Gov't accused of stalling on sugar sector plans
The government fell under harsh criticism last week for dragging its feet on plans to salvage the nation's sugar sector, either through a sell-off to foreign strategic investors or through the creation of a national sugar company.
Following an update on the sugar sector delivered in the Sejm last week by Deputy Treasury Minister Barbara Litak-Zarebska, deputies charged the government with failing to move forward on its privatization of the ailing industry.
"This government continues to carry out privatization at a snail's pace," said Jozef Jerzy Pilarczyk, a Democratic Left Alliance (SLD) MP and deputy chairman of the Sejm's agriculture committee. "Three years have passed with the government functioning this way as far as sugar is concerned; maybe a concept exists, but decisions just aren't being made."
The logjam in the sugar sector has been caused, in part, by a prolonged battle over who will ultimately control the nation's sugar production industry, the third-largest in Europe. For more than a year, trade unions and some Solidarity Election Action (AWS) deputies have lobbied to keep the industry in Polish hands by creating a national sugar company, Polski Cukier, from as many as 30 unprivatized mills. Meanwhile, the government has been pursuing strategic investors as a part of a plan to pump much-needed cash into outdated technology and production facilities.
Earlier this year, Cabinet voted to move forward with the rapid privatization of the sugar sector and limit the creation of a national concern to 16 mills. But since that time progress has been sparse, in both the sell-off of mills and the creation of Polski Cukier.
The only notable progress on the privatization front came earlier this month when Nordzucker acquired 51% of three mills near Torun. The German company now holds 9% of the sugar market in Poland, but is still waiting for the treasury to sign off on two other deals to buy mills in the Szczecin and Gdansk regions, which would give Nordzucker roughly a 15% market share.
Saint Louis Sucre (SLS) is also waiting for the government to set a date to sign a deal whereby the French giant would buy 51% of Poland's largest sugar holding, Slaska Spolka Cukrowa. The acquisition of Slaska's 16 mills would give SLS approximately a 16% market share. While negotiations have been underway for more than seven months, a deal is still in the offing.
"We continue to move forward, but I don't know when we will reach the end," said Pawel Jagiello, president of Pro-Invest International, the Treasury Ministry's adviser on the Slaska privatization process. "From what I know, there are no more conflicts (to be settled) between the two sides in the deal."
The five mills that make up the Konin-Kalisz group will most likely be the subject of the next privatization announcement to emerge from the ministry, politicians and industry observers said last week.
"It seems that all the decisions regarding the Konin-Kalisz group have already been made," Pilarczyk said. If a deal is finalized, the mills will go to Germany's Pfeiffer & Langen, which already owns six mills, largely in the Poznan region. With the new acquisitions, Pfeiffer & Langen will hold an approximate 15% share of the Polish market.
In the absence of a clear signal when these sell-offs will take place, the government appears to be walking a fine line between its commitments to international investors and the demands placed on it by the backers of the Polski Cukier concept. According to Pilarczyk, the government is probably being tight mouthed so as not to jeopardize the completion of deals that have been underway for months.
"The government doesn't want to annoy a few Sejm deputies (that back Polski Cukier)," Pilarczyk said.
Progress in putting together a company under the Polski Cukier shield is also at a standstill. Despite two tenders this spring, the ministry has yet to find an adviser to carry out a feasibility study on the concept. The deadline for offers in the third tender for a Polski Cukier adviser is this Friday. Politicians said this means the viability of Polski Cukier won't be known for several more months, allowing the ministry to move ahead quietly with its own privatization plans. "By the time those experts say anything at all about the creation of Polski Cukier, Minister Litak-Zarebska will have had the chance to sell 80% of the mills." Pilarczyk said.
Despite the slow pace of privatization, a hike in sugar prices this summer meant that the financial outlook for the nation's sugar sector is more positive than this time last year. According to Litak-Zarebska, the four sugar holdings together eked out a zl. 86 million profit ($18.7 million) this year compared to last year's losses of zl. 517 million ($115 million). The appearance of profit has meant that as a whole, the industry has been able to chip away at its hefty debts. While in September 1999 the industry's debts reached upward of zl. 1.9 billion ($413 million), by the end of this September debts were down by 43% to zl. 1.1 billion ($240 million), Litak-Zarebska said. But she said that doesn't mean the industry is in the clear: "At this stage, debt is the most important problem facing the sector." And the reprieve may be coming to an end. As mills pump out sugar aimed primarily at the Polish market, prices have plummeted. While sugar prices jumped from zl. 1.94 per kilo to zl. 2.96 between January and August, in recent weeks the sale price of sugar has once again fallen below the zl. 2 per kilo mark, according to the Foreign Agricultural Markets Monitoring Unit in the Foundation of Assistance Programs for Agriculture (FAMMU/FAPA).
