded in reversing a three-year trend when the deficit remained at practically the same level each year. Even last autumn, the European Commission was still predicting a 5.3% deficit.

Foreign investments: Germany – an important trade partner and investor

Slovenian railways. Photo: Arsen Perić

Slovenia's trade with Germany amounts to around a fifth of total foreign trade; in 2010, trade in goods came to around EUR 3.6 billion in both directions. Slovenia's exports to Germany mostly comprise electrical machinery and equipment and their parts, audio and visual recording and reproduction equipment, and the respective parts and accessories (22%). This category of products is also ranked first (13%) in terms of imports from Germany.

Germany is also an important investor in Slovenia, particularly in the area of infrastructure (mostly railway infrastructure).

With a view to further improving cooperation between the two countries, the Slovenian Government has begun to adopt measures aimed at shaping such a business environment, as this would be more attractive for foreign investment. Among other things, the Government reduced corporation tax and introduced tax reliefs for investments and tax holidays.

Text by Nataša Bušljeta; full text  - Sinfo, June 2012 
Photo: STA