Government signs off on Polish Steel project

The cabinet has given the go-ahead for the creation of steel conglomerate Polish Steel (PHS), which is scheduled to be registered as a company on May 10, government spokesman Michał Tober said last week. To remedy the Polish steel industry's mounting debt and outdated technology the Economy Ministry will consolidate steel mills Huta Katowice, Huta Sendzimira, Huta Cedler and Huta Florian. Following the restructuring of PHS, shares in the company will be sold to foreign strategic investors. "To sell PHS for $1 would be a success for the Polish government," said Andrew M. Kotas, CEO of www.steelonthenet.com. "You need to ask what the objective here is - is it to raise revenue for the treasury or … having a steel production base in Poland that sustains jobs, exports and pays taxes on profits to the treasury. At the moment the bulk of the Polish steel industry is likely to collapse."

The assets of the four mills, valued by the Economy Ministry at zł. 916.7 million ($224 million), will be consolidated through the transfer of 85% of their assets, worth zł. 779.1 million ($190 million), to PHS while the remaining 15% will be offered to the company's employees. The combined state debts of PHS will be suspended until 2005 while a zł. 600 million ($146.3 million) bond issue by the Industrial Development Agency (ARP) will be used to reduce the firm's bank obligations. Following the restructuring of PHS debt, the Treasury Ministry will negotiate to sell a stake in the firm to one of two strategic investors: steel conglomerate LNM Holdings, registered in the Dutch Antilles, and a consortium of Luxembourg's Arbed, Salzgitter of Germany and France's Usinor. Treasury Minister Wiesław Kaczmarek declined to comment on the level of revenue the government expects from the sale of the PHS. "At its last meeting, the Polish government only made a decision to create the new company by consolidation of shares," Kaczmarek told the WBJ. "This is a question of proposals and I do not have such proposals today. If I knew I wouldn't answer such a question because this information is not public before the decision is made."

Analysts said the current decline of the global steel industry will not give the government a strong bargaining position with the two bidders. The imposition of tariffs of up to 30% on selected steel imports into the U.S., which took effect last week, will prolong the recovery of world steel prices, Kotas said. "With world steel prices at an all-time low and colossal losses by the likes of Usinor and (the U.K.'s) Corus, there is very low market capitalization, so the transaction price will not be particularly high," Kotas said. According to Karol Lipowczan, vice president of the Metallurgical Chamber of Industry and Commerce, the restructuring of PHS, which will account for some 70% of Poland's steel production, will be essential in reducing steel imports, which grew from 35% in 2000 to 45% in the first nine months of 2002. "For the Polish steel industry to exist on the free market … the restructuring process must be completed, particularly technical restructuring aimed at significantly reducing production costs," Lipowczan said.