State treasury still learning to let go
When the government unveiled its privatization plans in 1998, it gave the Treasury Ministry until the end of 2001 to privatize 70% of state enterprises.
More recently and though the ministry says the figure isn't official talk has focused on completing 90% of privatizations by 2005.
But those figures say nothing about the extent to which the Treasury Ministry will have divested itself of the majority or controlling stakes in companies being added to the growing list of already-privatized firms.
"I would say that the state treasury still has significant power even (when) holding minority shares in (a) company," said Pawel Zach, senior research analyst at Citibank (Poland).
Take, for example, a typical publicly traded company in which 80% of shares are diluted among thousands of shareholders, Zach said. If the remaining 20% are distributed among only a few institutional shareholders, then anybody holding even 5% is going to be pulling the strings on major corporate decisions. When the stake is higher, so is corporate clout and the state usually keeps more than 5%.
KGHM Polska Miedz, the copper and silver concern, is a case in point, said Lejb Fogelman, managing partner at Hunton & Williams Poland, a law firm specializing in privatization. Though unquestionably controlled by the treasury, which has a 49.55% stake, KGHM is nonetheless on the treasury's official list of privatized companies.
"We consider that privatization has been started once we sell at least 10% of the shares or (a 10%) stake of the company being privatized," explained Filip Busz, director of the treasury's department of European integration and foreign relations.
KGHM, with 26% of shares purchased by institutional investors as global depository receipts (GDR), is also 2.6% owned by helicopter manufacturer Swidnik, said Wojciech Marciniak, KGHM's investor relations director. Though employees once owned 15% of the company, he said, an undetermined and considerable portion has been sold to investors. Taking into account the 28.2% in GDRs and Swidnik, that leaves 7-22% privately held KGHM shares.
Nevertheless, Marciniak said, "the fact is that the state decides about the management board and operational decisions of the company."
Last year the treasury sacked KGHM's managing board and just last week increased its influence over the company when shareholders agreed to give the state co-owner an additional fifth seat on an expanded nine-seat supervisory board.
It's these sorts of scenarios that may lead some to disagree with the treasury over the meaning of privatization.
Fogelman said he defines a privatized company as one in which the state's "decisive voice is not anymore in the affairs of the company" and in which the state" is a voting minority or a non-existent (share) holder."
Nick Fletcher, managing partner of Clifford Chance Bunder law firm, offered a similar interpretation. Fletcher, whose firm has worked on the privatizations of fixed telephone monopolist Telekomunikacja Polska (TPSA) and Warsaw Heat and Power CHP, among others, said that strategic investors taking small stakes in state companies usually exercise contractual arrangements allowing for further capital increases down the line. Fletcher offered the example of SwissAir, which upped its stake in LOT Polish Airlines to 38.5% after purchasing 10% in 1999 during the first steps toward the airline's privatization.
The treasury's published privatization goals put 80% of all assets into private hands with the remaining 20% in the national domain.
"We will reach those proportions in a few years to come, maybe 2001 or 2002," Busz said. "It's our strong will and effort to privatize." However, Busz continued, "one cannot discriminate against the treasury for being influential ... (If) you have the capital you've got certain decisive power."
In most sectors, it's in Poland's best interest to dispossess itself of thousands of state firms that should turn greater profit through free enterprise, Busz said. In other vital sectors such as gas and energy, however, he said, the government must decide case by case how much control it wants to hold onto. It's already decided that 25% of the energy sector will remain in state hands for some time to come, Busz said.
The privatization process started in 5,016 state companies between July 1990 and April 2000, according to state treasury information. Out of those companies, 266 mostly state monoliths have been sold through capital privatization. Another 1,890 state companies have gone the direct privatization route by being sold to a joint-stock company or leased to employees. Of those, 1,479 have been commercialized.
