Slaska short list kickstarts sugar privatization program
Amid an atmosphere of growing controversy, the government's privatization program for the sugar industry lurched forward at the end of last week with the Treasury Ministry short-listing two international companies to purchase Slaska Spolka Cukrowa, the largest of Poland's four main sugar holdings.
The ministry selected French giant Saint Louis Sucre and Germany's Sudzucker from a pool of three contenders vying to purchase upward of 51% of shares in Slaska Spolka Cukrowa, which is headquartered in the Opole voivodship. German sugar giant Pfiefer & Langen was the other party that submitted an offer on Feb. 11 for the Slaska holding.
Despite assurances from the ministry that the announcement would be made by last Wednesday, international suitors were left waiting until late Thursday for a final word.
"That information was supposed to be here yesterday," Leszek Podstawski, director at Saint Louis Sucre, said last Thursday. "We will wait patiently till the end of the day."
Due to be finalized in March, the privatization of the Slaska holding has been bogged down in an ongoing controversy over how the sugar sector should be privatized. Some farmer trade union leaders and many AWS deputies are pushing hard to keep the industry in Polish hands through the creation of one large cooperative, Polski Cukier. That proposed entity would group as many as 30 now independent mills.
Faced with debts reaching upward of zl. 1.7 billion ($414.6 million), the sugar sector would be best helped through the direct sale of mills to foreign investors, government officials have said. At the same time, foreign investors have been eager to gain a foothold in Poland, the third-largest sugar market in Europe.
While it was widely believed that Polski Cukier had little chance of being created, Solidary Election Action (AWS) deputies supporting the plan threatened political blackmail if the government did not back the concept. The deputies, who were acting directly against their party the leading partner in the governing coalition threatened to help oust Treasury Minister Emil Wasacz if Polski Cukier did not get government support.
Proponents of Polski Cukier looked to be losing ground last week in their negotiations with the government. They had originally pushed for a minimum of 30 mills to be included in the cooperative and that the entity be granted a production quota of 1 million tons annually equal to 60% of Poland's total sugar production. But by the end of last week, union leaders in support of Polski Cukier were saying that 16-22 mills should be included in the cooperative. Their demands for production quotas had also fallen by 20%, just shy of 700,000 tons annually.
"I think that there will be 16 mills, but there is a chance that (some) other mills from the Lubelsko-Malopolska holding will also be attached," said Stanislaw Lubas, chairman of the sugar industry trade union.
At the same time, deputies with coalition partner Freedom Union (UW) were sounding the alarm that the government's privatization concept was in danger. Warning that the Polski Cukier concept was gaining ground, UW deputy Jan Wyrowinski from Torun said that he planned to hold an open debate on the sugar sector's future in the Sejm next week. Wyrowinski declined to say more about where the government stood in its negotiations.
Regardless of how Polski Cukier was positioned politically, its supporters were under fire last week for presenting an unrealistic business plan for the venture. In an analysis of Polski Cukier's future profitability, prepared by plan supporters, authors argued that mills included in the cooperative will be profitable in the long term and will also be able to soon pay off their short-term debts.
The study, which was prepared by the Institute of Management and Marketing at the Marie Curie-Sklodowska University in Lublin and a copy of which was obtained by the Business Journal, estimated that should the Lubelsko-Malopolska holding join Polski Cukier, it would be able to pay off its short-term debt of zl. 316 million ($77 million) in a minimum of 18 months. Sugar market analysts last week criticized the analysis as utopian.
"This is based on fantasy," said Zygmunt Smolenski, a researcher at the Institute of Agriculture and Food Economics (IERiGZ). "This is an abstract calculation that might have been feasible four, five years ago when (Polish) mills were functioning normally."
The plan's basic error is assuming production costs that are much lower than current norms, Smolenski said. The study estimated the production of a ton of sugar to cost zl. 1,760. "Costs were at that level in the 1998-1999 campaign," Smolenski said.
By using total production costs that are two years old, the analysis does not factor in inflation, recent hikes in energy costs or other materials needed in the production process, Smolenski said. "Costs are clearly too low," he said. "One can't even dream that farmers will grow sugar beets at the same price levels as two years back."
Another mistake made in the analysis is assuming inflated incomes from sugar exports. According to the analysis, approximately 20% of Polski Cukier's revenue would come from exports. However, regardless of whether the sugar would sell or not, the author of the study assumes sale prices per ton that are $30-$40 higher than the current rate for sugar on international markets.
