Kaczmarek:
By : Rober Wylot
As September's parliamentary elections draw closer, heavily favored winner Democratic Left Alliance (SLD) is ramping up predictions of massive changes to the present government's economic and privatization policies. Wieslaw Kaczmarek, 43, a leading SLD figure and rumored to be the next treasury minister, envisions freezing the sale of most state-owned assets including an additional stake in telecom giant Telekomunikacja Polska (TPSA), oil concerns Polski Koncern Naftowy Orlen (PKN Orlen) and Rafineria Gdanska, LOT Polish Airlines and the country's last big bank, Powszechna Kasa Oszczednosci Bank Polski (PKO BP). He also plans to bust monopolies in the telecom and oil sectors before resuming their privatization and keep PKO BP state owned. Kaczmarek, who served as minister of "ownership transformation" (precursor to the post of treasury minister) and economy minister in the SLD-led Cabinet from 1993 to 1997, talked to the WBJ's Robert Wylot about his party's stance on privatization and how it proposes to plug the budget gap left by delayed state sell-offs. The following is a translated and edited version of their conversation.
Q: The media keeps saying you will become the next treasury minister. Are you the SLD's top candidate for the job?
A: This is premature speculation. After the elections, we'll see who Prime Minister Leszek Miller will propose.
Q: Does SLD have a candidate?
A: Not yet. Each of us has his own expertise. I focused on financial institutions and prepared some elements of SLD's election agenda in the area of economy and privatization. In this Parliament I also worked on big projects such as reprivatization and restitution. I specialized in this area.
Q: What are the main changes that SLD would make to the present government's stance on privatization?
A: First you have to move away from the philosophy that privatization is a remedy for budget problems. Privatization must be a tool of industrial policy and not a goal in itself. When speaking about improvements, just look at the history of the privatization of PZU (Powszechny Zaklad Ubezpieczen) or the weak aspects of the TPSA privatization contract. Also, the banking sector is too deeply penetrated by foreign capital. In addition, the slowdown among arms producers is largely caused by the industry's extremely restrictive export policy. This policy doesn't compare in any way to the policies in the Czech Republic, Slovakia and other former Warsaw Pact countries, which have not lost their markets. We have deliberately chosen to give up these markets.
Q: Concerning TPSA, you have said that before another chunk of the company can be sold, the telecom market should be liberalized, i.e. that TPSA should be split up.
A: Yes. You have to choose the right strategy in the first place, for example to dismantle the monopoly. First, a law has to be adopted, which has been done. Our Telecommunications Law resembles its counterparts in the European Union (EU). Next, a regulating body that is independent of the government has to be established, and we now have the Telecommunications Regulation Office (URT). Then, conditions have to be established for independent operators to compete with TPSA, which means breaking up the TPSA monopoly so that it doesn't dictate the market but instead serves new businesses that emerge on the market. Only then one can risk privatization.
Q: But if TPSA loses its dominant position on the market, its value will fall and the price the treasury will be able to get from the sale of another stake will be sharply reduced.
A: Quality of service, customer satisfaction, low cost of this service and industry growth are more important in the long term than selling price. I'd rather have less revenue from privatization and recover it through an increased turnover in the market due to higher revenue from, for example, indirect taxes. Today, TPSA's monopoly and the shape of privatization are hampering the development of the market.
Q: You have criticized the present government's plans to quickly privatize state assets to generate cash for the budget. With the budget law projecting zl. 18 billion ($4.3 billion) in privatization revenue this year, will the SLD continue with the present government's plans to collect this amount through the sale of state assets?
A: It's a serious problem for the future government because we don't agree with the philosophy of privatizing anything you can just to fulfill the provisions of the budget. SLD will first have to draw up some kind of a summary (of the last four years), which will be presented soon, probably in late August. Then SLD will have to revise a portion of the budget. I don't think the zl. 18-billion figure will be kept.
Q: You have said that privatization revenue in 2002 will be less than this year. What will the figure be?
A: I don't treat the amount of privatization revenue as a rationale behind privatization policy. I am not even going to speculate on this today, whether it will be zl. 9, 10, 12 or 15 billion. The purpose of privatization will be to stimulate economic growth to escape the current deadlock of economic stagnation. Let me give you an example. A consequence of the privatization of TPSA is that after France Telecom entered the company as its owner, it decided to scale down its investment expenditures, in some areas by as much as 80%. The same thing happened in TPSA's cooperative network. Existing partners have been replaced by firms that are close to the new owner.
Q: How would you change this?
A: In many cases, all you need is to change the people who manage these companies. The last four years have proven that many managers appointed by the government were glaringly incompetent.
Q: You're arguing that privatization shouldn't be viewed in terms of budget revenue only. But giving up this revenue would leave a massive hole in the budget. What is your answer for this?
A: This approach to privatization resembles the drunkard's syndrome. This thinking is based on the assumption that if we have no money to pay for current needs, we have to sell our property to satisfy the needs of the day. But what we need today is budget balance. I think we should treat privatization as an investment process that creates better conditions in which the Polish economy can grow and create market competition. The effects in terms of revenue are of secondary importance to me.
Q: Even if the goal of privatization is not to fill the gap in budget revenue, aren't you afraid that in a new government you too will be forced to fund the budget with revenue from the sale of state-owned assets?
A: First, I'd rather take the risk and try to finance this debt from external sources than to sell off some of the sectors of the Polish economy because that would be a myopic policy. Second, a belief that privatization can save something is naive, because in the current situation when the economy is slowing down, any revenue from sell-offs would be smaller than what was planned one or two years ago.
Q: What kind of 'external sources' are you talking about?
A: There are dozens of methods to finance projects. Especially as the state should today focus on investment projects in transport networks, IT penetration, gas and oil pipelines, warehouse centers and power networks. This will be a modern approach to promoting economic development, while the state's contribution should be based on the PPP (Public-Private Partnership) approach to projects. It will be no problem to raise these funds on a commercial basis from the market.
Q: Is SLD planning to raise or to lower taxes?
A: I would be very careful about any declarations concerning the reduction of taxes. The last few years have proven that tax reduction, especially corporate tax reduction, didn't bring about the expected economic growth in Poland. Please notice what a radical reduction it has been over the last five years. What should be reviewed, though, is the level of indirect taxes, which may now be an obstacle to some budget revenue items, particularly excise tax. The present high excise tax has led to the growth of contraband activity in Poland. A review of VAT (value-added tax) can be expected but I wouldn't hope for any changes in personal and corporate income taxes.
Q: What do you mean by 'a review of VAT?'
A: When I look back at the history of VAT in Poland, VAT was supposed to be 3% lower from the beginning. In 1992, the finance minister was worried whether the transition from the old sales tax to VAT would be successful and pegged the VAT rate 3% higher. Well, the transition was successful but the VAT hasn't been lowered. If you expand the VAT-covered business areas, then it seems logical to me to ask the question whether it should be accompanied by a reduction in the tax. VAT levels in Poland differ greatly from the European Union, but in terms of income taxes we are among the countries with the lowest tax levels.
Q: At the British-Polish Chamber of Commerce breakfast, you said the state should remain a part owner of PKO BP. How much should the state keep?
A: If you want to pursue an economic policy in a transitional environment where many parallel restructuring processes are conducted, it isn't possible to do it without certain tools in the banking sector. Every government, be it red, green or yellow, needs a bank as an instrument to achieve these goals. Therefore I believe it wouldn't be wise to give up control in the two following areas of banking: In the retail sector, we're thinking of merging PKO BP with Bank Pocztowy and taking them public, while the treasury would keep an approximate 40% stake, which would allow the government to use the bank as an instrument to implement its policies. The second area we find crucial is rural development. To implement our regional policy in rural areas, we should primarily use Bank Gospodarki Zywnosciowej (BGZ). Bank Gospodarstwa Krajowego (BGK) should then be used as a tool of the government's pro-export policy and provide collateral to entrepreneurs.
Q: So if the government retains 40% of PKO BP, would its privatization include a majority investor?
A: No, our strategy envisions a very dispersed privatization. We do not envisage a strategic investor, but an initial public offering (IPO) with a very dispersed ownership structure and with individual stakes of up to 4%.
Q: Do you think investors will be interested if they are only allowed to buy small stakes?
A: Today, it's difficult to predict how the market will behave. I think PKO BP has a promising future. Especially if investors are presented with a reasonable vision for the bank's development, then holding a stake in this bank can prove to be a sensible long-term investment. Particularly since we would like to focus on increasing the bank's capital rather than sell ownership rights, so the treasury's stake in the bank would be reduced.
Q: Does that mean taking PKO BP public?
A: Yes.
Q: You said last week that the idea to consolidate Poland's four largest steel mills would only mean adding debt to debt. Can you explain this further?
A: This can only be an interim solution, while common sense and knowledge would suggest so-called product consolidation. At some Polish steel mills, cost-generating units that provide no long-term guarantee of profit have not been spun off. Because it isn't possible to continue financing these losses long term, these units would have to be separated and quickly sold if someone wants to take the investment risk. What is instead being attempted now is to 'randomly consolidate these firms,' and combining these (unprofitable firms) can only result in further losses. I wouldn't follow this path of consolidation. I would rather consolidate them on the basis of their individual product profiles. Only those units with prospects for positive economic results should be consolidated.
Q: You have said that before any further sell-off of LOT Polish Airlines can be considered, strategic investor SAirGroup's strategy toward LOT would have to be 'clarified first' and depending on the outcome of that, the government may have to look for a 'new solution.' What solution were you referring to?
A: Now you're asking me to discuss a project that has been handled wrong from the beginning. Of three offers, the treasury minister chose the worst; again focusing on price rather than on a general evaluation of the investor. It was clear even then that this investor may have problems. Today, any move is possible but only after some renegotiations and after we've established whether SAirGroup can solve its financial problems on its own, whether it treats LOT as a long-term investment or whether it rather wants to exit from this investment. I also think the privatization contract should be modified because of its long-term consequences.
Q: The Sejm has passed a law to create a national sugar holding, Polski Cukier, that would include Slaska Spolka Cukrowa (SSC). Are you planning to continue the project in its present form?
A: This project is a clear example of 'politics above common sense.' This path is leading to a collapse of the sugar market because weak companies, when merged together, will not generate a positive synergy effect. I didn't support this project. It's questionable whether the Interior Minister's decision (to block the sale of SSC to France's Saint Louis Sucre) was justified or was only made under political pressure. Now, (foreign) competitors that have invested in other sugar mills are rejoicing and moving forward, while we with our 49 mills will not be able to catch up with them.
Q: But now that SLD will likely command a majority in Parliament you will be in a position to change the law.
A: You're now encouraging me to wage war on several fronts, while experience says it can only lead to defeat. For some people the sugar issue is a priority, however in light of problems surrounding the future of such firms as TPSA, LOT, the entire transport industry, the steel sector, arms producers and the energy sector, sugar is probably not going to be among the six key projects of the next government.
Q: What is the SLD's concept for developing the oil industry? Do you want to sell Rafineria Gdanska and PKN Orlen?
A: The government is now desperately trying to raise money via sell-offs, with no consideration of their industrial consequences. This sell-off also has a personal aspect because it is done under pressure from management, which wants to become independent of the treasury to avoid accountability for the last four years. Before we decide to sell these firms, we first have to see whether the market monopoly has been broken up, whether modern technology has been transferred, whether new products have been developed and whether a concept for the southern refineries has been created.
