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The Warsaw Voice » Other » October 22, 2008
Privatization in Poland
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Making up for Lost Time
October 22, 2008   
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A total of 740 state-owned enterprises will be privatized in Poland under a new plan adopted by the government of Donald Tusk. This is the largest privatization program ever undertaken by a Polish government.

Since privatization got under way in Poland in 1990, a total of 5,887 state-owned enterprises (SOEs) have been either privatized or converted into joint-stock companies controlled by the Treasury. The latest government program is designed to make up for whatever delays were made in privatizing Poland's enterprises. Most of the countries that joined the European Union together with Poland have practically completed their privatization processes.

Privatization began in Poland in the summer of 1990 with a view to adapting the country's centrally planned economy to free-market conditions. Another objective was to prevent mismanagement that was widespread in state-owned businesses.

Salaries earned by those who managed state-owned enterprises did not depend on how well these businesses performed. As a result, the best managers preferred to take jobs in the private sector instead of exposing themselves to political risk in a state-owned enterprise.

Another aspect was the role that trade unions played in state-run enterprises. Their strong position resulted from a combination of historical and political factors. For SOE managers good relations with trade unions were often more important than their company's profitability and development prospects. But unionists tended to oppose job cuts, which often undermined the company's competitiveness.

Survival of the fittest
According to OECD data, the disappearance from the market of the least efficient businesses contributes to a 20-percent increase in productivity. Other problems may arise if whole sectors of the economy or dominant businesses remain in the state's hands. If the state owns a company with a monopolistic or dominant position on the telecommunications, energy, gas, fuel or other markets, the need to earn money for the government is often in conflict with the need to ensure equal terms of competition for all market players and lower prices for consumers. As a result, privatization is an important factor in dismantling monopolies and enabling competition.

In Poland, privatization was also expected to contribute to a reduction in public debt, in addition to stimulating the Warsaw Stock Exchange and the development of the capital market. Privatization broadened investment opportunities for investment fund companies and open-ended pension funds, which manage the savings of future pensioners.

Billions in assets
Over the years, privatization has changed the structure of the Polish economy but the position of the state-owned sector remains quite strong. Of 8,453 state-run enterprises that operated in Poland at the end of 1990, a total of 5,747 were privatized by the end of 2006. In addition, 1,654 state-owned farms have been closed down, their assets channeled to the State Treasury Agricultural Property Agency. In all, 7,401 state-run enterprises, or 87.5 percent of the total, changed their ownership status through the end of 2006.

But not all of these ownership changes were privatization per se, according to The Public Sector in Poland and the World and Privatization Policy, a report by Polish privatization expert Barbara Błaszczyk. Many of the former state-run enterprises were merely turned into Treasury-owned joint-stock companies, Błaszczyk says. This means they effectively remain in state hands.

According to Błaszczyk, at the beginning of last year there were still 2,500 state-controlled companies in Poland, including 1,300 SOEs and Treasury-owned companies potentially subject to privatization. Błaszczyk tentatively put the value of assets still in state hands at zl.130 billion, or around 13 percent of the country's GDP and 27 percent of the public debt in 2006.

Privatization in strategic sectors of the economy, such as telecommunications, transportation, electricity, fuel, steel and banking, did not start until 1998. So the concept of strategic privatization is just ten years old in Poland.

Stepping on it
Privatization in sectors such as public utilities, energy generation, mining and transportation has been either slow or virtually nonexistent. Similarly, in industries such as chemicals, spirits, defense, pharmaceuticals and shipbuilding there are still dozens of state-owned enterprises left to be privatized.

The new government that came to power as a result of the 2007 parliamentary elections says it is determined to complete privatization in a bid to make the Polish economy more competitive internationally.

The Confederation of Polish Employers (KPP) has appealed to Prime Minister Donald Tusk to speed up privatization. The organization has pointed out that slow growth in value added in the public sector means a lower rate of growth for the economy.

The following figures were quoted as an example: industrial sales in the public sector rose by only 1.8 percent in 2006 and then fell by 2.1 percent in 2007, while the private sector reported a 12.9-percent increase in 2006 and a 12.8-percent rise in 2007. According to KPP data, 70.1 percent of all Treasury-owned joint-stock companies reported a net profit in 2006, and the proportion of profit-making state-owned enterprises was 61.2 percent. To compare, the percentage of private companies reporting a net profit was 83 percent in 2006 and 83.9 percent in the first half of 2007.

Report cards
The government plans to amend the law on the privatization of state-owned enterprises. It has come up with a plan to introduce privatization "report cards" that would be posted in the Public News Bulletin on the Treasury Ministry's website. These certificates would document the course of privatization and contain information about the buyer, price, investor's commitments, and how these have been carried out, and also about a job security package for employees and other people associated with the privatized company.

Under the amendment, the Treasury minister would have the right to determine the scope of analyses that would have to be made before privatization. Before offering Treasury-owned stock for sale or deciding to go ahead with direct privatization, decision-makers would have to conduct analyses to determine the legal status of the company's assets and appraise their value.

Another important change is that no government consent would be required to sell minority stakes held by the Treasury. This rule applies in two cases. First, when a strategic investor has already been selected and the conditions of sale of the minority stake have been determined in the privatization agreement. The sale of such a package will complete the privatization process. Second, when the sale involves shares or stakes in a company where the Treasury share is below 25 percent, which prevents it from pursuing an active owner policy.

Additionally, restrictions would be lifted on the sale of Treasury-held stakes through public auction to enable the use of this form of sale irrespective of the Treasury's involvement. Finally, the planned changes to the privatization law are aimed at transparency, the government says. All privatization procedures and most details of negotiations with buyers, excluding information protected by relevant laws, would be made public. The government also wants to attract professional managers to take care of Treasury-owned companies.

Marek Mejssner

What Has Been Done Over the Past 18 Years
From Aug. 1, 1990 to the end of July this year, a total of 5,887 state-owned enterprises were privatized or converted into Treasury-owned joint-stock companies. At the end of July this year, the ministry held stakes in 1,232 companies, including 469 companies wholly owned by the Treasury and 763 companies partially owned by the Treasury.

Through Aug. 1 this year, a total of 1,688 state-run enterprises-or over 28 percent of all the enterprises whose ownership status has been changed-were converted into 1,671 joint-stock companies wholly owned by the Treasury and 17 companies partly held by debtors. At the same time, 2,290 applications for direct privatization were approved. Additionally, the Treasury approved 1,912 applications for the dismantling of state-run enterprises because of their poor financial condition. A total of 1,088 enterprises were removed from the national business register and 682 were declared bankrupt.

What Has Been Done in 2008
By the end of July, the government converted 66 state-run enterprises and 10 research-and-development centers into Treasury-owned companies. It also started privatizing seven joint-stock companies wholly owned by the Treasury. Indirect privatization also continued through the sale of stakes in 51 companies partially owned by the Treasury. Seven applications for direct privatization were approved, and eight enterprises privatized through direct privatization were removed from the national business register. The minister approved five applications for liquidation. Liquidation proceedings in 11 enterprises were completed by removing these enterprises from the business register. At the end of September, 399 privatization projects were in progress.
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