Ag VAT jeopardizes sugar privatizations
In the wake of the recent vote to introduce a 3% value added tax (VAT) on the agriculture sector, the Polski Cukier concept looks to be making a strong comeback and casting doubt over the future of the government's present privatization scheme for the sugar industry.
Two weeks ago, Parliament voted to introduce a 3% tariff on unprocessed agriculture products after months of going back and forth on the issue. Even though roughly 30 of their deputies had long favored a 0% VAT, the Solidarity Election Action (AWS) government pushed through the 3% rate. But the deputies' loyalty seems to have come at a price; in exchange for their support, many AWS parliamentarians demanded guarantees that the government would move to create a national sugar company from as many as 30 unprivatized mills.
Since last summer, union leaders and some AWS deputies have pressed for a halt to the sale of sugar mills to foreign investors and championed the creation of a national cooperative, Polski Cukier. The Polski Cukier concept appeared vanquished earlier this year when Cabinet voted to move forward with the rapid privatization of the sugar sector and limit a national concern to 16 mills.
Now with the 3% VAT rate secured, AWS deputies and other Polski Cukier supporters appear to be moving fast to ensure the AWS leadership delivers on their latest promises.
According to AWS deputy Zdzislaw Pupa, the ministry is now analyzing the possibility of expanding the Polski Cukier concept. "Negotiations are under way," Pupa said. "I will probably be participating in these talks (this) week."
Pupa said that he and other Polski Cukier backers want the government to secure an 800,000 tonne production quota for the concern, roughly half the total amount of sugar produced in Poland, Europe's third-largest sugar producer. To keep prices stable, the government regulates how much each mill, or grouping of mills, can produce.
Granting such high quotas to Polski Cukier would bring an end to the government's privatization plan, which anticipated selling the Slaska Spolka Cukrowa holding in its entirety to foreign investors. The remaining three holdings were to be broken up and sold off to foreign or Polish investors in small, regional groups of mills.
"Taking into consideration the limits presently controlled by private companies, if Polski Cukier gets an 800,000 tonne1 million tonne limit, there would not be any room for any other form of privatization," said Adam Koziolek, a proxy from Nordzucker Polska. At present, international players such as British Sugar Overseas, Pfeifer & Langen, Nordzucker and Sudzucker own shares in mills that control about 450,000 tonnes of the sugar production quotas in Poland.
The Treasury Ministry appears to be changing its mind about the pace and content of its privatization program. Having all but finalized a contract with Saint Louis Sucre (SLS) over the sale of upward of 51% of Slaska, last week the ministry prolonged the deadline for negotiations to Aug. 20. At last week's meeting with SLS, the ministry also changed its stance on five parts of its previous agreements, according to Leszek Podstawski, director of SLS in Poland.
"In a few points, the ministry slightly changed its position," Podstawski said. "We are certainly not happy about this, but as long as there is a chance to negotiate something that is beneficial for both sides, there is a reason to continue."
Nordzucker is also seeing a slowdown in its bid to buy shares in three groups of mills near Poznan, Szczecin and Torun. The firm initialed agreements with the treasury at the end of June, but has yet to receive word when the deal will be completed. "We are concerned that nothing is happening," Koziolek said. "We would like to start moving ahead and modernizing these mills."
The lack of progress might have something to do with the future of Treasury Minister Emil Wasacz, who is facing a third no-confidence vote when Parliament reconvenes in September. "The position of the treasury minister is very important in all of this," said Jan Wyrowinski, a Freedom Union deputy from Torun. "I think that now his position is very weak," and not conducive to signing off on controversial transactions involving a large part of the sugar sector.
