INTERVIEW: Polish Treasury plans draws up €1.4bn privatisation list

By bne IntelliNews February 1, 2008

Jan Cienski in Warsaw -

Leaping over a low bar always helps make a good impression, but in the case of Aleksander Grad, Poland's new Treasury minister, the track record of his predecessor was so dismal that even the most desultory movement toward selling off some of Poland's state assets would be a huge improvement over the past. Even so, he indicates his ministry will still tread cautiously in politically sensitive areas.

"We are restarting the privatisation process in Poland," states Grad in a recent interview in his Warsaw office.

He is preparing a list of companies to be sold over the next four years and hopes to raise about PLN27bn (€7.5bn) over that time. For this year, Grad is planning to sell off about 240 companies, raising about PLN5bn. That would be a remarkable turnaround from the achievements of Wojciech Jasinski, the Treasury minister in the previous Law and Justice party government. Jasinski, not an enthusiastic advocate of privatisation, was supposed to raise PLN5.5bn in 2006 from selling off state companies - he reached only about 10% of his target.

"Over the last two years privatisation slowed or actually halted in Poland," says Grad. "Our goal is to limit the role of the state in these companies and to expand private capital."

A large seam to mine

More than 18 years after the end of communism, Poland still has about 1,000 state owned or controlled companies, from giants like KGHM, a copper mining company, to Kompania Weglowa, Europe's largest coal company, to PKO BP, until recently the largest bank in Poland.

Many of those companies are political sacred cows, and governments who dare talk of selling them have run into trouble from their workers, particularly in the case of militant coal miners who refuse to countenance being cut off from the state.

Most of what Grad hopes to sell off this year is fairly uncontroversial, consisting largely of small shareholdings in companies that have been sold off to private investors years ago. However, selling off these shares creates no political problems and raises money that can be used to pay off the large number of land claims stemming from communist-era nationalisations.

Some of the more interesting sales for this year include the partial privatisation of the Warsaw Stock Exchange, currently 98% owned by the government, as well as parts of two newly created vertically integrated energy companies, Enea and PGE.

The blot on the horizon for this process, however, is the turbulence in the world's financial markets, which has caused a sharp fall on the Warsaw exchange. Already, a slew of companies have postponed their IPOs until later in the year, and there were reports that the Treasury would also put back its plans to sell stakes in the energy companies. However, with Poland facing severe electricity shortages as it lacks the funds necessary to upgrade and expand its power infrastructure, few are in any doubt the Treasury will be forced to raise money this year whether it thinks the time is right or not.

Ending political patronage

Grad also promises to break with the tradition followed by every post-communist government of stuffing the boards of state companies with political hacks and cronies, who are immediately turfed out following elections and a change of ruling party. "We are pledging to change the way in which boards are chosen," he says, promising that from now on managers will be chosen in open contests based on their qualifications and not on their political loyalties. "It has been a source of trouble for companies where the state has had a strong role."

However, in one of his first actions as minister, he unilaterally replaced the management of PZU, the state-owned insurance company involved in a long-running dispute with Eureko, a Dutch insurance company which is fighting the government for control of PZU. The explanation was that there was time pressure because of negotiations with the Dutch, who have sued the Polish state through the international courts.

He also plans to shorten the controversial list of companies where the government retains an effective "golden share" that under law allows the government to step in and intervene in the actions of a company if it affects national security. The law is the source of a conflict with the European Commission, which was particularly concerned about its application to companies like TPSA, the former telecommunications monopoly now owned by France Telecom. Private companies like that will be dropped from the list, Grad says, calling it the new government's "first gesture toward the European Commission".

Overall, Grad plans to follow a politically sensitive course, ploughing ahead in areas where there is little controversy, while acting much more delicately in politically difficult sectors. Speaking about the politically powerful coal mines, he says: "We will not begin the privatisation process. But if the companies and the workers decide they want to privatise, then we will support that."

Even though the liberal Civic Platform party government has backed away from some early assurances by its more enthusiastic members to sell of everything except crucial transport infrastructure, the more cautious approach promises to be the most significant step in years in getting the state out of areas of the economy where it still dominates.

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INTERVIEW: Polish Treasury plans draws up €1.4bn privatisation list

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