We will not support all kinds of investments
Caspian Energy (CE): Mr. Mládek, could you please tell about the plans for encouraging industrial production in the Czech Republic in 2017? Which factors are supportive and which ones hinder you in this regard?
Jan Mládek, Minister of Industry and Trade of the Czech Republic: As far as promotion of industry is concerned, first of all, I would say that industry is crucial in the Czech Republic because it accounts for the one-third of GDP, mainly the processing industry.
With regard to stimulating and supporting the manufacture, the most important thing we are dealing with is to tackle challenges of the modern world, and within industry it means Industry 4.0. We are committed to boosting a rollout of the fourth industrial revolution, which is closer and closer and which suggests a wider use of Internet resources, digitization, robotization, and how to take these new challenges is what we are dealing with. With regard to specific action, currently we are discussing what a new approach to foreign investment will be like because we were trying to get as much investment as possible and in some sense we have reached a logical conclusion because last year the Czech Republic became a country with the lowest unemployment rates. But at the same time we do not have enough manpower and this is what we are going to discuss and tackle this year. We will not support all kinds of investments, but encourage high value-added investment projects.
Strawberries on the cake....
CE: What impact will probable moving away from the free trade mode with the United States have on the economy of the European Union and the Czech Republic?
Jan Mládek: Frankly speaking, currently we expect to see which promises given by Mr. Trump to his voters during his election campaign will be delivered on. Hopefully, those promises will not fail. First of all because it would badly affect the United States themselves, and secondly, the most important thing he promised is to conduct trade negotiations with Mexico and Canada, and discus the fate and fortunes of NAFTA. Let's see what of all that will come true. In Europe, we are involved in the negotiations on the TTIP agreement (Transatlantic Trade and Investment Partnership), and we do not expect this agreement to move forward in the near future since there were ambitions to finalize the agreement even during the Administration of President Obama. In my opinion, this agreement did not meet today’s realities, and nobody knew its sense, why and for what it was needed. The similar agreement with Canada is already in place, and it is much easier on many items. But we worked on the TTIP deal from 2009 until the end of 2016. This means that all those 7 years we had the easier deal. So, I think we all need to be patient and accept the fact that we will not move in that direction because there are going to be other priorities. I think they will be associated with the fact that Mr. Trump will take office as the President of the United States (at the time of the interview – editorial note).
CE: The TTIP deal included the item on LNG supplies from the United States...
Jan Mládek: First of all, it is difficult to say which items it includes. Until now this agreement has been only spoken about and never unveiled because it is an incomplete deal. Yes, we had discussions that TTIP sets a framework for export of US shale gas to Europe. Last week in Abu Dhabi the issue was raised that in case TTIP is not signed, there is a high probability that this does not mean a lack of ability to export shale gas even without TTIP, it is interconnected. Certainly, we would like to see a part of the deal devoted to energy, but apparently it is not going to happen in the near future.
CE: What about further diversification of energy sources? Is Europe going to focus on pipeline gas?
Jan Mládek: You know, it is a slightly different area, actually the problem is different. We say that export of shale gas is “strawberries on the cake”, because the most important influence the shale revolution in the United States has is that the United States will not buy oil from the Middle East in the near future. In the past the country used to be the world’s major importer of oil and gas and now it has turned out that the United States would import little or nothing, on the contrary they will export. This will lead to huge changes in the flow of goods. In the first place tankers with oil from Saudi Arabia, UAE and other countries will not go towards the United States, but towards China, Korea and Japan, and already today there are going to be serious geopolitical implications ... Why should the United States Northern Command and the others protect transportation routes for China and Japan? I think it will be of no importance to them and it is difficult to say what will happen to the world onward....
CE: How do the bilateral relations between Azerbaijan and the Czech Republic fit into these global relations? Mr. Mládek, could you please tell about the purpose of your visit to Baku in late January?
Jan Mládek: It is not so difficult from the viewpoint of the relations between Azerbaijan and the Czech Republic...
Firstly, when socialism ended in 1989, we, as the Czech Republic, were 100% dependent on imported oil and gas from the Soviet Union and Russia. This made us understand how dangerous it was to depend on a single supplier, because sometimes we were blackmailed a little, and sometimes fully deprived of supplies. And we took the political decision to diversify sources. We built the pipeline towards Norway and buy the one third of required gas from Norway. At the same time we built the oil pipeline towards Ingolstadt, Germany, and that means the connection to the Transalpine oil pipeline stretching from the Italian city of Trieste in Northern Italy. For us it means the access to the seaport where we can always buy oil from another source, and at the same time we have the supply contract with Azerbaijan which is very important for us. We are not interested in oil supply from Azerbaijan to Novorossiysk, but we have a keen interest in supplies through the Baku-Tbilisi-Ceyhan oil pipeline. After that oil is loaded on tankers and delivered to Trieste and then to the Czech Republic. That is, we have oil supplies completely independent on oil transit from Russia through Ukraine and Slovakia. This is the one-third, while at the same time in both cases we buy the two-thirds of oil and gas from Russia.
CE: Like in the case with oil, do you have interest to join the Southern Gas Corridor?
Jan Mládek: We support the Southern Gas Corridor, but actually now we, as the supplying country, do not need it because we have enough gas supply through Ukraine and Nord Stream, and have access to spot markets in Western Europe.
Still, we consider this issue in the longer term.
Firstly, SGC is very important for Southern Europe because the crisis that took place in 2009 and the difficulties that occurred in 2012 hit the countries which were 90% dependent on transit from Russia through Ukraine, namely Bulgaria, Macedonia, Serbia, Bosnia, Slovakia and Hungary. They faced the difficult situation. We were not in such a difficult situation and will not be in the near future. But, on the other hand, we would like to buy cheaper gas. For example, we could buy cheaper gas from Kazakhstan. But we will not buy that gas because Gazprom does not allow alternatives through its export systems. We expect Kazakhstan, Iran to join the Southern Gas Corridor. But unlike oil, here the situation is different...
We buy Azeri Light oil from Azerbaijan. We are interested in it and will continue buying... As for gas, first of all, we will be happy for our neighbors if they have supplies independent of Ukraine. And if everything goes well, maybe some supplies will be made in the future...
CE: Mr. Mládek, do you mean supplies via European interconnectors?
Jan Mládek: Yes, but the point is that it’s still a long way off. Now SGC is being constructed in Turkey. Preparation work for construction is currently underway in Greece, Albania and Italy. Of course, there are operating pipelines there, but their capacity is not high enough. Most importantly is to have a gas pipeline built from the south of Europe to Central Europe. We have several options. The one of them is an interconnector via Bulgaria, Romania, Hungary and Slovakia, another project is directly from Macedonia to Austria where the large Baumgarten terminal is located near the Czech and Slovak borders. There is also an option to build an interconnector along the coast of the Adriatic Sea. These all are just plans and it’s still a long way to go before construction gets started. It implies that we mean supplies from SGC, but in the longer term. We will not be involved in the project directly in the near future.
CE: What about cooperation in the non-oil sector? Which projects are of interest to the Czech companies that arrived together with you in Baku?
Jan Mládek: The implementation of some projects is already in process, including modernization of the transport infrastructure, signalization on the railways, underground construction and other projects. And of course, the Czech industry is highly developed and Czech companies are always interested to fill certain niches in the markets. We see ample opportunities in the field of agriculture and food industry because we, as a country, do not have such a large agricultural sector. Actually we are a net food importer, but on the other hand, we export equipment for the food industry and it is one of our main activities. We also assume that Azerbaijan is interested in this, because Azerbaijan is committed to diversifying its economy and is interested to develop agriculture and processing industry. I mean the interest to deepen production within the sector, because the more and deeper processing is, the higher margin of business is.
CE: Are there plans to make large Czech investments in Azerbaijan? How feasible is opening of large joint production oriented at regional markets?
Jan Mládek: CurrentlyCzech companies are interested in supplies for specific businesses, for example, equipment for heavy and light food industry, construction of power plants. There are not many investors amidst Czech companies who invest funds in production, and certainly if they do, they go to large markets. Azerbaijan is a small country and, unfortunately, does not participate in any of economic groups.
CE: Could you please tell about your plans in Kazakhstan, Turkmenistan, and Iran?
Jan Mládek: I would highlight the two destinations: Kazakhstan and Iran. A year ago, I visited Iran accompanied by the large delegation. We have great expectations associated with this country. Czechoslovakia used to be the Iran’s major supplier of equipment for the mechanical engineering industry. Our machines worked there and relatively not far - in Tabriz. Of course, it is a big country with the population of 80 million. This is our first destination.
The second one is Kazakhstan. We will participate in EXPO 2017 in Astana. We are committed to hosting workshops there and boosting the power sector. We see ample opportunities there. Czech companies are interested in joint production of heat and electricity, that is, in reconstruction of old power plants. Because it is the right thing for Kazakhstan and many former Soviet Republics as well, where the outdated energy infrastructure is in use, to ensure more efficient use of feedstock, prevention of emissions, saving and environmental protection.
CE: Which financial resources will be used for that: government investments, private investments?
Jan Mládek: I think both. To support such exporters we have the Czech Export Bank, which grants loans to them. We have the insurance company that insures loans. Over the past 10 years $1.5 billion as loans from the Czech Republic have been disbursed in Azerbaijan.
I really do not like what Mr. Trump said…
CE: Could you please tell about the stance of the Czech Republic on Brexit?
Jan Mládek: Certainly we regret. It was not the best decision of the British people since there was no plan what to do in case of Brexit – the first, the second, the third point and so on. On our part, we will try to make a velvet “divorce”, but there is a great danger that it will be a challenge for the EU and in the following two years the entire EU bureaucracy will be engaged in Brexit only. It is a delicate and difficult matter. We need a new trade deal because despite all the difficulties there is the common market with Europe, where the United Kingdom is a part, there is a free movement of labor, capital, and when it's all closed we should have something to replace it. The last six months of the negotiations have shown that no one still knows what to do next and thinking about it starts just now.
CE: How do you evaluate losses for the Czech economy?
Jan Mládek: It is hard to say. It will depend on a would-be agreement. In case of the so-called soft Brexit or velvet divorce losses are going to be small.
CE: What do you imply under the word “soft”?
Jan Mládek: We try to give a clue to our colleagues in Western Europe suggesting that Brexit should be done like a velvet divorce of the Czech Republic and Slovakia in 1992. Six months before, we announced a division into two courtiers from 1 January 1993. But all that time we worked on agreements on pension schemes, use of a labor force, currency movements, and creation of a tax system. We had to address a lot of political problems to avoid chaos, riots, slowdown in economies, and in principle we achieved that. Today I believe that we chose the right path since I hear different mixed signals from Brussels. I will cite one example. The representatives of France suggest introducing the French language as an official language within the EU when the UK leaves the EU. For us this is a very sensitive issue because when the UK leaves the European Union, there will not be the only country where the official language is English. Even in Ireland, where the entire population speaks English, the official language is Celtic. Of course, the EU can agree that English becomes an official language, but there is a technical problem - a decision should be taken unanimously.
CE: Listening to you, Mr. Mládek, it becomes obvious why President-elect (at the time of the interview – editorial note) Donald Trump suggested a collapse of the European Union in one of his interviews...
Jan Mládek: You know, I really do not like what Mr. Trump said. There's an old joke in the Czech film about a tightrope walker – an acrobat who walks on a tightrope with a pole. His friend approaches him and says “do not walk on the tightrope or you will fall” and begins to shake the tightrope. Finally he succeeds and the tightrope walker falls. “You see, what did I say? You would fall ...” he concludes. I think Mr. Trump approaches this matter in the same way.
Thank you for the interview