The Finance Ministry's unexpected cancellation of a tender for a financial manager to handle the Czech Republic's European Union subsidy account — funds worth billions of euros that would greatly strengthen any bank's liquidity — has prompted widespread speculation about the state's apparent favoritism toward major commercial lender ČSOB.

"It could well be another sign of favoritism toward ČSOB," said Miroslav Ševčík, director of the Liberal Institute, an economic think tank.

The ministry announced last week that it will hold a new tender after having canceled the first one at the end of October. In most EU member countries, one financial institution administers the vast EU funds going to local businesses and agencies, along with local matching funds, generally charging substantial fees for the service.

ČSOB, one of three bidders in the first tender, has instead offered to manage the Czech Republic's EU account and make transactions free of charge, according to Euro magazine, with interest lower than the Prague interbank interest rate, known as PRIBOR — an unprecedented offer.

The tender was revised after ČSOB's offer but the Finance Ministry subsequently canceled the contest, saying that quelling possible doubts about the tender was at the root of its decision.

But some analysts, such as Ševčík, suggest the ministry's move actually casts further doubt on the tender.

ČSOB spokesman Pavel Hejzlar refused to comment on details of the bank's offer, but admitted that it was attractive for the government. "We naturally tried to make an offer that would be as interesting for the Finance Ministry as possible," Hejzlar said.

Close ties

The Finance Ministry insists though that the unexpected offer from ČSOB did not in itself result in the tender being canceled.

"The offer from ČSOB was not the main reason to do that; we just wanted to avoid possible doubts about the transparency of the tender," said Finance Ministry spokesman Marek Zeman. "We therefore canceled the past tender and will open another round in which we more precisely specify some conditions." He failed to say just what adjustments will be made.

Ševčík pointed to the long-term close ties between the government and ČSOB and said he would not be surprised if the government canceled the tender in order to create better terms for ČSOB in the next round. Warm relations between ČSOB and the Finance Ministry date back to 2000, he said, when the assets of collapsed IPB Bank were sold to ČSOB under government guarantees.

"Since then, it's clear that ČSOB backs [Finance Minister Bohuslav] Sobotka," Ševčík said, "and that he in return forestalls all attempts to disclose controversial practices that occurred during the IPB takeover."

The most recent exclusive deal ČSOB won from the Finance Ministry was the extension of a contract that authorizes the bank to operate Poštovní spořitelna, the state-owned postal bank, enabling it to offer financial services at post offices all over the country. ČSOB currently registers 3.2 million clients, 2 million of whom belong to Poštovní spořitelna.

ČSOB's Hejzlar summarily rejected that the offer to maintain the Finance Ministry's account was merely a thanks offering to the government.

"It's total nonsense," Hejzlar said. "The two things have nothing in common. ... ČSOB does not use such practices."

ČSOB is running neck-to-neck with Česká spořitelna and HVB Bank in the Finance Ministry's tender. The Finance Ministry is expected to select one bank that will manage the EU account from 2007 on, along with matching funds from the Czech state budget to be used to develop and support business projects in the country.

The account's annual revenue will be about 150 billion Kč [$ 6 billion] per year, and the government announced provisions to be paid to the account manager would not exceed 296 million Kč over four years.

All three bidders in the tender, ČSOB, Česká spořitelna and HVB Bank, admitted they were surprised about the previous tender's cancellation, but all of them said they were ready to participate in the new round.

"It is a highly prestigious matter," said Česká spořitelna spokeswoman Klára Gajdůšková.

Česká spořitelna has been maintaining EU accounts since 1993 and also holds some 80 percent of public accounts of towns and municipalities in the Czech Republic.

Dušan Hladný, HVB Bank's director of corporate banking, said the management of the EU account would be interesting for the bank if profits were higher than related costs.

"Managing the Finance Ministry's account with EU subsidies is in fact a regular business transaction that requires that prices charged for services are higher than related costs," Hladný pointed out. He added that acquiring the account would also be attractive because it would enable the bank's corporate clients to apply for EU subsidies directly in the bank.

Without providing a date, the Finance Ministry's Zeman said a new tender would be launched soon.