For better or for worse?

Privatization: first signs of a sudden shift

By Hilary Davies

Proposals to merge the successful vodka producer 'Polmos Bialystok' with its struggling sister 'Polmos Szczecin' have recently come under criticism from economic experts, who say that the government's newly developed habit of dumping unsuccessful companies on successful ones makes no sense.

When the government announced last July that it was engaged in talks with at least four companies interested in buying up Poland's most successful vodka producer, some calculated that the budget could make as much as zł.600 million on the privatization of Polmos Białystok, which has a 25 percent share of the market and made a net profit of zł.39 million last year. But government plans to float an up-to-75-percent-stake in Poland's vodka gem may be delayed or even halted by the ongoing possibility of a merger between Polmos Białystok and debt-ridden Polmos Szczecin, which, analysts say, would be bankrupt were it not for the funding of its debts by the state budget.

The treasury spokesman claimed to know nothing about the planned merger, while president of Polmos Bialystok, Jan Małachowski, was not prepared to comment. Neither was Neil Cook of CEDC, whose interest in Polmos Bialystok is rumored to be waning because of the possible merger, beyond calling it 'a basket case.'

An analyst who did not want to be named, however, was more forthcoming: "The merger would clearly destroy the value of Polmos Białystok. In the 90's, solutions like this were successful, for example the merger of the successful Ożarów cement factory with a failing factory at Strzelce Opolskie. At that time there were strategic investors keen to invest, but this case is different."

A similar situation looms in pharmaceuticals. The government plans to create a holding which will force successful producers Polfa Warsawa (net profit in 2002, zł.17 million) and Polfa Pabianice (net profit in 2002, zł.4 million) to bear the weight of floundering Polfa Tarchomin (net profit in 2002, just zł.0.5 million).

"They're only creating a holding because they can't sell Tarchomin, so they want to make Warszawa and Pabianice pay for the restructuring," says a source close to the subject.

The treasury spokesman confirmed that past attempts to privatize the three struggling power plants, which it now proposes to merge with PKE, have also been unsuccessful. This is seen by many as the motivation behind proposals to merge Southern Polish Electrical Concern (PKE), which has 18 percent of the national electric energy market and recorded a net profit of zł.170 million in 2002, with the three plants at Zabrze, Tychy and Bytom. Yet sources close to the subject say that, rather than picking up the plants at Zabrze, Tychy and Bytom, the merger will have the effect of bringing down PKE.

PKE has created an alternative to the merger, in which it proposes that, instead of merging its capital with that of the Tychy plant, it would invest, together with the town of Tychy, in the creation of a 'multi-utility' company based on a German model. It would provide heat, water, electricity and telephone lines to the community. If the experiment were successful, they suggest, similar companies could be created at Zabrze and Bytom.

According to PKE spokesman, Paweł Gniadek, the government has shown interest in their alternative plan. The treasury spokesman claimed to know nothing about it.