Government dumps insurance deal

A consortium led by Eureko, the Netherlands-based insurer, plans to increase its stake in Powszechny Zakład Ubezpieczeń (PZU) through an initial public offering (IPO) next year. Work on a prospectus is expected to begin soon between Eureko and Treasury Ministry officials, while government officials said the size of a stake to be floated in PZU and the extent to which the pan-European insurer could increase its current 30% holding remain unclear. "We're always open to continued negotiations, as long as they are based on existing agreements," said Lorrie Morgan, Eureko's spokeswoman. But near-term prospects for Eureko gaining control of PZU appear slim as negotiations bog down on conditions offered by Treasury Minister Wiesław Kaczmarek: State control of where PZU's profits are invested and management personnel appointments. "I'm aware of Mr. Kaczmarek's pronouncements but I'm not aware that his wish list is enshrined in the existing privatization agreement," Morgan added. A key and hotly contested agreement in the privatization of PZU, Eastern Europe's largest insurer, was officially killed last week when the Democratic Left Alliance (SLD)-led government supported Kaczmarek's drive to retain state control of PZU. The government dumped a deal that would have added 21% to the stake held by the Eureko-BIG Bank Gdański consortium, giving it control of the domestic giant, with assets valued at zł. 26 billion ($6.3 billion).

The deal, negotiated by the Solidarity Election Action (AWS) government, was criticized by Kaczmarek and SLD prior to taking power in October. Once installed, Kaczmarek delayed permits needed by Eureko to own property in Poland, fired and replaced top management at PZU along with numerous other state-run companies, and halted privatizations. His moves earned his government criticism from both domestic and international circles. "There's no surprise," Morgan said of last week's annulment. "He's been saying since October that he doesn't want to execute the agreement and now he hasn't." Failing some resolution, the matter will be taken up in August by the International Court of Arbitration in Sweden, where Eureko requested a hearing in February. Prior to that, the European Commission is expected to weigh in on Poland and its treatment of foreign investors, as the Netherlands government has pressured Brussels on the Eureko-PZU affair. The EC's Warsaw delegation is due to report back on Poland's dealings with foreign investors to the Council of Ministers toward the end of May, the EC said recently. Poland wants to join the EU in 2004. International market watchers, who largely expected SLD to dump the 21% sale to Eureko, were cautious when asked about the fallout among foreign investors. "Poland is already seen very skeptically," said Steven Philipp, head of capital markets at Raiffeisenbank in London. "It's not the straw that's going to break the camel's back but it doesn't help." Prime Minister Leszek Miller's press office declined comment on rejection of the deal.