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The Warsaw Voice » Other » October 22, 2008
Privatization in Poland
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October 22, 2008   
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Most of the companies still waiting to be privatized in Poland operate in sectors that are in good condition and have prospects for future growth. The only problem is that many of these businesses need funds for development, analysts say.

Chemicals

The chemical sector is one of the industries that the government plans to privatize "completely," according to Treasury Minister Aleksander Grad.

At the Krynica Economic Forum in southern Poland in early September, Grad said that privatization in the chemical sector would end in the first half of 2010.

The heavy chemicals industry will be divided into two groups that will be subject to different privatization methods, Grad said.

The first group will comprise Ciech, Zakłady Azotowe Tarnów, and Zakłady Azotowe Kędzierzyn. Acting together, these three companies will be able to acquire the Anwil chemical plant in Włocławek from Polish fuel giant PKN Orlen. The four entities are expected to have combined annual sales of around zl.10 billion and control a quarter of Poland's fertilizer market.

After the acquisition of Anwil, the Ciech-ZAT-ZAK consortium led by Ciech would be sold to a strategic investor, a foreign investment fund, for example, or a Western European (or Asian) chemical corporation. After taking control of the four companies, the strategic investor would be able to merge them to form a single company. "We expect an extra privatization bonus resulting from the acquisition of all the companies at the same time. The global chemical market is booming today, especially in fertilizers," Grad said. To take advantage of this, privatization of the group should be completed by the end of next year. In the meantime, Zakłady Azotowe Kędzierzyn will be floated on the stock exchange and will thus be evaluated by the market.

The second group would include ZA Puławy, one of the largest buyers of natural gas in Poland, and the ZA Police plant. Grad wants the Polish oil and gas extraction company, PGNiG, to buy shares in these companies in the first half of 2010 and become the group's leader. Since PGNiG is expected to remain in Polish hands, the whole group will likely "retain its national character," Grad said.

Why is it worth investing in chemicals?

According to the Polish Chamber of Chemical Industry, the chemical industry accounted for about 10 percent of the country's total industrial production in 2007. That's half the level normally noted in highly industrialized countries. This means that Poland's chemical-sector companies are in need of investment, experts say, even though they are already major market players in Europe.

The Polish chemical industry has improved gradually over the past seven years, with sales of chemicals growing by 10 percent annually on average. The value of output sold reached 23.5 billion euros in 2007, accounting for about 11 percent of the total value of industrial sales in the country.

Last year the Polish chemical industry reported a net profit of zl.5.93 billion, with zl.3.90 billion for chemicals and zl.2.03 billion for plastic and rubber goods. This means an overall increase of 35.5 percent compared with 2006, with a 47.1-percent growth for plastics and rubber.

Case study: Salt mine
One of the chemical-sector companies that is slated for privatization is Kopalnia Soli Kłodawa SA, a salt mine in Kłodawa, western Poland.

The mine opened just after World War II to extract what were one of the largest rock-salt (halite) and carnallite deposits in Europe. Today the mine chiefly extracts industrial salt and its deposits are 26 km long and up to 2 km wide. In addition, the facility produces treatment salt for health treatments and baths, in addition to edible salt and rock-salt decorative goods.

The company has its own hotel and offers tourist services, mainly tours along specially adapted galleries of the mine. Experts say that due to the composition of the salt, it is possible to set up a highly profitable sanatorium or a salt spa there.

At present Kłodawa SA is Poland's largest producer of rock salt. The only processing involved is mechanical refining.

The Ministry of the Treasury has decided to privatize Kłodawa through a public offering of shares.

Spirits

Meanwhile, the Polish spirits industry is doing slightly worse than the chemical sector. According to the Polish Spirits Industry (PPS) association, this is largely due to competition from cheaper sugar-industry spirits made from molasses or sugar beet juice instead of grain. The PPS says that lower demand for Polish spirits stems from growing demand for foreign spirits and decreasing exports. Last year Poland's spirits producers exported 9 million liters of pure spirit, compared with 15 million liters a year earlier. Consequently, experts say, it is necessary to invest in companies in the sector and promote new brands of products.

In the spirits industry, the government plans to privatize enterprises including ¦l±ska Wytwórnia Wódek Gatunkowych Polmos SA, a vodka producer based in the city of Bielsko-Biała, southern Poland.

¦l±ska Wytwórnia Wódek Gatunkowych Polmos SA has a long tradition going back to 1827 when Jenkner & Co. and the Stock company started producing unflavored and flavored vodkas, liqueurs and brandy there. In the 1920s these production facilities were taken over by the Polish Spirits Monopoly and were among the largest producers of flavored vodkas in interwar Poland.

After World War II the company became the largest producer of brand-name vodkas in Poland under communism. From 1957 onward, it was the only company in the Eastern Bloc that made kosher ¦liwowica Paschalna (Passover Slivovitz) under the supervision of Jewish rabbis. The leading brands were the flavored vodkas ¦liwowica, Krupnik, Advocaat, Jarzębiak and Soplica. Most were exported at the time. They continue to be produced to this day.

Today ¦l±ska Wytwórnia Wódek Gatunkowych Polmos SA is one of Poland's largest producers and exporters of unflavored and flavored vodkas. The company makes 18 varieties of vodka in all. The main export markets are other EU countries such as Germany, the Czech Republic, Slovakia, Italy, France, Belgium, and Britain as well as the United States, Australia, China and Scandinavia. The company employs 192 people and holds ISO 9001 and HACCP quality assurance and product safety certificates.

The Ministry of the Treasury plans to privatize the company through negotiations with a core or financial investor.

Telecommunications

The Polish telecommunications market offers good prospects for companies wanting to do business here. Analysts from market research company PMR say the telecommunications market here was worth zl.38.8 billion last year. A report by the Office of Electronic Communications (UKE) shows that access to telecommunications services in Poland has improved in recent years, especially with regard to services offered by operators alternative to Telekomunikacja Polska SA, and broadband internet access has also increased.

Telekomunikacja Polska SA was the market leader last year in terms of sales of landline telephone services, while Netia SA, Dialog SA and Tele2 Polska Sp. z o.o. each had a market share of more than 1 percent. At the same time, Telekomunikacja Polska SA accounted for the largest percentage of subscriber lines, at about 87 percent. Alternative operators accounted for about 13 percent of the market in terms of the number of subscriber lines. Netia SA had the largest share among them, at almost 3.8 percent.

Mobile phone services in Poland had 41 million users last year, which means a penetration rate of 108.6 percent. However, considering that inactive users accounted for 17.7 percent, the real penetration rate at the end of 2007 was 90.9 percent. This was less than the EU average, which stood at 103 percent last year.

The number of people taking advantage of internet access services (constant and dial-up access) in Poland grew by 21 percent to 12.7 million in 2007. The most popular form of internet access in households was Neostrada TP, based on DSL technology, or a cable TV modem. The number of people using dial-up access dropped markedly. The total number of those who had access to the internet based on xDSL technology grew by about 460,000, or more than 24 percent, last year.

In the telecommunications sector, one of the companies chosen for privatization is Telefony Opalenickie SA (TOSA). This relatively small, local telecom is expected to be privatized through an invitation to negotiations.

Established on Oct. 23, 1993, the company started operating with 1,440 subscribers in three districts in the western province of Wielkopolska: Granowo, Ku¶lin and Opalenica. In 1999 the company offered its customers broadband internet access based on HIS technology. On Nov. 1, 2004, Telefony Opalenickie launched radio-based telephone services and internet access in the town and district of Grodzisk Wielkopolski.

As of June 30 last year TOSA had 6,587 subscribers in 51 villages and two towns: Opalenica and Grodzisk Wielkopolski. Most of the subscribers are individuals, and over 50 percent of TOSA's customers live in the countryside. The Treasury ministry wants to sell 67.46 percent of the company's shares.

Construction

In the construction sector, the Treasury wants to find an investor for Chemobudowa-Kraków SA, an industrial construction company established in 1949. The investor will probably be able to buy a majority stake in the company. Today Chemobudowa-Kraków's main business is residential construction. It carries out projects for developers and also builds service facilities. It is one of the largest construction companies in Poland's southern Małopolska region, capable of carrying out a diverse range of construction projects.

Investment in Chemobudowa-Kraków should prove to be profitable because Poland's construction market has good prospects for development. Last year construction and assembly output in the country was 15.7 percent higher than in 2006, according to a report by market research company ASM Centrum Badań i Analiz Rynku Sp. z o.o. Construction output grew by 18.3 percent and the volume of renovation and modernization work increased by 9.5 percent. The highest growth rate, 30.6 percent, was reported for companies preparing land for construction. The smallest increase was noted for companies dealing with finishing works.

Building material prices varied substantially. In the second quarter of last year, the prices of ceramic and silicate materials grew by 33.6 percent compared with the first quarter, while concrete products were 13.3 percent more expensive on average than in the first three months of the year.

Apart from a housing boom, the construction sector's development has been driven by investment projects related to the Euro 2012 soccer championships that Poland will host together with Ukraine. Considering the current condition of infrastructure in Poland, huge construction projects are needed for an event like this to be held in this country. Large amounts of cement and finishing materials will be needed, so investment in these market segments may prove to be the right decision.


Internet Access Market
The Polish market for internet access services was worth zl.2.64 billion in 2007, according to preliminary data from April 25 this year. Broadband internet access is dominated by seven telecommunications operators. Three of these are landline telephone companies, led by Telekomunikacja Polska SA, while the other four are Poland's largest cable TV service providers.


Leased Line Market
The market for the retail leasing of telecommunication lines in Poland was worth over zl.370 million at the end of last year. The largest operators in terms of sales on the retail leased line market were Telekomunikacja Polska SA, Exatel SA, Telekomunikacja Kolejowa Sp. z o.o., Netia SA, Crowley Data Poland Sp. z o.o., and GTS Energis Sp. z o.o. The largest operators on the wholesale leased line market in terms of sales and number of lines leased were Telekomunikacja Polska SA, Exatel SA, Telekomunikacja Kolejowa Sp. z o.o., and Netia SA.


Greater Transparency
Treasury Minister Aleksander Grad took part in the Krynica Economic Forum in southern Poland in early September. Speaking at a Sept. 10 panel discussion entitled Privatization in Central and Eastern Europe: Success or Failure, he said:

"If we analyze privatization in terms of the changes it has made in the economy, the growth in company competitiveness, influx of advanced technology and economic effects, then privatization has been a very good thing for the country. However, the assessment of privatization by the public is sometimes very negative. We want to improve the image of privatization through greater transparency and making the entire documentation known to the public. This is part of a planned amendment to the law on commercialization and privatization. We want to convince people that privatization can be conducted in a transparent and clear way."
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