January privatization of four steel mills in doubt

"The key point is whether there is the political and managerial drive to make something of PHS, and the experience of the last 10 years suggests that there simply is not."

Two multinational steel concerns have yet to receive responses to their competing offers to purchase a group of four state-owned steel mills, casting doubts on the Democratic Left Alliance's (SLD) plans for privatizing the sector by early next year.

Steel conglomerate LNM Holdings, which is registered in the Dutch Antilles, submitted a binding offer to the Treasury Ministry last July to purchase steel mills Huty Katowice (HK), Huty Tadeusza Sendzimira (HTS), Huta Cedler and Huta Florian. Meanwhile, a consortium of Arbed of Luxembourg, Usinor of France and Germany's Thyssen Krupp Stahl, submitted a bid for the four mills in October.

Despite a declaration two months ago by former Deputy Economy Minister Edward Nowak that the privatization would be completed by January 2002, the outgoing Solidarity Election Action (AWS) government did not manage to choose an investor before the general elections Sept. 23.

The delay caused by the change of government means that this deadline will now be difficult to meet, said Leszek Filipowicz, a board member of BRE Corporate Finance, which is advising the government on the sector's privatization.

Deputy Economy Minister Andrzej Szarawarski, in charge of restructuring the steel industry, was not available to clarify the government's position at press time.

"We submitted a proposal to the Polish government and we are still waiting for a reaction," said Paul Bertmes of Arbed's corporate communications department. "We have received no details of new proposals and we are waiting for more information."

According to Annanja Sarin, head of corporate communications at Ispat, a subsidiary of LNM Holdings, the Treasury Ministry has also failed to contact it about the mills' privatization.

At the same time, there is speculation that the new government may not be planning to sell the four mills at all, but merge them into a conglomerate called Polish Steel (PHS). The merger would create the biggest steel producer in Poland, accounting for more than 60% of the country's output, but would leave a cash-strapped government picking up the tab. As the Economy Ministry is preparing the business plan for the merger - as a backup plan, it says, in case the privatization scheme fails - details of the costs to restructure the mills are unavailable, though the debts of HTS and HK are estimated at zł. 3.8 billion ($936 million).

The restructuring of the four mills' workers, which would involve sacking 81,000 employees, will cost zł. 80 million ($19.5 million), according to the previous government's restructuring program, published in October. There is also an option for one of the foreign firms bidding for the mills to restructure PHS.

But Bertmes said the government and the consortium had not yet established whether restructuring the mills would be undertaken by the investor or a partnership with the Economy Ministry. "These decisions are subject to strategic discussions we have to have with the government," Bertmes said.

According to Andrew Kotas, chief executive officer of steel industry portal steelonthenet.com, a strategic investor with experience in the global market is urgently needed to solve the business problems of the four steel mills, such as overstaffing and inadequate technology. "The key point is whether there is the political and managerial drive to make something of PHS, and the experience of the last 10 years suggests that there simply is not," Kotas said. "A strategic investor with a knowledge of how things are done in the developed world would know exactly which new methodologies to introduce … and bring a good understanding of markets."

Greg Goodale