Tim Gosling in Prague -

Struggling to tempt bids at premium prices, Poland is mulling a u-turn on its pledge to privatise the chemicals sector, and considering instead a plan to consolidate it by merging Azoty Tarnow with rival Pulawy.

Both companies have been the subject of bids in the last couple of months. Warsaw strongly dismissed an offer from Russia's Acron for Tarnow, even after the bidder offered to raise its initial price, which was at a discount to the share price. Meanwhile, Polish rubber producer Synthos made an offer at a slight premium for Pulawy in June.

However, asked whether the state is ready to respond to the latter offer, Treasury Minister Mikolaj Budzanowski suggested on July 12 that the state may instead merge Pulawy with Tarnow, reports Reuters. "We are considering the bid, but we also have a different option, which assumes the possibility of consolidation of the sector by Tarnow," Budzanowski said. "We want Azoty Tarnow to be the centre of consolidation of the Polish chemicals sector,"

That raises the possibility that Warsaw is ready to abandon yet another pillar of its ambitious privatisation programme - unveiled in April - to raise PLN15bn (€3.56bn) in 2012-2013 to help with its fiscal consolidation drive. It has already pulled plans to sell off more than one company this year, and had said it intended to sell all state assets in the chemicals sector, whilst the power and coal sectors have also been earmarked for significant divestment.

The disappointments so far look similar to those that plagued the privatisation programme in 2011, when Warsaw ended up pulling the sale of stakes in oil refiner Lotos and the country's biggest bank PKO BP - that said, Warsaw still hit its PLN10bn revenue target for the year. When a planned IPO of real estate holding PHN was pulled in June, some analysts suggested the government may have to concentrate on punting the highest profile state assets for the meantime to make progress, mentioning PKO and insurer PZU.

At the same time, suggestions that Tarnow could now be transformed from a seller into a buyer, and sit at the centre of a chemicals sector consolidation, suggests that the Polish penchant for "pseudo-privatisation" - selling state assets to another state-controlled company - may yet have its strong advocates in the cabinet. The last attempt at such a deal - a PLN7.5bn absorption of utility Energa by the giant peer PGE - was finally scuppered earlier this year after long term resistance from the country's competition watchdog.