Reaping what they didn't sow
It had the potential to be a free market success story: four ailing, desperate steel mills - obsolete throwbacks to a communist era when efficiency and profitability were irrelevant concepts - fuse together as a single corporate entity, find a strategic investor, receive a capital infusion to modernize their facilities and become a profitable and competitive enterprise. Soon Poland is the proud home to one of the world's most vibrant steel industries, exporting its product to dozens of markets around the world and producing enough to release the country from its dependence on imported steel.
This could have been the story of Polskie Huty Stali (Polish Steel Mills, or PHS), the recently-formed consortium of steel mills that, between them, accounts for 70 percent of domestic steel production. Instead, the recent privatization tender for PHS is turning into the same kind of farcical comedy we have seen with so many other privatization initiatives in the two years the Democratic Left Alliance (SLD) has been ruling Poland.
The final decision on which of the two bidders for PHS - Netherlands Antilles-based LNM and U.S. Steel of Pittsburgh, Pennsylvania - would take control of the steel mill was to have been made by late May. It is now mid-July and it has still not been decided. The two bidders are becoming increasingly impatient with the Treasury Ministry. Even the mills' trade unions are becoming alarmed at the possibility that the mills will not be privatized, and they appealed last month to Treasury Minister Piotr Czyżewski to take "constant and direct command" over the PHS privatization process. With PHS's debts amounting to some zł. 1.6 billion (E360 million) and no state aid budgeted for the coming year, mill workers are seriously worried that they may be out of a job by next year.
But jobs do not seem to be a concern for Prime Minister Leszek Miller's government, as it focuses all its efforts on the tender's procedural technicalities. The same goes for initial steps in the privatization of the country's largest bank, PKO BP. In March the Treasury opened tender procedures to find an adviser for the PKO privatization, but it missed the June 23 deadline to choose either a Credit Suisse First Boston-Dom Maklerski PKO consortium or a Citigroup-BHW consortium for the role. Saying that it wanted the bidders to "refine" their offers, the Treasury handed the matter over to its legal department to analyze whether such a request would nullify the tender. So, as the Treasury's lawyers pore over a theoretical nullification of the tender process due to an unnecessary potential change in tender requirements, PKO sits in limbo, waiting for a decision, and the government's budget deficit heads towards zł. 40 billion-zł. 47 billion (E9 billion-E10.6 billion) next year, at least partly due to a lack of privatization revenue. And similar fiascoes are found in the privatization processes of insurance group PZU and oil refinery group Lotos.
In almost every case of privatization undertaken by Miller, the theme is delay and stagnation, within a context of incompetence, allegations of corruption and threats of legal action. This is not to suggest that Miller's is the only government to have problems privatizing Poland's state corporations, but the empirical evidence that the current government is particularly inept is clear. Extrapolating from first quarter data, this year's revenues from privatization will amount to zł. 1.8 billion (E405 million), down from zł. 2.2 billion (E495 million) last year and zł. 6.5 billion (E1.46 billion) in 2001, the last year of the Buzek government's term.
What's worse, the constant shuffling of ministers in Miller's governent is making any progress in privatization virtually impossible, as each successive treasury minister begins the entire privatization process from scratch. The result is that for the last two years the whole process has been going around in circles, while government revenues fall and state-owned enterprises deteriorate.
If there is a bright spot on the horizon, it can only be the recent comments by Economy, Labor and Social Policy Minister Jerzy Hausner. In a speech last month to the American Chamber of Commerce, Hausner said, in reference to privatization, that "any scenario is better than no scenario whatsoever."
Though Hausner's words are heartening, there is still doubt left in this author's heart as to whether Miller's cabinet is even interested in privatization in the first place. It doesn't seem unlikely that the whole process is a permanent stalling tactic, with Miller waiting either for the end of his term in office, or maybe even for privatization to fall out of favor. After all, let's not forget that this is a government of "reformed" communists, whose collective memory stretches back to the days when they were in control of virtually all capital in Poland. But if they forget that they are now operating within the confines of a democratic republic, and if their policies ensure that the Polish economy continues to fall behind those of its neighbors, they could soon find themselves reaping what they sowed - or, more precisely, what they didn't sow.
