Eureko holding gov't to PZU deal

Failing a settlement during upcoming talks between the Polish and Dutch governments, the row over control of insurer Powszechny Zakład Ubezpieczeń (PZU) could be decided by an independent arbitrator. "(Dutch and Polish officials) will try and resolve the situation in six months," said Jeroen-Louis Martens, trade secretary at the Netherlands' embassy in Warsaw. A move into an arbitration phase of negotiations would first require both parties to agree on a person, or organization, to hear the case, Martens said. Both pan-European insurer Eureko and the Treasury Ministry remain at loggerheads over the Netherlands-based company's purchase of an additional 21% of PZU, Eastern Europe's largest insurer controlling 60% of the Polish market. If executed, last year's deal would have given Eureko control of the domestic giant. "Responsibility lies with the Treasury Ministry … we've signed a valid deal and we're waiting for it to be executed," said Lorrie Morgan, Eureko's spokeswoman. Morgan wouldn't comment on how long Eureko is prepared to wait for that to happen but refuted reports in Polish press last month claiming that a "working group" composed of treasury and Eureko officials were meeting to draw up new privatization plans for PZU. "We're not restructuring it at all," Morgan added. The struggle for control of PZU dates to 1999, when a Eureko-BIG Bank Gdański consortium purchased a 30% stake in the company. But the deal soon ran into problems, as several Eureko representatives were kicked off PZU's supervisory board in a series of political maneuvers. Last year, however, Eureko seemed poised to finally take control the company after signing an agreement with the treasury to buy an additional 21% stake. But Treasury Minister Wiesław Kaczmarek, who has delayed several privatizations brokered by his predecessors, allowed an end-2001deadline to expire relating to permits needed for Eureko to own state property - leaving the acquisition in doubt. Instead, Kaczmarek said that 5-10% of PZU would be floated this year in an initial public offering - plans he said last week would be pushed back until 2003. Poland's about-face on PZU's privatization has fostered negative perceptions among international investors, and has led to speculation that Eureko would complain formally to the European Commission. Eureko brought the commission into its last round of disputes with Poland. Morgan wouldn't comment on that possibility. "Poland damages its own possibilities," said the Netherlands Embassy's Martens. "Investors looking at a state-owned company want to know that the parties involved in deals are held to agreements that are not changed to fit certain desires. "If you can sell the crown jewels and not lose control, it's the best deal you can have," Martens added. In the end, analysts said a compromise that allows significant government control would likely be worked out. Two Eureko representatives sit on PZU's supervisory board and three on its management board. "The sooner the better for PZU," said Grzegorz Zawada, banking analyst at Erste Securities. "Both parties will come to terms whereby Eureko gets to increase its stake substantially in exchange for the treasury retaining control. I can't imagine Eureko being happy with that, but these are the circumstances."