PZU puzzle needs to find missing pieces

The Treasury Ministry can legally scrap a deal giving pan-European insurer Eureko control of Powszechny Zakład Ubezpieczeń (PZU) now that delays with property permits have allowed the agreement's deadline to pass.

As of Friday the Treasury Ministry had not officially walked away from the deal increasing a Eureko-led consortium's 30% holding by another 21% in PZU but analysts expect the government to do just that.

"Clearly this new government will keep as large a stake in state-owned companies as possible," said Grzegorz Zawada, head of research at Erste Securities Polska. "It's obviously the case with PZU and Eureko."

The battle for control of Poland's dominant insurer reaches back to 1999, when Eureko and BIG Bank Gdański bought a 30% stake in the company but quickly lost control through political maneuvering. The spat was patched up last year with an agreement allowing the majority stake but that agreement now seems another victim of changes in personnel at the Treasury Ministry.

All parties last week insisted last year's deal remains valid, despite the Interior Ministry's silence on Eureko's land permits. That review process continued into the New Year, while the government said it remains open to talks with Eureko.

"The agreement has moved from direct realization to a phase in which an immediate withdrawal of any of the parties is possible," said Jan Szczęsny, vice general manager of the Treasury Ministry's strategic companies department.

Eureko and PZU officials refused to discuss the situtation in detail.

"Nothing has changed," said Michał Nastula, assistant director at Eureko. Nastula declined further comment, as did PZU representatives. As for the government's next move, Szczęsny said that Treasury Minister Wiesław Kaczmarek "can change the plans connected with PZU to adjust (them to) his concept of the Polish economy."

Szczęsny did not elaborate on that vision. It appears to be radically different from that of the previous Solidarity Election Action (AWS) government, which in November 1999 sold the 30% stake of PZU for zł. 3 billion ($732 million) to the consortium.

The agreement, however, soon hit snags as the AWS-run treasury removed Eureko's representatives from PZU's supervisory and management boards. A change in leadership at the ministry repaired some of that damage, allowed the consortium to take its position in PZU management and would have allowed it to purchase an additional 21% stake, giving the European insurer control of PZU.

But today, few industry watchers are betting that will happen - at least under the current ministry leadership. Looking to the future, Zawada said a possibility might be the addition of a second strategic investor in PZU, while Eureko would sit content with its 30% stake.

"The treasury could sell perhaps 5-10% in an IPO (initial public offering) this year," Zawada said.

Another scenario could see a second party buy out Eureko's stake in the firm, he added.

"I'm not sure if they (Eureko) would be willing to let go of such a strong position on the Polish market … they wouldn't get a good price now if they did sell," Zawada said.

Legal action, he said, would likely prove the most counterproductive route, and lack any legal grounds. "Not a wise move against the government of a country where you have to do business," Zawada said.

Analysts agreed the acrimony over one of Poland's largest privatizations isn't helping its image among prospective investors.

"There's a bad view abroad of a government that's not consistent," said Piotr Dudziński a broker with Dom Maklerski Banku Handlowego.

Paul Shockley