I. STATEMENT ON RATING

Slovak Rating Agency grants following rating to City Komárno:

Long-term local currency rating	BB+ (stable outlook)
Long-term foreign currency rating	B+   (stable outlook)
Short-term rating	S3

The granted long-term rating in the category of transactions in Slovak crowns BB+ (stable outlook) is three degrees below the rating of the Slovak Republic (A - stable outlook). In the category of foreign currencies rating B+ (stable outlook) has been granted to City Komárno, which is three degrees below the risk level of the Slovak Republic (BBB- stable outlook). Short-term rating of City Komárno is S3, which is the best possible short-term rating for the entities attaining long-term rating BB+.

Rationale:

• From the political and administrative point of view, City Komárno is the seat of the district Komárno associating 41 municipalities. With the population of 37 366 inhabitants as of May 26, 2001 Komárno is one of the smaller cities in Slovakia. The structure of economic activities of the city changed significantly due to transformation processes and change of ownership structures. In the past, the highest proportion of industrial activities has been concentrated in machine and building industry, which favourably affected the employment in the city and the whole district. As for the manufacturing industries, only shoemaking industry retained its good position due to the foreign investor and cooperative society focusing on production of leather haberdashery has a good position on the Slovak market within the city as well. There are couple of smaller enterprises operating mainly in food production and services in the city covering the daily demand of local population. Despite the strong reduction of the traditional manufacturing sector, there are perspectives for its recovery especially due to good position of the city (in the neighbourhood of Vienna, Budapest, Bratislava) and its well-developed infrastructure. Excellent locality of the city is also attractive for the over-regional and international companies. The unemployment rate in Komárno is at the level of 25 %, which is more than the unemployment rate in the region of Nitra reaching 21,45 % as of the end of May of 2002 and essentially more than the national unemployment rate reaching 17,67 % as of May 30, 2002.
• System of internal practices and generally binding regulations regulating the basic operations of the city is well developed. We appreciate positively their public accessing in form of Web page, which is a significant step in development of transparency in city business management and disposal of city property. There is irregular and dissatisfying update of internal regulations, which could negatively affect further struggle for development of transparency. We see some space in the area of internal management that seems to be less flexible at some management levels. The cooperation with the municipal corporation we evaluate as difficult, what may be result of the end of election period.
• As of ultimo of 2001, the city recorded bank credits and loans in the volume of SKK 98 million and the city indebtedness represented 49,65 % during the same period considered to be a negative value. Financing and deposition of municipal finance by one creditor is considered risky, and doesn't correspond to the principle of risk diversification of the credit portfolio or deposition of free funds. The city plans to realise the project of ČOV modernisation, which will be financed by ISPA fund. Necessary condition for getting the funds from this fund is the participation of the city by own resources corresponding to 25 % share of total investment project costs, while total investment project costs represent the value of SKK 300 to 400 million. In our opinion, accepting a new credit could with unchanged volume of real income may significantly affect the city indebtedness, which could cause increase of pressure on city liquidity.
• The volume of real incomes of the city shows ascending development trend and the structure of budgeted revenues is diversified, which we see positive. All income groups were represented in the budgeted incomes as of ultimo of 2001. The volume of available funds of the city increased from SKK 21,293 million to SKK 40,715 million within the period of 2000 - 2001, which represented 31,73 % of current assets of the city. Further increase has been recorded as of June 30, 2002 to the value of SKK 44,251 million, which we appreciate positively. The volume of available funds guarantees the instantaneous liquidity of the city. Short-term liabilities and debt service of the city represented the amount of SKK 23,582 million as of ultimo of 2001, which means that these have been covered by the volume of available funds 1,7 times. City followed the budget on stable basis during the period of 1999 and 2000 and showed surplus in amount of SKK 17,174 million only in 2001. We see negative high receivables recorded by the city during the monitored periods; their volume represented SKK 86 million as of ultimo of 2001. In order to reduce the receivables the city should to proceed in monitoring and debt recovery more effective.
• City records relative high number of equity participation in business companies showing lossy management and being among the bad payer of the city. In our opinion, the city should manage the equity participations more effective and link the financial and strategic management of the city with the management of equity participation. Not only the municipal corporation deputies should be nominated to the authorities of business companies, but also the employees of the town council on higher management level (chief officer, chief officer deputies, head of department), whereby more effective monitoring of the mentioned companies could be achieved. In addition, the process of economic monitoring of such companies should be improved and the economic results should be reported on quarterly, and not on yearly basis.
• The area of public administration reform is afflicted mainly by unpreparedness of the state having bad impact on cities and municipalities as well. Up to the present, city Komárno hasn't signed the delimitation protocols, The problem seems to be the discrepancies between the state evidence and the evidence of land register, absence of project documentation and auditor´s reports, which makes signing of such protocols not possible. The city performed technical audit on assets taken over, but due to non-calculation of funds needed for necessary repairs and maintenance (the process is running) in the budget for 2002 there are no financial reserves for eventual hidden debt on delimitated assets.

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

Slovak Rating Agency
Bratislava, 17 September 2002