Turning Poland's golden shares into bars of lead

So-called 'golden-share' rights enable governments to keep control over companies even when they have a minority stake. Member states' use of the privileges has been a thorn in the European Commission's side for several years. In 1997, it started taking steps to make sure that member states comply with the treaty rules in this area. 

Recently, both Germany and the Netherlands have been taken to the European Court of Justice (ECJ) for using their special rights under golden-share rules in an abusive way. Poland and Hungary are rumored to be the next in line, since they are the least eager EU members to dispose of their special rights. As a result, both countries might be forced to abandon their golden-share privileges instantly.

The chance of winning the right to hold special economic rights before the ECJ is slight. The Court has ruled in a country's favor only once on the issue, while delivering judgments against member states by dozens. But, curiously enough, analysts seem not to worry too much about the perspective of Poland's defeat before the ECJ. Many believe banning golden shares will attract investment to companies currently controlled by the state.

"If these regulations get interdicted by the European Court of Justice, local markets may become more attractive to foreign investors. I believe it might cause a short period of mergers and foreclosures," says head analyst at BRE Bank's brokerage house, Tomasz Mazurczak.

States' faults

Early privatizations in Central and Eastern Europe were criticized for being crony-ridden, corrupt, and opaque. Governments were often accused of giving away the family jewels. Maintaining golden shares in privatized enterprises was their way of having their cake and eating it too, thus effectively silencing domestic opposition. Poland's Treasury maintains a golden share in 49 companies, such as Elektrownia Rybnik SA, Towarowa Giełda Energii SA or Polmos SA.

Even municipalities and regional authorities are jumping on the bandwagon. The city of Tallinn, Estonia, for instance, owns a golden share in its water utility. Hungary's largest firm, Hungarian Oil and Gas (MOL), was floated on the Budapest Stock Exchange, but the state retains a golden share in the company, which allows it to regulate retail gas prices. MOL controls 35 percent of the fuel retail market and owns virtually all the energy-related infrastructure in Hungary. It is an aggressive regional player, having recently bought Slovnaft, the Slovak oil and gas company. Moreover, although theoretically, Hungary's golden share in MOL may conflict with Slovakia's golden share in Slovnaft, owned by MOL.

What are they for?

Golden shares are usually retained by the state in infrastructure projects, utilities, natural monopolies, mining operations, defense contractors, and the space industry. Golden shares also enable the government to regulate the prices of certain basic goods and services.