Privatization efforts to be leverage for development

Savings giant Powszechna Kasa Oszczędności Bank Polski (PKO BP) will remain under the state's umbrella for at least the next five years, while a consortium led by pan-European insurer Eureko will control Powszechny Zakład Ubezpieczeń (PZU) only under "different conditions," Treasury Minister Wiesław Kaczmarek said last week. "At the end of 2003, there will be a public offering (IPO) of PKO BP on the Warsaw Stock Exchange," Kaczmarek told the WBJ. "But privatization will be leverage for development of the bank, not for the sake of privatization itself." The minister said minority stakes would only be sold after a review of the bank's "medium and long-term missions and strategy." Kaczmarek wouldn't go into specifics on the size of the IPO. De facto head of Poland's largest business empire, covering some 2,000-plus enterprises still in state hands, Kaczmarek's vision for sectors across the economy is crucial to the country's development. But his vision thus far has fallen afoul of some governments, opposition parties and foreign investors. Plans for some of the country's most valuable assets are still emerging. With PKO BP, for example, Kaczmarek has not laid down a definite plan but analysts expect 30-40% of Poland's largest bank by assets to attract considerable interest. "Over the long term, PKO BP will have to be part of the global financial group, and the strategy of keeping it independent isn't sustainable," said Grzegorz Zawada, banking analyst at Erste Securities Polska.

Ensuring investors On another front, he has mightily frustrated a foreign investor that thought it had locked up one of the country's biggest companies. Kaczmarek insists the Eureko-BIG Bank Gdański consortium can still control PZU, the nation's top insurance group. "It can happen, but under quite different conditions," the minister said, refusing to outline those terms. He added that rejection of a treasury-backed compromise to the Eureko affair prompted the dismissal of Zygmunt Kostkiewicz as PZU president, along with two members of the insurer's management board. "If the investors rejected our compromise, I said I would make two decisions," Kaczmarek said, referring to a conversation with Dutch government officials in Warsaw last month to mediate the row. "One, the second privatization agreement will be rejected, and two, I will take over responsibility for management of PZU." Lorrie Morgan, spokeswoman with Eureko, insists no alternative proposals have been offered to date, and no new conditions for control of PZU have been forwarded to them. "We have no desire to change the agreement, which we still consider legal and binding," Morgan said. The fight for control of PZU is shaping up to be settled via international arbitration if both sides fail to settle in the next six months. Eureko and BIG Bank Gdański bought into the company in 1999, acquiring a 30% stake, before signing a separate deal with the previous Solidarity Election Action (AWS) government last year for another 21%. But Kaczmarek, who took power after the Democratic Left Alliance (SLD) won September's election, has essentially rejected the second agreement as fundamentally flawed. "The signals from Poland is that it doesn't stick to its deals, and as a partner to accession negotiations, it should beware of the messages it's sending to business communities in member states," said Jean-Christophe Filori, enlargement spokesman for the European Commission. Filori said the row won't weigh on accession negotiations and insists Eureko hasn't lobbied Brussels directly for intervention in recent months. Meanwhile, the minister said that a decision on the sale of Rafineria Gdańska (RG), the nation's second-largest oil refiner, to the U.K.'s Rotch Energy should be ready this week. If the deal collapses, Kaczmarek has suggested that consolidation of the nation's fuel sector will follow, which includes a merger of RG with Polski Koncern Naftowy Orlen (PKN Orlen), Poland's leading oil group. "It's too early to say whether this will happen or not," he said of the sale. "Rotch still has a chance."

Not my problem Also damaging his party's image, Kaczmarek continues to be dogged by cronyism charges. But he makes no apologies for the SLD-led wave of installing political allies at the top of state-run companies - the same allegations leveled at AWS. "There's a higher level of credibility with people that I know," he said. "For some, that may be a problem but not for me." Opposition politicians, lately led by Civic Platform (PO), have a problem with the way state assets fit into Kaczmarek and SLD's scheme for the economy. With privatizations largely stalled, the government is aligning state banks to support its economic program - ambitious on housing construction and infrastructure development - while hinting at large state holdings in several sectors. This, while shunning private banks that he has accused of making investment decisions not beneficial to the Polish economy. "Sounds like it was taken from the command economy times," said Maciej Płażyński, an MP with PO. "We should make regulations that increase profitability for investing in Poland, not look for political or administrative methods that don't belong in a market economy."