Breach of contract?

The Treasury Ministry has withdrawn from a 1999 agreement to sell a 21-percent stake in PZU, Poland's largest insurance company, to Eureko, a Dutch insurer and 33-percent shareholder in PZU. The agreement, contested since 2002, also required the Treasury Ministry to float PZU on the bourse. According to Eureko, the Ministry's withdrawal could cost the state up to zł.6 billion.

Controversy has surrounded the agreement almost since its inception. The sale of PZU, an extremely profitable state-owned company, would mean the loss of considerable income to the state budget, and critics of the agreement have said that the stake was sold to Eureko too cheaply. However, others argue that the state's withdrawal from the contract could damage the government's credibility and could discourage companies from making future deals with it.

The Treasury Ministry withdrew from the deal last week, claiming that Eureko had failed to comply with an agreement to resolve the legal dispute within the Polish court system. In 2002, Eureko took the dispute to the London Court of International Arbitration (LCIA) after the state failed to live up to its obligations.

For its part, Eureko claimed that there are neither legal nor factual grounds for the Ministry's withdrawal. "From a legal point of view, the Treasury Ministry's action has no significance," said Michał Nastula, president of Eureko Polska.

In 2005 the LCIA found in favor of Eureko, and Poland's appeal to the verdict was dismissed. The LCIA will now determine the loss Eureko incurred due to the conflict. According to Eureko, its losses add up to around zł.6 billion and is growing by a billion złoty every year.