Syryjczyk:
By : Chris Rivituso
After years of stagnation, the nation's transportation infrastructure took its first steps toward improvement in 1999. The main event has been the pushing forward of the privatization of troubled Polish State Railways (PKP). In September, the Sejm began to look at a draft bill on privatizing, restructuring and commercializing the railroad. The body is slated to vote on the issue, which would finally allow for a major overhaul of loss-making PKP, by the end of 1999 or early 2000. Road infrastructure also got a lift when the government finally adopted amendments to the motorway bill that should pave the way for financing of the A2 motorway, which runs from Warsaw to the German border. The amendments to the motorway act enable the government to pitch in on funding the A2 highway, for which Autostrada Wielkopolska won the concession to build in 1997. The two parties now are talking about various ways the government could guarantee the project, which would give bankers the security they said was necessary before lending to the concession winner. This year also finally saw the privatization of LOT Polish Airlines, an issue that had been discussed for almost eight years. In late November, Swissair and the Treasury Ministry signed an agreement that gives the foreign airline a 10% stake in LOT. That stake will increase to 38% through an expected capital injection in the near future. However, many obstacles still exist before large swathes of the transportation network can be improved. It is yet to be seen whether Autostrada Wielkopolska and the government can work out financing details for the A2 motorway. At the same time, construction of the other scheduled motorway, the A1, which is scheduled to run from Gdansk to the Czech border, has not even begun despite an initial start deadline of March. That project is also hamstrung by financing obstacles mainly the lack of a government guarantee and the result is that to date Poland has no single completed highway. At the same time, the government is stumbling to cover another record year of losses at PKP. Its annual losses for 1999 are projected to reach approximately zl. 1.9 billion ($452 million.) The railroad's outlook for 2000 is not good some 6,000 kilometers of track are due to be closed and many trains will disappear if proper funding is not found. The WBJ's Chris Rivituso spoke recently with Transportation Minister Tadeusz Syryjczyk about the status of Poland's transportation network and what it will take for infrastructure to improve. Following is an edited, translated version of their conversation.
Q: The draft proposal on commercializing, restructuring and privatizing the railroad has been approved by the Cabinet and is now being worked on in Parliament. Do you see any difficulties in its being passed?
A: We have to assume that there will be certain discussions about a part of the draft proposal that regards employees; for example, anything linked with compensation for redundant employees. The general direction (of the draft) is being approved and that is why the bill will be in the announcement bulletin Dziennik Ustaw within a couple of months. The Sejm has the chance to finish its work in December, which leaves the Senate and President Aleksander Kwasniewski to look at the bill in January. I am expecting that a realistic period will be between January and February (for the bill to be passed). The implementation will take place during the first or second quarter of next year.
Q: Unions have spoken about layoffs at PKP happening over a period of time, say three to five years. But in the past you have said privatization will happen in two years. Is there the possibility of conflict and could this lead to any sort of labor action?
A: Basically, we assume that this process (of downsizing) should last two years. However, in terms of progress on separating certain entities of the railroad, the process can either be sped up or slowed down. A purchaser will negotiate with the trade unions on how to bring about eventual dismissals and sometimes the conditions can be even more convenient for employees. In my opinion, in terms of privatization the downsizing process can be run with small fluctuations from the initial project (assumptions). PKP's unions have been persuaded that reductions have to happen, but in a reasonable way. However, they expect better money and better compensation as a result of the privatization. And that is the problem that's what can influence the privatization. PKP employees understand that the company has to decrease the number of employees this is clear. But the problem is what they will receive in exchange, and that will be discussed. The government has expressed its opinion, however, the trade unions' expectations are going to be much higher.
Q: There has been talk of PKP issuing a bond to finance its restructuring, which includes the cost of layoffs. What kind of terms and conditions do you think risky PKP would get if it issued bonds, and don't you think it would be easier to simply get a loan from the World Bank, even though that could be the more expensive option?
A: The case of the bond issue is in the draft bill on privatizing, restructuring and commercializing PKP. There is also an item on governmental guarantees. At the moment when the bill becomes active, PKP will start the process of issuing bonds. The government will be able to give any necessary guarantees just after the bill passes. If PKP takes a loan, then the government will guarantee a loan; if it is a bond issue, then there is a chance the government will guarantee that.
Q: Do you know what amount PKP would look for, what the conditions would be or who may underwrite such an issue?
A: Details about the bonds will be made clear later within the management of PKP together with the Finance Ministry and the Transportation Ministry. It is hard to say more than what is included in the draft now. The only problem will concern the preparation of the bond issue. It is hard to predict anything because it will happen in the next six to 12 months. To whom will the bond issue be addressed? This is not an issue connected with the bill or the government decision. It will be rather the problem of professionals and PKP advisers who will work the whole program out.
Q: What interest do you think investors will have in the issue, considering PKP's poor financial condition?
A: It has to be created in such a way that it would be attractive. This is logical. However, it has to comply with government policy. For example, a PKP bond issue can't compete with a government bond issue (in terms of attractiveness).
Q: I know that you have signed an appendix to the concession for Autostrada Wielkopolska, which will allow the road builder to request a government guarantee for the A2 project. Financing for roads has been the major stumbling block in improving the country's transportation infrastructure. How do you think the government will go about helping to secure financing for such projects as the motorways? Will it give direct aid?
A: Right now, we assume that there will be different levels of participation. The A4 motorway is being constructed from state and international resources (such as PHARE). The government is looking for a concessionaire that will manage the motorway and charge fees for use, which will be used to repay the loan. The government has already signed such a deal. The second approach is for the government to become directly involved in the construction of some segments. In this way we want to construct the middle part of A1 and a fragment of A2, from Warsaw to Konin. Where the traffic is lower, we are trying to construct some sort of public-private partnership, where the government will cover about 50% of costs (but it will depend on each individual case). For this idea, we are preparing a law that will allow us to use such a solution. This is how we want to construct the northern part of the A1.
Q: You said that it was clear when Autostrada Wielkopolska in 1997 signed its concession to build the A2 that there would be no government guarantee that the point of the concession was for winners to come up with their own financing. Are you surprised that Autostrada and Gdansk Transportation (GPRD) have experienced so many difficulties in putting financing together?
A: In terms of the A2, initially I thought that the forecasts made three years ago (by the former government) seemed to be possible without government guarantees. Unfortunately, forecasts made by potential creditors were less optimistic (in terms of traffic and therefore overall revenue from tolls). That is why the contract had to be renegotiated.
Besides, we wanted to secure the interests of the state and society. We had to make certain modifications for the concessionaire's benefit, such as increasing the concession's validity to improve the company's ability to obtain a loan. According to the A1, at the very beginning of the tender, which was called in 1997, the concessionaire said that it would need more support from the government, more than what was predicted at the very beginning. That is why it is obvious that we have to introduce a change in the legislation, and afterward we will be able to make a real deal.
Q: In a somewhat surprise move, the government this fall chose Swissair to become LOT's strategic investor. A lot of people expected British Airways, with whom LOT already cooperates on several levels, to be chosen. Why did the government go with Swissair, which has a smaller alliance, than someone large like British Airways or Lufthansa?
A: Swissair's offer was the best, considering LOT's development and the offered price. Of course, we were conscious that the alliance built around Swissair was not as large as the alliance around Lufthansa or British Airways. However, we have to consider that from the point of view of LOT's development, this offer is good because it gives LOT an opportunity to develop. In this smaller group, LOT is an important partner. If this strategy is successful, LOT's development will be faster within such a group. The decision to choose Swissair resulted from the offer and the size of the particular alliance. Also we considered how potential investors would view LOT's participation in an alliance, as well as what would be invested, when we made the decision. Swissair's offer was the best from this point of view.
