No plans to privatize Polish Sugar, Kaczmarek says

The Treasury Ministry unveiled its long-awaited plan last week to create Polish Sugar (KSC), a national conglomerate of the largest firms in the domestic sugar industry. But the government's apparent disinterest in privatizing the group will contribute to dangerous levels of public sector debt next year, economists said. Polish sugar producers saw their net profits slide from 6.7% of total revenue in 2000 to 5.2% in 2001, while falling sugar prices and growing production costs meant that 20% of Poland's sugar producers were unprofitable last year, according to a report by the Institute of Agricultural Economics (IEKiGŻ). A group of labor union representatives and parliamentarians, who proposed KSC's creation in 1999, saw the conglomerate as a way to increase competitiveness and boost the profitability of the domestic sugar industry. "(KSC) faces some very difficult tasks in modernizing its production facilities, reducing its manufacturing costs, restructuring sugar refineries and reducing employment," said Treasury Minister Wiesław Kaczmarek last week. "The main task facing its board of directors is to prepare a good business plan. The newly created company will most probably require financial safeguards." The core of KSC includes three major sugar companies: Małopolska Spółka Cukrowa (LMSC), Kujawska Spółka Cukrowa (MKSC) and Pomorska Spółka Cukrowa (PPSC). It also comprises 19 smaller companies, including 18 sugar refineries. In addition, KSC has stakes of over 51% in another eight sugar concerns, giving it initial capital of more than zł. 478 million ($116 million).

If Polish sugar prices continue to oscillate around zł. 2,000 a ton, a trend that has continued since January 2001, the Treasury Ministry estimates that LMSC, MKSC and PPSC will generate annual revenue of zł. 900 million ($220 million), while group revenue will reach zł. 1.2 billion ($292 million). The core company is expected to produce about 450,000 metric tons of sugar a year and control 25% of the domestic market, with total group output exceeding 630,000 tons a year, or 37% of the market. The government also envisions lumping Silesian sugar powerhouse Śląska Spółka Cukrowa (ŚSC) into the mix, a move that would create the biggest player on the market with a 60% market share. But plans to merge ŚSC with KSC have so far been scotched by a lawsuit started by French sugar producer Saint Louis Sucre (SLS) against the previous government. In 1999, the Supreme Administrative Court (NSA) ruled that the Treasury Ministry unlawfully blocked SLS's purchase of ŚSC, culminating in a court decision to block the treasury from executing its rights to 95% of ŚSC stock.

Polski Cukier dla Polaków At the official launch of KSC, Kaczmarek declared that the government had no plans to privatize the group, causing concern among economists about the government's continuing privatization slowdown. "It was not the intent of this law to create a company for privatization," Kaczmarek said. With 2002 privatization revenue totaling only zł. 820 million ($200 million) by the end of July, economists forecast that privatization income would severely lag behind the government's zł. 6.8 billion ($1.65 billion) target. As a result, Poland's public debt, which the Finance Ministry estimates at 49.8% of gross domestic product this year, will not decrease. "I think it will be a success if they reach (privatization revenue of) zł. 4 billion," said Maciej Reluga, the chief economist of Bank Zachodni WBK. "If these proceeds are postponed until next year, this will cause a big problem because … the ratio of public debt to GDP will not improve dramatically."