Poland bids to peel back privatisation

Poland bids to peel back privatisation
The privatisation of chemicals company Ciech has already been probed once.
By Wojciech Kosc in Warsaw May 22, 2016

Poland has motioned for the prosecutor’s office to probe what it claims were irregularities in the privatisation of two companies resulting in losses for the state, the treasury minister announced on May 20.

Dawid Jackiewicz said the ministry’s move concerns the sale by the state of two media companies, Presspublica and Ruch. Presspublica was sold to Gremi Media in 2011, while Ruch was offloaded to Lurena Investments in 2010.

In both cases, the treasury’s alleged losses – PLN5.5mn (€1.25mn) in the case of Presspublica and nearly PLN30mn in the case of Ruch - stemmed from what Jackiewicz claims were inadequate assessment of the companies’ value. The minister said there are more cases waiting to be submitted for prosecution, including the sale of chemicals company Ciech to Kulczyk Investments in 2014 and mining and smelting company Boleslaw to Stalprodukt in 2012.

The probes are early steps in a process heralded by the Law & Justice (PiS) government in late February, when Jackiewicz said Poland would halt privatisation altogether unless it concerned lesser companies. He followed up with a pledge to investigate previous sales, especially those concerning companies considered strategic, such as from the energy sector.

Earlier this month, the minister claimed that some of the sales of state companies carried out during Civic Platform's (PO) eight-year rule in 2007-2015 were amongst the previous government's most grievous sins.

“If you had the same information as I did, you would draw the same conclusions," Jackiewicz told parliament on May 11, following a 10-hour “audit” of PO’s time in power. "Under the previous government, [the management of state companies] was characterised by chaos, self-interest, greed, and irresponsibility.”

While the audit was a propaganda exercise, critics say, it did contain some hints as to where PiS hopes to take its policies with respect to the state's involvement in the economy. Jackiewicz gave some more details in an interview for Dziennik Gazeta Prawna on May 18.

“The privatisation of energy companies was a mistake,” the minister said, accusing the previous government of selling stakes in the companies only “to gain means for current budget expenses and reduce the budget deficit.” Those privatisations should have never happened, he stated.

The government will try to reclaim sold assets, or at least stakes, should irregularities in the privatisation process be proven, he said.

With the government now motioning for prosecutors to get involved, it seems the statist PiS is serious about reversing at least some of the sales. However, analysts remain cautious as to the effectiveness of the government’s anti-privatisation drive.

“How are they going to reverse privatisation in the first place? Buying back stakes would be too costly for the budget. Driving valuations down in order to buy cheaper would be illegal,” says Piotr Kuczynski, head analyst Xelion, a brokerage house owned by Bank Pekao.

“Even if prosecutors prove the privatisation process violated the law and gives grounds for a reversal, that would still be at risk of paying damages to owners,” the analyst adds.

But earlier this year, the Polityka weekly speculated PiS was readying all systems to test the plan to reverse privatisations. Alongside Ciech and Boleslaw, the privatisations of the Adamow coal mine and furniture dealer Meble Emilia are reportedly amongst the first in line likely to face an operation that could involve investigations by prosecutors, courts, secret services, and PiS-friendly media.

The government aims to kick off the process in June, Polityka claims, citing a source in the treasury ministry. The minister’s request for prosecutors to probe the sales of Presspublica and Ruch – immediately taken up as stories of the day by PiS-leaning newspapers and online publications – appears to confirm that schedule.

That said, Poland’s anti-privatisation drive may be little more than playing to the gallery. One recent case shows the party is willing to invite private investors into a strategic company when it suits.

Coal miner JSW, like its Polish peers, is struggling due to weak markets and inefficiency, and is estimated to need around PLN2bn (€460mn) of capital in order to continue. Energy Minister Krzysztof told local media on May 18 the state is willing to lower its stake in the company below 50% to find the capital.