A private affair
He may have been originally viewed as a lifeline for private investors, but the Treasury Minister, Andrzej Mikosz, is rapidly earning the ire of entrepreneurs. However, with a stack of companies still in the government's larder, and major privatization on the budget menu, investors are licking their lips at the possible tasty IPOs planned for the near future.
When collecting the keys to the Treasury Ministry, Andrzej Mikosz said he hoped to be the last minister for privatization.
After less then a month in office, this looks very unlikely, though he could yet set a record for the shortest time served as a Minister. In a matter of weeks Mikosz has managed to enrage the CEOs of several strategic state-owned companies as well as politicians from Civic Platform (PO) and the Social Democratic Alliance (SLD). Now he is facing the possibility of having to win a vote of confidence in parliament, which PO and SLD are planning to file a motion for.
Biting the hand
Few could have predicted that Mikosz, a lawyer by trade, would so rapidly fall out of favor with the business community. His Ministerial nomination came as a relief to investors that were disappointed with the outcome of parliamentary elections and the failure of Law and Justice (PiS) to form a coalition with pro-business PO.
As a lawyer, the Treasury Minister specialized in capital-market issues and is a former member of the Polish Securities and Exchange Commission. He fought for minority shareholders' rights in several high-profile cases, such as Stomil Olsztyn vs. Michelin and Wirtualna Polska vs. Telekomunikacja Polska.
At one of his first meetings with journalists, the new Minister said: "I'm a privatization specialist and not the person to impede it." However, Mikosz's first day in office came at an unfortunate time. Even if he didn't intend to impede the process of privatization, his former involvement with drug producer AB Sanitas as a legal advisor raised some doubts as to whether he really was the right person for the job.
The bitter pill
As an employee of law firm Lovells, Mikosz had previously represented the Lithuanian company AB Sanitas, which recently won a tender for the purchase of the state's stake in Jelfa. AB Sanitas offered the highest price per share (zł.87.1), but other bidders, such as Enterprise Investors and Adamed, claim that the company provided insufficient financial guarantees, and the latter even wants the tender procedure to be started from scratch. The League of Polish Families (LPR) also wants Jelfa's privatization to be reversed altogether.
In response to Adamed's and Enterprise Investors' complaints, the Treasury Ministry released a statement saying that from November 14 all issues related to the privatization of Jelfa were to be handled by the Deputy Minister, Michał Stępniewski.
"During the meeting of the Sejm Committee for the Treasury, [when] Deputy Minister Stępniewski presented information concerning the sale of Jelfa shares, Minister Mikosz left the room," reads the official communiqué. Although the Jelfa sale looks like a done deal, a number of other privatization issues are likely to give the Minister headaches for some time.
Explosive issue
Polish Oil and gas (PGNiG) is the most high-profile of the Minister's challenges. The company recently floated on the Warsaw Stock Exchange, a move that Minister Mikosz labeled "a scandal," and he has mooted renationalizing 15 percent of the company's assets.
The CEO of PGNiG, Marek Kossowski, responded by handing in his resignation, and complained about the unfavorable business and political environment. "[My resignation] is due to unprecedented attacks by the Treasury Minister at me personally and the management board of the company as well as to the escalation of actions endangering the interest and image of PGNiG," Kossowski wrote in a letter to the PGNiG supervisory board. He also announced he would sue Minister Mikosz for slander as Mikosz allegedly implied that Kossowski stood behind press articles about the Treasury Minister's relations with Jelfa.
Energy sector revisited
The storm over PGNiG means Prime Minister Marcinkiewicz is being kept busy soothing investors' anxiety. "Talking about the re-nationalization or withdrawal of PGNiG from the bourse is an exaggeration. However, the company needs to be reorganized so as to assure more independence for Gaz-System and to strengthen Polish control over EuRoPol Gaz SA [which are both subsidiaries of PGNiG]," Marcinkiewicz announced.
The privatization of the remaining companies in the energy sector is now on the backburner. "The energy sector is in dire need of vertical consolidation and reorganization and we haven't got much time to do that as the energy market will be liberalized within a year and a half," said Marcinkiewicz. "Only after the reorganization is finalized will we be able to continue to privatize."
Complicated coffers
Marcinkiewicz also added that in 2006 the government counted on some zł.8 billion in income from dividends and revenues from privatization to boost the budget. This latest figure is a leap of faith on Marcinkiewicz's part; just a week before, Treasury Minister Mikosz put the figure at zł.6.5-7 billion.
For the time being, however, the media seem to be more preoccupied with the zł.6 billion in damages that the government might be forced to take out of its coffers in order to settle accounts with Dutch company Eureko over the privatization of insurer PZU. The level of compensation would increase Poland's budget deficit by some 20 percent while the Prime Minister assured it would actually be lowered by zł.2 billion.
Eureko row
In 1999 Eureko purchased 30.19 percent of PZU's shares in a consortium with Polish BIG Bank Gdański (currently Bank Millennium). It was also agreed that an additional tranche of 21 percent would be sold to Eureko and PZU's IPO would take place by 2001.
However, a controversy erupted over the privatization process, a parliamentary investigative commission was formed and the privatization reached a dead end. An International court of arbitration in London ruled that Poland had not protected the interests of Eureko. At present an amicable solution to the problem has not been achieved.
Eureko is demanding zł.6 billion in damages and wants to buy the promised 21 percent of PZU shares at their 1999 price. But Minister Mikosz is not about to roll over. "I think this an opening proposal. It's hardly a surprise that Eureko kicked off negotiations from a high plateau but I don't think these are the terms upon which the amicable settlement will me made," he said in an interview with Parkiet.
Sink or swim
So where will the privatization income come from if so far only complications and expenditure have appeared on the Treasury Ministry's horizon? First of all, there is the 'great chemical synthesis', which will see a merger between chemical plants ZCH Police and nitrogen producers ZA Puławy, Kędzieżyn and Tarnów.
"I'm also planning to privatize Ruch, the electric plants complex ZE Dolna Odra, coal company Jastrzębska Spółka Giełdowa (JSG) and some smaller entities," Mikosz told Puls Biznesu. Ruch and JSG are going to be floated on the WSE. As for the privatization of the stock exchange itself, Mikosz isn't showing much enthusiasm, but the Prime Minister is on hand to reassure investors. "The majority of privatizations will take place via the Warsaw Stock Exchange, even if they will be conducted by strategic investors. We want the Polish bourse to grow stronger as that's where our future lies - our old age pensions depend on it," he said.
Marcinkiewicz says that the national treasury is in need of a major cleaning session: "We would like to decrease the number of state-owned companies from over 2,000 to just a hundred. Former Treasury Minister Jacek Socha started the process and we would like to finalize it." But making the final leap into the private sector could be a jump too far for many state-owned companies, and Mikosz's first month in office could be a sign of the rocky road ahead.
The untouchables
Last Friday, the Treasury Ministry released a list of 15 companies that are of strategic importance for public order and security. The Polish government will be able to block some decisions concerning these companies by using its 'golden share' privilege.
The companies are as follows:
PGNiG - gas extraction and distribution
Lotos - oil
PKN Orlen - oil
KGHM - copper production
Naftobazy - oil storage
Solino - oil storage (PKN Orlen group)
BOT - coal and power
Kompania Węglowa - coal mining
PSE - power transmission
PSE-Operator - power transmission
Gaz-System - gas transmission
PERN - oil pipelines
Naftoport - oil terminal
PKP-PLK - rail infrastructure
TP-Emitel - broadcasting infrastructure
