The Unstoppable Rise of Czech Oligarchs

About a hundred Czechs have a net worth of more than one hundred million EUR. Most of them present examples of acute business acumen and success. The wealthiest of these men present disturbing problems with their ambitious plans.

The current decade has blessed the countries of Central Europe with unusual economic growth and prosperity amongst the majority of the population, but has also damaged their democratic structures. While in Hungary there is a growing personality cult of Viktor Orbán, and in Poland, the pursuit of “the national conservative regime” of the Kaczyński brothers, the Achilles heel of the Czech Republic—as well as Slovakia- is the rise of power and influence of wealthy businessmen.

The centerpiece of this problem are individuals known as oligarchs. Their influence entered public consciousness with full force in 2013, when then the second richest man in the Czech Republic—the agrarian and food magnate Andrej Babiš—succeeded in the parliamentary elections, became the Minister of Finance, and went on to become the Czech Prime Minister in 2017. At the same time, other billionaires, be they Petr Kellner, Daniel Křetínský or the weapons magnate Jaroslav Strnad, have gained a growing say over where the Czech Republic goes next.

It is interesting to compare these individuals with the Forbes’ Dollar Billionaires column. The Czech Republic has eight members, the much bigger Poland only seven, and comparable Hungary only a meager two. Let us take a deeper look at where the richest Czechs have come from, what their fortunes are made of, and how strong their influence is on the domestic and foreign policies of the Czech Republic.

Stories of successful entrepreneurs, who thirty years ago started somewhere in a rented garage or a shop and slowly built their billion crown empires from the ground up, provide a completely different narrative.

Privatization, the Bedrock of Wealth

When we look inside the Euro weekly, leaving Slovaks aside for the moment, six out of the ten richest Czechs made their first billions in privatization between 1990-2005. The remaining four succeeded even without privatization of state property. In contrast, entrepreneurs with a net worth in realms of billions in CZK are mostly self-made and outnumber the active participants of privatization.

In contrast, many such parvenus of the privatization era have long left the charts. Some lacked the ability and drove their companies into the ground, while others, like the profiteers from the wild 1990s Viktor Kožený and Boris Vostrý have disappeared somewhere in the Caribbean on the run from justice or have ended up in jail.

The seventh richest Czech Pavel Tykač cannot seem to shake off his dubious past, when he allegedly participated in asset stripping of privatization funds in the 1990s. Never found guilty by the courts, he disappeared from the public view around the year 2000, only to resurface in 2006 when he acquired a share in the mining company Mostecká Uhelná. Ever since he has been expanding in fossil fuel industries, yet given the European stance on burning coal, his business model seems to be seriously challenged.

Petr Kellner, the all charts topper and the richest man of the day, had a somewhat more dignified presence in the privatization. He took advantage of the opportunity and gained control over the monopoly insurer in the country—Česká Pojišťovna. He then went on to sell it to Italian Generali between 2008 and 2015 for an impressive 3.6 billion euros, which to this day forms the base of his wealth. Ever since he has created a diverse portfolio in consumer lending, energy industries, telecommunications and real estate.

Dozens of Positive Stories

Stories of successful entrepreneurs, who thirty years ago started somewhere in a rented garage or a shop and slowly built their billion crown empires from the ground up, provide a completely different narrative. And there are dozens of similar stories like these. Given the industrial tradition of the Czech Republic, many are found in mechanical engineering industries, but there are also success stories in the IT, retail and power generating industries.

Lubomír Stoklásek, Businessman of the year in 2017, can serve as a typical example. When he bought Agrostroj Pelhřimov more than twenty years ago, it was a neglected factory begging to be torn down. It is currently a modern prosperous conglomerate that is supplying components to European and American manufacturers of trucks, agricultural machinery and utility vehicles. More than 98% of his production is for export.

Thanks to Pavel Bouška and his company Vafo Praha, the Czech Republic is a European powerhouse in pet feed. Zdeněk Pelc and his GZ media have a strong position on the market with CD, DVD and vinyl records. Linet of Zbyněk Frolík is among the leading world companies in the market of hospital beds of the highest quality, and Contipro of the innovative entrepreneur Vladimír Velebný has succeeded in the production of hyaluronic acid for the pharmaceutic and cosmetic industries.

Down to fewer tens of billions of CZK, we find four IT entrepreneurs. In thirty years, Pavel Baudiš and Eduard Kučera built Avast Software into a major company guarding computers against viruses and other risks, with a successful IPO on the London Stock market in May 2018. The search engine seznam.cz of Ivo Lukačovič is to this day a capable competitor to the global titan Google, and the online retailer alza.cz of Aleš Zavoral can rightfully be called the “Czech Amazon”.

How They Grew into Giants

From the self-made subset, only Pavel Baudiš and Ivo Lukačovič have made it into the Top Ten. Here we find other names and other stories. The second spot is occupied by Radovan Vítek, whose success is based on real estate expansion on a massive scale, with equally impressive debt accumulation. His strategy is based on the appreciation of his investments, and so far it holds.

Karel Komárek is no stranger to debt as well. His largest asset to date is the lottery and betting business under the umbrella of Sazka Group. He is also expanding rapidly in Italy, Austria and Greece, where he is attempting to gain a majority in the lottery company OPAP.

Swift expansion and high debt ratio with banks and bondholders is also a mantra of EPH’s expansion. Daniel Křetínský and his energy holding have global ambitions, attested by his recent acquisition of shares in a German retail chain Metro and the French daily Le Monde.

The holding Agrofert, indirectly controlled by the Czech Prime Minister Andrej Babiš, has a debt of almost forty-four billion crowns. His rise began after Miloš Zeman’s ascent to the premiership in the summer of 1998. A year later, Agorfert bought a large and profitable state chemical company Deza, followed by Precheza, Lovochemie and others. Within a few years, Agrofert established practically a monopoly in the chemical industry in the Czech Republic. If he had not changed his mind at the last possible moment in 2001, he could have also acquired the petrochemical and refinery giant Unipetrol.

When there was almost nothing left to privatize, Andrej Babiš threw himself into expansion abroad, and ventured into the food industry, buying the meat factory Kostelecké uzeniny, the poultry producer Vodňanská drůbež, the dairy producer Olma and the bakery group Penam. Since 2014, he became an equity investor as well via an investment fund called Hartenberg, investing in diverse ventures ranging from fertility clinics to distribution of cut flowers.

Oligarchs in Politics

So what really motivated Andrej Babiš to enter into politics? According to Jaroslav Kmenta and some other investigative journalists, he simply reacted to a loss of political influence. His relations with center-left leaning governments between 1998-2006 were very cordial, to say the least. The center-right governments dominating Czech politics between 2006-2013 did not have much time for him and he struggled to advance his business interest at the highest political level.

He first initiated a protest movement “Akce nespokojených občanů” (roughly translated as “resistance of disenfranchised citizens”), which then morphed into a political party ANO (YES) 2011. He masterfully rode the wave of popular discontent with a weak Prime Minister and the budget cuts of his finance minister Miroslav Kalousek. In the 2013 election, thanks to a professional campaign, the movement ANO 2011 ended up in the second position with 18.65% of the vote.

The trend of servile bowing to the Chinese regime began seven years ago with Prime Minister Petr Nečas with the idea of kickstarting Czech export and investment.

Despite his many glaring political weaknesses—ties to the Communist Party and secret police in the 1980s, vast wealth, conflicts of interest, and often confusing communication—Andrej Babiš managed to transfix a great part of Czech society. To this day, he expresses himself in a peculiar mix of Czech and Slovak, yet in 2013 became Finance Minister and in October 2017 rose to the Premiership.

There are other billionaires who also attempted to dabble in politics. Pavel Juříček, the owner of the car part manufacturer Brano Group was elected to parliament in the ANO colors and there has been some speculation as to name him as a candidate for the post of Ministry for Industry. Ivo Valenta, the unofficial king of the gambling industry, has been an unaffiliated senator since 2014. Another billionaire Pavel Sehnal has been trying to resurrect a long-gone political party ODA, yet even minuscule electoral success has eluded him thus far.

Stories of the Puppeteers

Then there are some that prefer to be in the backseat of the car. We can start off here with Petr Kellner, the owner of PPF group. According to many insiders, it is in his best interests to push for cordial Czech-Chinese relations. And the reason? His cash cow is a consumer lending company Home Credit, with the core of its activities in mainland China.

The trend of servile bowing to the Chinese regime began seven years ago with Prime Minister Petr Nečas with the idea of kickstarting Czech export and investment. The baton was consequently passed on to the already pro-Russian president Miloš Zeman whose annual voyage to Moscow with an entourage of influential businessmen, including Petr Kellner, lasts to this day. There was even a hint of a scandal some five years ago when Zeman returned back home on board Kellner’s private jet.

Other businessmen focus on lobbying on the domestic political front. Legendary skills in this regard are attributed to Daniel Křetínský, the main shareholder of EPH Group, who is seen as exercising considerable influence over the Ministry of Industry and Trade, and the Energy Regulatory Office on the Electricity and Gas Industries. EPH owns a number of heating plants in large Czech cities and managed to lobby through a decrease in VAT on heating supply and an increased subsidy on combined heat and electricity production.

Foreign publishing houses dominating the market a mere ten years ago have pulled out of the market. The main newspapers are owned by the billionaires Andrej Babiš, Daniel Křetínský, or Marek Dospiva from Penta Group.

Some of his efforts went too far, however, and have been facing growing criticism. One example is his influence putting a temporary stop to the project of a Czech-Austrian gas pipeline (BACI) that would have been a direct competitor to the EPH co-owned gas pipeline in Slovakia. The government ran out of patience and sacked three members of the Board of Energy Regulatory Office for being too cozy with private business outfits, namely EPH.

The ownership of media outlets is its own beast. Foreign publishing houses dominating the market a mere ten years ago have pulled out of the market. The main newspapers are owned by the billionaires Andrej Babiš, Daniel Křetínský, or Marek Dospiva from Penta Group. A significant and mostly negative influence on public opinion is exercised by private TV stations, namely Prima owned by Ivan Zach or the controversial TV Barrandov controlled by Jaromír Soukup.

The Rise of the White Knights

To every action, there is a reaction. Recently there has been an increase of activity of so-called “white knights” among Czech businessmen who support pro European policies, healthy democratic institutions and independence of media. Several of them (Dalibor Dědek, Martin Wichterle, BPD partners) financially supported the presidential candidate Jiří Drahoš, who only narrowly lost to Miloš Zeman in the second round of elections in 2018.

Other pro-European entrepreneurs aim for the return of independent media. About a year ago, a new daily, Deník N, entered the market, supported by Martin Vohánka, Libor Winkler, Jaroslav and Silke Horák. Unlike Daniel Křetínský or Andrej Babiš, who use the media to further their interest, they do not meddle with the content of their news.

While there is, on the one hand, the growing power and influence of old-style oligarchs who present riskiness for the future of the Czech Republic, we can be hopeful, on the other, of the increased activity of honest businessmen bent on anchoring the country firmly in the EU and Western civilization sphere. We currently find ourselves in the middle of a tug of war, the results of which remain to be seen.