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The Warsaw Voice » Other » October 22, 2008
Privatization in Poland
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Privatization Methods
October 22, 2008   
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Despite turbulence in the global economy, Poland has remained one of the most attractive investment destinations in Europe over the past several years.

International financial markets may be wobbling, but the Polish economy is doing well. The finance ministry estimates that Poland's GDP growth this year will reach 5.5 percent, followed by 4.8 percent next year. Analysts from the Gdańsk Institute for Market Economics (IBnGR) subscribe to this forecast.

The CASE analysis center estimates that average annual inflation in Poland will be 4.3 percent this year, followed by 3.9 percent next year.

Poland in the lead
Judging by the amount of investment by international companies here in 2004-2007 Poland was one of the most attractive investment locations in Europe, according to the Economist Intelligence Unit (EIU). The British research center suggests that investors thinking of moving their business to Poland should set their sights on those regions that offer a large pool of qualified labor force and where labor costs are some 30 percent lower than in Warsaw or Cracow.

Ernst & Young's European Attractiveness Survey 2008 report confirms that foreign investors eagerly include Poland in their investment plans. Poland is second in Europe in terms of new job creation and seventh in terms of the number of investment projects, according to the report.

According to a report by consulting firm KPMG , entitled Investment in Poland, privatization in Poland in the next two years will primarily focus on sectors such as energy, chemicals, mining, spirits, fishery, transportation, electrical engineering, and construction.

Privatization paths
There are two basic methods of privatization in Poland: a state-owned enterprise may be transformed into a company owned by the Treasury and then privatized, or it can be sold immediately. The first method, also called indirect privatization, is usually applied in the case of large companies. The second method, known as direct privatization, is usually used for small and medium-sized companies. The choice of the method is up to the Treasury minister, who strives to ensure an optimum profit for the national budget and the continuity of business and employment in the privatized enterprise.

Direct privatization is carried out by the public administrative body which has established a given company-usually the province governor, with the consent and under the supervision of the Treasury Ministry. The province governor also selects the investors, negotiates the transaction, and carries it out after obtaining the ministry's consent.

Indirect privatization, on the other hand, is preceded by the "commercialization" of a state-owned enterprise, which means the enterprise is transformed into a joint-stock or limited-liability company owned by the Treasury. Commercialization is carried out by the Treasury minister at his own initiative, or at the request of the enterprise's founding body or the company's director and employee council. A request for commercialization may also be filed by the local government in the area where the enterprise is located.

In the company established in this way, the Treasury owns 100 percent of the stock until privatization. Before the Treasury shares are offered for sale, it is necessary to carry out a detailed analysis of the company assets' legal status and development prospects, estimate the company's value, and assess its compliance with environmental regulations.

Or via stock exchange
The KPMG report says you can also invest in Poland in company shares listed on the Warsaw Stock Exchange, whether in short, medium or long term. It should be noted, however, that the buyer of stock that acquires this way over 5 or over 10 percent of votes at the General Shareholders' Meeting, has to notify the Financial Supervision Commission (KNF) within four days from the transaction date. An investor who acquires stock giving them over 10 percent of votes has also to inform the KNF and the company about their intentions and the planned investment policy.

Marek Mejssner


Direct Privatization Methods

1. Sale
This method of privatization is usually used for indebted companies that are in need of urgent investment. The payment is usually made in installments, with the first installment of at least 20 percent of the price. The remaining payments, with interest, may be spread over five years.

2. Transferring the enterprise's assets to a new company
If this is possible, the Treasury establishes a company with other entities, and the privatized company becomes the Treasury's contribution to the new business. Depending on the value of the privatized company, the Treasury takes over a block of shares in the new company. In such a company, the employees may also be shareholders because privatization law ensures them the right to acquire up to 15 percent of the stock from the Treasury.

3. Transferring the company for paid use
This form of privatization is rarely used. The employees of the privatized companies have to participate in such companies. For example, if this is an employee-owned company, the Treasury Ministry may decide against making a public announcement and holding a bidding.


Indirect Privatization Methods

1. Public offering
This form of privatization makes it possible to sell company shares and privatize enterprises without lengthy negotiations.

2. Public tender
In an invitation to tender, the minister determines the number and type of shares subject to bidding; their minimum price; the required investment and social security packages; the deposit; the deadline, place and form of making the deposit; the method of submitting the bid; and the range of information required from the interested entity.

The bids are opened in public by a tender board established by the Treasury minister. Then the committee evaluates the bids and chooses the best one, or decides not to select a bidder and invalidates the tender.

3. Negotiations based on a public invitation
This method is applied in the case of small and medium-sized companies. The Treasury minister negotiates the sale of shares with a strategic investor. The negotiations on the price and sale conditions are held in private.

4. Reply to a bid
The Treasury minister may sell the Treasury's stake in a public company in response to a bid submitted by a shareholder.

5. Public auction
The Treasury minister may sell shares in a company in a public auction if the Treasury holds no more than 10 percent of the company's initial capital. An announcement in a national daily invites interested buyers to participate in the auction. The Treasury minister establishes a board to handle the auction, and the minimum price is announced. After the third quoting of the highest price, the auction closes.


Increasing Initial Capital

This is a separate method of privatization involving the takeover of shares in the increased initial capital of a Treasury-owned company established as a result of commercialization. In exchange for a financial or in-kind contribution, new shareholders may take over shares issued by the company.

For example, Ruch SA and Polskie Górnictwo Naftowe i Gazownictwo SA were privatized in this way, and more such privatizations are planned. This form of privatization provides funds for development and modernization, but does not generate any revenue for the Treasury.


Acquisition of Shares by Employees

The employees of a Treasury-owned company established as a result of commercialization may acquire for free up to 15 percent of the company's shares, but no earlier than three months after the Treasury sells the company's first shares. The package comes from the pool of shares taken over by the Treasury on the day the newly commercialized company was entered into the register of companies. Farmers and fishermen are also eligible for shares.


Key laws:

Law of Aug. 30, 1996 on commercialization and privatization (Dziennik Ustaw Journal of Laws of 2002, No. 171, item 1397, with further amendments)

Council of Ministers Ordinance of Dec. 20, 2004 on the detailed procedure of sale of shares held by the Treasury (Dz. U. Journal of Laws No. 286, item 2871)

Council of Ministers Ordinance of Dec. 14, 2004 on the methods of financing the sale of shares and forms and conditions of payment for shares purchased from the Treasury (Dz. U. Journal of Laws No. 269, item 2666, with further amendments)

Council of Ministers Ordinance of June 3, 1997 on the analysis of state-owned enterprises and companies, the procedure for analysis commissioning, development, acceptance and financing, and on the conditions allowing for forgoing analysis (Dz. U. Journal of Laws No. 64, item 408, with further amendments)

Council of Ministers Ordinance of Oct. 25, 2005 on public assistance granted in privatization procedures (Dz. U. Journal of Laws No. 214, item 1792)

Council of Ministers Ordinance of Dec. 14, 2004 on the detailed procedure of company sale (Dz. U. Journal of Laws No. 277, item 744)

Council of Ministers Ordinance of June 3, 1997 on the requirements for the statute of the company established by the Treasury with the employees of a privatized state-owned company, farmers or fishermen (Dz. U. Journal of Laws No. 60, item 371)

Council of Ministers Ordinance of Dec. 14, 2004 on the conditions of payment of liabilities for using a company (Dz. U. Journal of Laws No. 269, item 2667)
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