Sugar sector reform stalls; investor interest going stale
The ongoing tug of war between unions and the Treasury Ministry over privatization of the nation's beleaguered sugar industry has spurred some investors to rethink investment strategies, industry members said.
Time is money and as debts mount to prop up an outdated industry, the current thinking is not whether to abandon expansion strategies, but how to rework bids to reflect the added costs, industry members said. Ultimately that means lower bids and tougher terms for state assets, neither of which will benefit state coffers nor union concerns, they said.
"Investors have started becoming worried about the collapse of the sugar market in Poland," said Jan Oledzki, director of Lindacorp Engineering, a company specializing in design work for the sugar industry. "For sure they aren't leaving, but they are keeping an eye on the market."
British Sugar is a case in point. "The uncertainty that was caused in the market caused us to take a wait-and-see attitude," said Stanislaw Dziedzic, director of business development at British Sugar Overseas Poland. "Under the market conditions that exist, we could not justify investing further ... That does not mean we are not interested," he said. "We are very interested, but under certain conditions."
Currently, 76 state-owned sugar mills are consolidated under five holdings, under a 5-year-old privatization plan. The original idea was to sell the holdings, lock, stock and barrel. But so far, only one holding in Silesia is on the sales block as state and union officials wrestle over terms for the sale of the remaining assets, officials said.
Unions are lobbying to keep the sugar industry in Polish hands and in July unions pushed a proposal whereby state-owned sugar factories would be grouped into an umbrella company. The concept is modeled after the British Sugar example, which insured that the interests of local beet producers were safeguarded. The concept was given a boost last month when Solidarity Election Action (AWS) deputies supported the proposal.
While that was good news for the trade unions, it was a setback for the government that wants to get beyond the concept and into the sale phase. The government has little money to pump into a sector that needs a quick and heavy injection of cash and technology, industry members said. The majority of the mills in Poland are labor intensive and energy inefficient, all of which make Polish sugar uncompetitive on global markets, Oledzki said.
"At the moment it's a very difficult situation for the industry all together," Dziedzic said. "It has been allowed to deteriorate over the last couple of years through lack of activity and lack of decision making. Now I think the best thing for the industry is to privatize quickly."
Time is important, Oledzki said. As Poland moves closer to European Union (EU) membership the nation's sugar market will open up. Investors looking to restructure and upgrade mills are watching their window of opportunity close, he said.
But privatization is underway and even being sped up, said Maciej Chojnacki, a coordinator in the ministry's press office. Last week the ministry announced that three-quarters of the sugar mills would have strategic partners by the end of the year. In addition, a new timetable is being worked out and should be announced early this week, Chojnacki said. "That's optimistic news," he said.
