(Repeats story published late on Tuesday)
By Jan Lopatka
PRAGUE, Jan 4 (Reuters) - The Czech centre-right coalition
wobbled unexpectedly in December when a corruption affair at the
Environment Ministry pitched a junior coalition partner against
Prime Minister Petr Necas.
A last-minute agreement averted a break-up of the coalition
in a no-confidence vote on Dec. 21, but the conflict has opened
divisions just as the government needs to speed up work on three
major issues: pension, health and tax reforms. []
The coalition, formed after an election in May, had already
suffered a setback in October when the opposition centre-left
Social Democrats won a majority in the upper house and said they
would use it to oppose the government's austerity drive.
COALITION STRAINS
The smallest coalition party, the centrist Public Affairs,
fared poorly in October's upper house and municipal elections,
prompting it to take a more aggressive stance.
Tensions came to a head last month when environment minister
Pavel Drobil, a member of Necas's centre-right Civic Democrats,
was forced to quit over allegations that he had covered up
corruption in an infrastructure tender. Drobil denied any
wrongdoing.
Public Affairs, who won parliamentary representation for the
first time this year on pledges to fight corruption, escalated
the scandal by threatening not to support the government in a
no-confidence vote called by the opposition.
President Vaclav Klaus brokered an agreement that cooled the
row but its contents were not made public, angering many members
of parliament.
Ties have also been tense between the Civic Democrats and
the conservative TOP09, its rival for leadership of the
political right.
The three-party coalition still has the strongest majority
in the lower house since the break-up of Czechoslovakia in 1993
with 118 of 200 seats -- a unique chance to push through
reforms.
What to watch:
-- Friction between the Civic Democrats and Finance Minister
Miroslav Kalousek's TOP09 could worsen, possibly over an
environmental cleanup tender. The tender, possibly worth
billions of dollars, has been criticised by Necas but supported
by Kalousek.
-- The new and somewhat unpredictable Public Affairs may
become more volatile as it seeks to reverse its popularity drop.
-- Public Affairs may demand that some planned tax hikes and
pension reforms, key items on the government's agenda over the
coming months, are softened.
-- Tensions within parties. Regional Civic Democrat party
bosses have disobeyed Necas by forming coalitions with the
Social Democrats at municipal level. Analysts see this, and the
Environment Ministry scandal, eroding his standing in the party.
LABOUR PROTESTS
Trade unions held a two-hour public sector strike against
the government austerity measures on Dec. 8, the biggest protest
in years.
Czech unions are weak but may flex more muscle in solidarity
with others in Europe and by making common cause with the
opposition Social Democrats, who got a boost from the Senate
election victory.
The government has insisted it will go ahead with its
austerity plans, including a 10 percent cut in the public sector
wage bill.
About 3,800 hospital doctors, about one fifth of the total,
have threatened to quit at the end of February in protest at
their poor pay.
What to watch:
-- Given that the government is unlikely to back off, will
state workers' unhappiness lead to bigger strikes involving
workers at private companies, which have already imposed faced
job and wage cuts in the economic crisis?
-- Will doctors carry out their threat, forcing hospitals to
close and endangering health sector reforms?
FRICTION OVER PENSION AND HEALTH REFORMS
The government needs to speed up work on the main reform it
has pledged -- of the pension system -- if it is to introduce it
in 2012, as promised. Parties have clashed over how much money
should be diverted into private pension funds, and whether this
should be mandatory.
The coalition needs to reach agreement by the spring to give
time for the reform to be approved by parliament.
The other big reforms on the agenda are of the health and
welfare systems.
What to watch:
-- Lobbying by the fund industry among political parties may
lead to clashes between parties on policy options.
-- Clashes over the percentage of income to be diverted to
pension funds. Will a state fund be created as well?
-- The leftist opposition is using the example of Hungary,
where the government decided to force taxpayers back into the
state pension system from their private pensions amid budget
constraints, to rally public opinion against the reform.
NUCLEAR PLANT EXPANSION
The government has said it expects delays in the country's
largest-ever tender for new nuclear reactors. The tender is now
expected to last until 2013.
Power firm CEZ <>, central Europe's biggest firm
with a market capitalisation of $22 billion, is 69.8 percent
state-owned and a significant source of government revenue.
It plans to build two reactors at the Temelin plant, and
possibly three more at another domestic site and in Slovakia.
The government wants more control of the process.
[]
Areva SA <CEPFi.PA>, Toshiba <6502.T> Westinghouse and
Russia's Atomstroyexport are competing for the deal, which could
be worth $24 billion if all five units are built.
The government's special envoy for the tender, Vaclav
Bartuska, has spoken out in favour of reducing energy dependency
on Russia.
What to watch:
-- Any mismanagement of the deal could put the government in
a bad light and lead to complaints from bidders.
For political risks to watch in other countries, please
double click on []
(Reporting by Jan Lopatka; Editing by Kevin Liffey)
