Treasury solves ongoing PZU dispute
By : Jeffrey Sparshott
The Treasury Ministry (http://www.mst.gov.pl) last week settled a long-festering privatization dispute in the insurance sector and helped clean up the country's investment image abroad, though significant challenges remain if the government wants to meet revenue goals set out in this year's budget, according to observers.
The insurance company imbroglio was settled last Tuesday when Dutch-based Eureko (http://www.eurekoalliance.com) and Big Bank Gdanski (Big BG) came to terms with the treasury on management and ownership of Powszechny Zaklad Ubezpieczen (PZU) (http://www.pzu.pl). The ministry will hold a dominant position on the PZU group management board until the strategic investors take a majority stake in PZU during an initial public offering (IPO), the parties agreed in a supplementary accord to the privatization contract.
"All this mess with PZU was not good for the image of the Polish economy on international markets," said Marcin Mroz, an economist with Wood & Co. "(Treasury Minister Aldona Kamela-Sowinska) is trying to fix the damage."
Eureko and Big BG acquired 30% of PZU in a November 1999 public tender. Last November, then-Treasury Minister Andrzej Chronowski sought to nullify that sale, and during a shareholders meeting removed Eureko's and Big BG's representatives from the PZU management board. The dispute escalated into lawsuits and a complaint to the European Union, but all claims have since been dropped and the consortium will take its seats on the supervisory and management boards, and add 21% to its holding during an IPO, the parties announced. No date has been set for the IPO, but company and government officials said the goal is to issue stock before the end of the year.
Kamela-Sowinska took over from Chronowski in late February amid unraveling expectations that privatizations would yield zl. 18 billion ($4.4 billion) anticipated by the national budget. The apparent impasse with Eureko had stalled PZU's IPO, France Telecom backed away from upping its stake in Telekomunikacja Polska (TPSA) and other privatizations appeared in jeopardy.
The treasury thinks it can meet the revenue goal. "If everything goes well, it's a realistic plan," said Karol Milkowski, director of the treasury's department of strategic companies and financial institutions. "It's ambitious, but realistic."
Resolving the PZU controversy should encourage international investors and help the budget, analysts said.
"I think in principle it's very positive to the overall perception of Poland," said Grzegorz Zawada, head of research with Erste Securities.
"This is good for the fiscal sector," Mroz said. "It's difficult to reach this target (zl. 18 billion) in an unfavorable investment climate. Everything must be done to improve this image."
TPSA's fate is still in question. A consortium of France Telecom and Poland-based Kulczyk Holding purchased a 35% stake in TPSA from the government last July for zl. 18.6 billion ($4.5 billion), or zl. 38 per share. The consortium has the option to buy at the same share price an additional 10% stake of TPSA in July and another 6% stake in a public share offering scheduled for later this year. But in February France Telecom publicly backed away from exercising its option because TPSA's share price had dwindled, with intra-day trading falling below zl. 20 last week.
"Clearly, looking at the market, France Telecom is not going to pay zl. 38," Zawada said. "So I would expect some kind of agreement with a lower price or some other benefits from the government."
Milkowski withheld comment on the status of negotiations with France Telecom. He said that any decision to float the stock on the London or Warsaw stock exchanges would depend on an assessment of market conditions.
If the privatization revenue does not materialize, economists note that the government can turn elsewhere for money, selling bonds, for example. That would create inflationary pressure, however, and is not the best option for Poland.
Big privatizations also remain in the energy sector and the sell-off of Powszechna Kasa Oszczednosci Bank Polski (PKO BP), which has the largest market share of any single bank in Poland. The treasury has shied away from a quick sell-off of PKO BP. "Privatization will remain a very sensitive issue," Zawada said.
As far the continuing privatization of PZU, company officials said management will now be able to focus attention on business rather than politics.
"This means now that we have a board that will concentrate on getting the IPO done as soon as possible," said Ernst Jansen, the chief executive officer of Eureko and a member of PZU's supervisory board.
Jerzy Sablik, former president of the Association of Accountants in Poland, will take over as president of PZU's supervisory board. Zygmunt Kostkiewicz, formerly with the Commercial Union pension fund, will take over as president of the management board and become PZU's chief executive officer.
