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The Warsaw Voice » Business » May 7, 2008
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The Big Sell-Off
May 7, 2008 By Andrzej Ratajczyk   
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The government has unveiled a four-year privatization plan that calls for the sale of state-owned shares in 740 companies to generate up to zl.30 billion in extra revenue for the Treasury.

In the last two years, when the country was governed by the conservative Law and Justice (PiS) party, privatization largely ground to a halt. In 2006, gross revenue from privatization was just zl.622 million, followed by zl.1.95 billion in 2007. This was much less than earned in previous years, and also less than planned in the budget.

The new government led by Donald Tusk and his economically liberal Civic Platform (PO) party is determined to speed up privatization. Under the government's Privatization Agenda for 2008-2011, unveiled at the end of April, the next four years are expected to see the privatization of most of the 740 companies still overseen by the Treasury Ministry.

Privatization will also cover two companies overseen by the Economy Ministry, and 16 companies controlled by the Ministry of Defense, plus another two controlled by the Ministry of Infrastructure.

"The key priorities of privatization are transparency and fairness," said Treasury Minister Aleksander Grad. "We want to earmark some of the revenue for a demographic reserve fund, strengthen the stock exchange, and complete the process of the state's withdrawal from most sectors of the economy. If trends on the stock market are good, privatization revenue could reach as much as zl.30 billion."

Privatization is expected to either begin or continue in a number of key sectors such as finance and the power industry, chemicals and the oil industry, in addition to industries such as machine building, metallurgy, electronics, electrical engineering, spirits, foodstuffs, wood and paper, furniture, clothing, transport and forwarding, trade and services. The government will also sell minority stakes in many companies and withdraw from businesses covered by the National Investment Fund Program.

The Treasury Ministry plans to sell stakes in 13 financial institutions, including retail bank PKO BP, the Warsaw Stock Exchange company, Bank Gospodarki Żywno¶ciowej, and the National Depository for Securities. The privatization of Poland's largest insurer, PZU SA, will continue once the government settles a dispute with Eureko BV, a shareholder in the company.

Ownership changes in the power engineering sector will involve power groups such as PGE SA, Tauron Polska Energia SA, Energa SA, and Enea SA. The scope of their privatization will depend on a program for the power sector that is being developed by the Economy Ministry. By the end of 2011 the government wants to complete privatization in industries including tourism, pharmaceuticals, foodstuffs, construction, electronic, spirits, shipbuilding, chemical, printing, publishing and wood processing.

On the other hand, the government will not privatize infrastructure companies and those related to the state's security. The list includes 25 companies, among them Polskie Górnictwo Naftowe i Gazownictwo SA oil and gas company, Gaz-System SA gas pipeline operator, PERN PrzyjaĽń oil pipeline operator, PSE-Operator SA power transmission enterprise, Bank Gospodarstwa Krajowego, Totalizator Sportowy Sp. z o.o. lottery company, Wieliczka Salt Mine, the Polish Security Printing Works, the Polish Information and Foreign Investment Agency, the Polish Press Agency, and PKP Polskie Linie Kolejowe railway network management company. In the case of PKN Orlen SA and Grupa Lotos SA oil refining giants, KGHM Polska MiedĽ SA copper group, and Bumar Sp. z o.o. machine and defense production company, only subsidiaries of these corporations may be privatized.

Carrying out all these transactions in 2008-2011 requires an amendment to the privatization law. The Treasury Ministry has drafted such a bill. It provides for greater openness and transparency of privatization, along with the possibility of selling shares in a public auction, shortening the time it takes to complete a privatization, and simplifying the procedures involved. The possibility of transferring Treasury-held shares to local governments for free will be extended to cover all companies with Treasury involvement.

The government's privatization agenda has won the thumbs up from the business community. "Privatization is an important factor improving competitiveness on the Polish market," says Andrzej Arendarski, president of the Polish Chamber of Commerce (KIG). "Funds generated from privatization mean substantial revenue for the government, so it is essential that the government's privatization agenda is carried out."

The KIG has approved the government's plan to withdraw completely from sectors such as tourism, pharmaceuticals, transport, forwarding, food processing, furniture, and publishing and printing. Companies operating in these sectors are not considered to be of strategic importance to the country, so there is no need to maintain state ownership in them, the KIG says. To make the government's privatization efforts more efficient, the KIG adds, it is necessary to simplify procedures for the sale of state-owned minority stakes and enable free transfer of Treasury-held shares to local governments.

According to the Confederation of Polish Employers (KPP), privatization of companies remaining in state hands should give a new impetus to the economy. Treasury-controlled companies, despite various privileges, have been less successful on the market than private businesses. For example, employment in the public sector is decreasing despite the country's economic growth, the KPP says.

Completing privatization is a priority for the government, the KPP says, if it wants to sustain economic growth and improve the competitive position of the Polish economy.
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