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The Warsaw Voice » Other » November 18, 2009
Privatisation in Poland
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Calling All Investors
November 18, 2009   
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Minister of Treasury Aleksander Grad talks to Urszula Imienińska and Andrzej Jonas about the government's privatisation agenda.

What is your main criterion for privatising companies? Does the government sell companies because it needs funds to finance public projects?
The ministry does not act under the pressure of budgetary needs. We do not privatise Treasury-owned companies at any price. This is exemplified by our decision not to sell Enea, an energy company owned by the Treasury, to German energy group RWE AG in mid-October. The German corporation was the only organization interested in buying Enea, but it failed to submit a binding offer for a majority stake in Enea.

We showed that we cannot act under pressure. I see no reason why we should reduce any prices in the electricity industry in particular because of the crisis. Our valuation of Enea was accurate. This company is worth as much as we evaluated it. I refuse to even entertain the thought that this price could be whittled down.

I think the company should be sold to a strategic investor. This would help other energy groups. Companies that will not be fully privatised will be subject to pressure in the process of transformation, restructuring and cost cutting. From the point of view of the consumer, it would be good for Enea to have a core investor from its sector. The search for an investor for Enea will start before the end of the year.

How advanced is privatisation in Poland? Has it been thrown off track by the crisis? Do you think privatisation efforts should be continued at a time of crisis?
We are all asking ourselves the question whether we should press ahead with privatisation at a time of crisis. But there is only one answer to this question-yes. The privatisation process must not be stopped, but it should be carried out with even greater care. Privatisation should be seen as a way to retain jobs in specific companies and as a factor making it possible for the companies to develop. In the existing situation, more privatisation processes should be targeted at core investors in order to secure higher prices. Strategic investors look at their investments from a long-term perspective and are not guided by day-to-day trends on financial markets.

Despite the global financial crisis, privatisation has accelerated considerably in Poland since 2008. During this time, we completed privatisations of 165 companies and successfully carried out initial public offerings (IPOs) for companies such as Enea, Zakłady Azotowe in Tarnów, LW Bogdanka, PKO BP, and PGE. PGE's IPO was the largest offering in Europe this year, allowing the company to raise almost PLN 6 billion. The IPO attracted huge interest from both domestic and foreign investors, something that strengthens our belief that privatisation can be successful and that investors want to take part in the privatisation of Polish companies even at a time when the market is difficult.

To sum up-yes, privatisation should continue at a time of crisis. And this is exactly what we are doing.

Poland is not the only country in Europe that is privatising its companies. How does Poland compare with other countries in its efforts to attract investors?
Our country has an optimal location in Europe at an intersection of routes from the east to west and from the north to south. We have a large market of almost 40 million consumers for goods and services. Last year, Poland's gross domestic product grew 4.9 percent. This year, Poland's economic growth has been the fastest in the European Union and Poland is the only member state with a positive growth rate. The Polish economy has great potential for development thanks to access to EU funds, of which Poland will be the largest beneficiary in 2007-2013. EU fund transfers may reach a total of 67.3 billion euros to benefit the whole country. The money will be used to finance the construction of infrastructure, modernize rural areas and so on. We are invariably an attractive market-a stable and predictable one.

What could help Poland attract more investors?
One reason why it is worth investing in Poland is that we have simplified the privatisation procedures, reduced their cost, expanded the list of companies offered for sale through auction, and removed constraints on local governments concerning shares transferred to them by the minister of Treasury. Additionally, we will be privatising attractive sectors such as electricity, chemicals and pharmaceuticals, the financial sector and transport companies. Companies from these sectors can be very attractive to investors. Poland also has highly qualified managerial staff and workers who want and are able to undergo training to upgrade their skills.

Putting business considerations aside, Poland is a country of friendly and hospitable people, with a rich culture, good cuisine and many tourist attractions. Foreign businesspeople and their families can feel at home in our country; they can pursue their interests and continue their education.

What are the Ministry of Treasury's guidelines for privatisation in 2009-2011? What forms of sale will be used? What is the main factor that determines whether a company will be sold through auction, negotiations or the stock market?
The privatisation programme for 2009-2011 covers 670 companies. Among them are companies that are less than 10 percent owned by the Treasury. In 2010, we will make greater use of instruments such as the stock market and auctions, through which 100 percent of a company's shares may be sold. The Ministry of Treasury chooses the most suitable form of privatisation for each company. A company may be sold through tender, negotiations, auction or on the Warsaw Stock Exchange. The best and most advantageous method for a given company is chosen after thorough analyses.

The list of key projects includes the energy and chemical sectors and the sale of some of the shares that the Treasury holds in listed companies such as KGHM and Lotos. Accelerated privatisation gives privatised companies the chance to cope better with the crisis.

Companies of special importance to the economy, such as PSE-Operator, will remain in the hands of the Treasury. Key privatisation projects involve companies in the power sector, Enea, Tauron, PGE, Energa and ZE PAK, and those in the chemical sector-Ciech, Zakłady Chemiczne Police, and Zakłady Azotowe in Puławy, Tarnów and Kędzierzyn. There also plans to privatise the Warsaw Stock Exchange, LW Bogdanka and Ruch and to sell a minority stake in TP SA. The ministry also wants to sell up to 10 percent of its shares in KGHM.

After the successful IPO of the PGE energy group in November, the ministry plans to sell another stake in PGE next year. However, the state will retain a controlling interest in the group. The ministry will also press ahead with the privatisation of Enea and will start work to privatise two other energy companies, Tauron and Energa. Just like Enea, Energa is intended for a strategic investor and the Treasury wants to withdraw from these two companies by the end of 2010. On the other hand, Tauron will be sold through the stock exchange, and the state, just like in the case of PGE, will retain control over the company.

Additionally, we are going to privatise another batch of chemical companies next year, including Zakłady Chemiczne Police and Zakłady Azotowe Puławy.

By the end of 2010, the ministry wants to sell all its minority shares in banks.

Which privatisation projects does the ministry consider to be the most important?
These are definitely privatisations that we will carry out through the stock exchange. By doing so we want to strengthen the Polish financial market and turn the Warsaw Stock Exchange into a place where big transactions are conducted. More than 20 companies will hit the trading floor, including large companies operating in the electricity and chemical sectors. These companies need to be privatised so they can develop unhampered.

The stock exchange itself will also be privatised. If we privatise the stock exchange we will increase its competitiveness and enable it to form financial alliances.

It is necessary to reverse some negative trends with a political undercurrent that are detrimental to the economy. Among these are attempts to stop privatisation in its tracks. Privatisation is the best way to make companies independent of politics. In a privatised company, economic rather than political considerations are the most important.

Each privatisation project is important, but we naturally focus on those that are critical to the condition of whole sectors. The energy sector is certainly very important; within a short time it will need huge amounts of money to carry out indispensable investment projects. And this money has to be raised on the market, either via the stock exchange or from core investors.

Also important are the privatisations planned in the chemical sector. A key undertaking will be the privatisation of the Warsaw Stock Exchange. This will be the most important privatisation project since the start of Poland's economic and political transition. We want to find the best possible partner for the deal and secure the best possible terms to have a 100-percent guarantee that the Warsaw exchange will remain independent and is able to develop rapidly. The point is to make sure that it remains a key financial institution in this part of Europe.

Would you say that Polish companies are more popular with foreign investors these days?
There's lots of interest in the Polish economy among private equity funds. This is good because many of these funds are looking for the best place to invest their money. Poland outperforms many other countries in terms of investment appeal. This creates a opportunity for us in this difficult time of crisis.

The question that worries me most is whether investors will have enough funds for planned investments. These days, many investors would like to buy companies but do not have access to funding. This explains why we have to pay special attention to checking the financial capabilities of prospective investors. Until recently due diligence checks were conducted in companies that were slated for privatisation. Today we have to exercise more diligence in examining data on organizations that want to buy a company from us. After all, we can see what the market is like. Caution is necessary because a company that is doing well today may disappear without a trace within six months so.

Poland is preparing to host the Euro 2012 soccer tournament together with Ukraine. Is that incentive enough for foreign companies to invest here?
Indeed, preparations for the tournament provide an additional boost to many sectors of our economy. But we have to be aware that our predecessors wasted two years during which the economic climate was good. If at least a few Treasury-owned companies had been privatised through the stock exchange in that period we would have been in a different place today.
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