Privatization philosophy unveiled

By Timothy Sifert

Deputy Treasury Ministry Tadeusz Soroka added to speculation about the future of the government's fragmented telecom assets at last week's Warsaw Business Journal Business Breakfast, when he attempted to answer the pressing question: Whither Polkomtel?

The morning event, attended by bankers, lawyers and economists, touched on the treasury's suspect privatization philosophy largely in the chemicals and energy sectors, partially outlining an action plan for Grupa Lotos. But, when asked about the fate of debt-burdened Polish Power Grid's (PSE) 16.05 percent stake in Polkomtel, a deal for which local bankers have been pitching, Soroka said: Sell it this year, or not at all.

"The later the shares are sold, the less money PSE will receive from the transaction," Soroka said.

Taking fully into account PSE's capital needs, bankers who have been chasing the on-again-off-again sale for the past few years view Soroka's statements as emblematic of the government's foot-dragging on most privatizations. Were politicians so concerned with price, they would have sold the stake two or three years ago, argue individuals familiar with the sale.

Even today, however, the sale of the Polkomtel stake is expected to cover PSE's losses from last year and pitch in some development capital. But it's unlikely that any such positive movement will occur.

What's more, the deputy minister said that should there be no sale of the stake, the government could pursue the longstanding plan to create a formidable competitor to Telekomunikacja Polska SA (TPSA). In such a scenario, the government could look to combine the assets it holds indirectly, such as the Polkomtel holdings of KGHM, PKN Orlen and PSE. Also, such a move could put a damper on the planned sale of Tel-Energo (84.87 percent owned by PSE), for which Netia and Energis were short-listed - and provide a stable home for Telefonia Dialog. Polish consumers might breathe a sigh of relief that competition would finally be able to lower TPSA's calling rates.

Not so fast, say market watchers. "How can you expect the government to pull this off?" a banker said. Most problematic of all is that TeleDanmark and Vodafone own 19.61 percent each, and analysts expect Vodafone to attempt to boost its stake to a majority holding in the company. If the government attempted to create a large holding, the foreign owners could stand in the way.

Also, private fixed-line companies are attempting to merge together what assets they can to create a TPSA competitor. Though there are rumors that the sale could be cancelled, Netia's plan to buy Tel-Energo is intended to be a starting point to a TPSA rival.

Wojciech Mądalski, CEO of Netia, said he plans to double the size of his company in roughly four years: "If we were to become the consolidator of the sector then we could be the major competitor," he told the Business Journal in September.

If PSE's sale were to go through, bankers note, it would go to Vodafone, another strategic investor or to a financial investor.

Meanwhile, Soroka shed some light on the restructuring plans for Lotos, the country's second largest fuel group. He pointed out that some additional capital might be needed as Lotos continues to merge with several cash-needy refineries.

"Right now Lotos is consolidating its group and it may need to have a capital injection so that it is not hurt by the process," he told attendees.

State-owned fuel sector agency Nafta Polska would likely invest the capital into Lotos.