A PIR disaster

By bne IntelliNews September 16, 2014

Jan Cienski in Warsaw -


Two years ago, Donald Tusk was gripped by a bold idea for how to save Poland from an economic slowdown that threatened to derail the country's record two decades of uninterrupted economic growth: set up an investment agency that would funnel cash to crucial infrastructure investments.

But now Tusk's brainchild, Polish Investments for Development (PIR), is under mounting criticism. Its banker president, Mariusz Grendowicz, was fired late on September 16, and many are convinced that the agency will soon be folded into a government-owned bank.

When Tusk made his announcement, the idea was to create an agency fuelled with more than PLN10bn  (€2.4bn) in government money - which would be leveraged to four times that amount - but run on private sector lines. Registered as an incorporated company, PIR was supposed to get involved in large projects like oil and gas exploration, as well as building roads, ports and pipelines.

The idea was for PIR to be a “first in, last out” investor, whose presence would reassure other investors and entice them to back large projects. “For a responsible government, which wants growth, and to keep people working, the key is to find ways of financing development and growth,” Tusk said at the time.

His hope was for PIR to be up and running and doling out money by the end of 2012 or early 2013, which could have provided crucial support to help steady a slowing economy. It was also a time when structural funds from the EU's 2007-2013 budget were starting to fall off, and the added spending would have allowed infrastructure spending to keep going until the next budget was passed. Crucially for the fiscally pressed government, PIR's spending was not supposed to be counted as government expenditure.

But the early promise has largely fizzled out, leaving a furious treasury minister, under whose purview the programme exists.

Problem child

Grendowicz, an experienced investment banker, took a long time to pull his team together. For many months he was almost alone in PIR's headquarters, located in the Warsaw Stock Exchange building. Decisions have also been taken at a very languid pace. So far the agency has only become involved in one investment. In August it agreed to spend PLN430m  (eur102m) as part of a project to finance oil exploration in the Baltic Sea by Grupa Lotos, Poland's second largest refiner. In all, PIR has examined 53 projects and given preliminary acceptance to eight. The treasury ministry says that PLN10bn in new projects should be signed by the end of next year.

That pace was evidently not fast enough for the ministry. PIR late on Tuesday issued a terse three-sentence statement saying that Grendowicz was being removed and “thanked” for his role in setting up the agency. A new CEO is being sought.

PIR has also been hit with other problems. The agency had been planning to cooperate closely with a company called Hawe, which was supposed to build a fibre-optic network connecting 870,000 households to be in part financed with PLN120m from PIR. However, Hawe's upper management turned out to be composed largely of very well-connected apparatchiks. One of the main shareholders was also Marek Falenta, the man the government accuses of being behind the “Waitergate” scandal in which senior officials were illegally recorded while eating at top Warsaw restaurants. This summer PIR asked Hawe for an explanation, and said that the project's future depended on the answers it got.

Finally, it is not at all clear how Eurostat, the EU's statistical agency, will treat PIR spending. Bloomberg Businessweek reports that Eurostat is taking a close look at PIR and whether its investments should be added to Poland's public debt – essentially destroying the rationale idea of the agency in the first place. The issue is that if PIR gets involved in projects that would not be attractive for a private company, this represents  a government subsidy.
Even the government seems unhappy with PIR's progress. In one of the recorded dinner conversations, which were later printed in the Polish press, interior minister Bartlomiej Sienkiewicz called the agency a long string of expletives.

While PIR was supposed to provide a boost to the fortunes of Tusk's government, it is instead turning into a political target. Leszek Miller, head of the ex-communist Democratic Left Alliance party, has called on the government watchdog agency to investigate goings on at PIR. “We won't allow this to escape the attention of important state institutions,” he told Polish radio.

Papers also speculated that PIR would be absorbed by the Bank Gospodarstwa Krajowego, a state-owned development bank which also finances projects and whose functions in some ways overlap with PIR.

However, killing off PIR would be an acknowledgement that Tusk's shining idea had tarnished, which would be politically embarrassing. Instead, the treasury ministry put out a statement that PIR's structure may be changed to function more like an investment fund. That would allow it to earn management fees, which would stop it from running at a loss. “Keeping PIR in its current form misses the point,” says Dagmara Leszkowicz with Polityka Insight, an analysis firm. “The company is expensive and not fully transparent.”

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