As this year's Karlovy Vary International Film Festival approaches its final weekend, organisers say the otherwise healthy annual event is on dangerous ground when it comes to the small city's capacity of high-quality screening halls.

The festival is pressing local and national government for a $3.7m upgrade of the city's Kino Cas into a mini-multiplex with three halls seating a total of 600.

The festival, which has hosted Gus Van Sant and Morgan Freeman and other celebrity guests this year, is financially sound. 80 percent of its funding comes from private sponsors, but state help is needed to put the event on more solid technical ground, says festival president Jiri Bartoska.

"Today, we can completely organize a festival with money that we can acquire (from private sources), but we can't acquire the technical background. That is a task for the government, the ministries and the regions," he says.

The festival is also taking an interest in the privatization of the Hotel Thermal, a Communist-era hotel built in 1978 that is still owned by the Czech state. The Thermal is the only venue in town with the capacity to host the festival's administrative centre and the main screening halls, and a private owner could easily complicate the festival's ability to stage the international event.

Bartoska says he would prefer the hotel remain in state hands. "For us it's a sort of guarantee that the screening rooms will continue to fulfill their function," says Bartoska.

A more likely option sees the hotel sold to a large international chain, bringing in much needed revenue of $11-15 million to the state coffers, with a stipulation that the new owner continue to support the festival. "They should be able to guarantee during the privatisation the continued existence of the festival," says Bartoska.