I. STATEMENT ON RATING

The Slovak Rating Agency assigns the City of Bardejov the following rating:

Long-term koruna rating	BB (stable outlook)
Long-term foreign currency rating	BB- (stable outlook)
Short-term rating	S3

Justification:

• The City of Bardejov is the political and administrative centre of the district of Bardejov, which encompasses 86 municipalities, making it one of the largest districts in Slovakia. To the end of 2002 the City had a population of 33,415, which represents 4.2% of the population of the Presov County. Part of the City comprises the Bardejov Spa, which is currently one of the most popular spa resorts in the Slovak Republic. The City of Bardejov is included in the UNESCO World Heritage List. The business environment in the City is negatively affected by the decline of former core businesses in the footwear and mechanical engineering sectors, due to which the level of unemployment in the City, and in the district, is higher than the Slovak average.
  
  
• At the present time the City is elaborating a Plan of Economic and Social Development. The agency recommends elaborating such a document with the active participation of representatives of the communal, business and tertiary spheres of the City and pursuant to the financial possibilities of the City.
  
  
• The agency regards the co-operation of the City management with the City Council as difficult, which is however the result of the differing political orientation of delegates in the City Council and the City Mayor, together with the corresponding differing electoral programmes. In the opinion of the agency all important decisions at the level of the City Council should be economically advantageous for the City regardless of political affinity. The concentration of all powers to the jurisdiction of the City Council, especially with regard to budgetary shifts, does not provide sufficient operative management of the City Office.
  
  
• The economics of the City in the period 1999-2002 were in surplus, and the structure of budget revenues is diversified, with acceptable debt indicator levels. The City already maintains the debt indicator in line with the new budgetary rules - the debt income ratio to the end of 2002 was 16.65%, and debt-service ratio to the end of 2002 came to 5.57%. The agency sees major reserves however, in the area of management and recording of receivables and payables and so recommends the central management and recording of receivables and payables and also the introduction of an effective system of enforcing receivables.
  
  
• The City has a well established system of internal directives, which the fundamental functions of the City operate by. The agency does however recommend more thorough adherence to these, especially with regard to internal control and external control. The agency proposes strengthening the real performance of control activities of the chief controller and to focus control also on assessing the suitability of individual economic transactions undertaken by the City, as well as on the asset interests that the City holds.
  
  
• The agency positively assesses the creation of an automated information system for the City Office, which enables increased work effectiveness and the use of new control mechanisms. The agency feels it is essential to go ahead with the process of final implementation of the information system of the City Office as soon as possible.
  
  
• The investment objectives of the City for the upcoming period are ambitious. Part of these projects should be financed from structural funds, which assume the partial co-financing of the City. The agency recommends creating also reserves from the generated surplus of the City to cover unforeseeable events.

Please don't hesitate to address your questions to autner@slovakrating.sk, or call +421 2 5464 5151.

Slovak Rating Agency
Bratislava, 27 January 2004