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The Warsaw Voice » Chair of the Year » February 25, 2011
Chair of the Year
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Positive Track Record
February 25, 2011   
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Aleksander Grad, Treasury minister and winner of The Warsaw Voice’s Chair of the Year award, talks to Andrzej Jonas and Andrzej Ratajczyk.

November marked three years since you became Treasury minister in Donald Tusk’s government. What have you achieved in terms of privatization over that time?
I think that the overall track record is positive. We have managed to sign privatization agreements to the tune of more than zl.31 billion. Additionally, state-owned companies raised zl.14 billion through new share issues prepared by the Treasury Ministry. And we plan to acquire another zl.15 billion from privatization this year. The total amount generated for the national budget and the companies exceeds zl.60 billion. I think the zl.45 billion is a good result, and with the revenue for 2011 it will be a very good result.

However, our greatest success over those three years is that we have shown Europe and the world that we are able to carry out large privatization projects involving the largest Polish and foreign investors and that these deals are up to the highest world standards. As a result, in 2010, the Warsaw Stock Exchange hit a critical mass in its development and moved significantly ahead of its rivals in the region in terms of capitalization.

This would not have been possible if the way of thinking about the economy and privatization had not changed. We have assumed that the economy should be based on private ownership, which we want to build through shareholding by financial institutions and individuals. And the state, by selling its assets, shares not only property but also responsibility with them.

Privatization plans cannot be carried out without the involvement of investors interested in taking part in the program. Did you have specific groups of investors in mind when preparing large privatization projects?
If one looks at privatization projects carried out in recent years, one can see clearly that a sound balance has been maintained between individual groups of investors. We have assumed that the privatization process should be based on four major pillars. The first pillar is made up of foreign investors, without whom we would not have built the strength of our economy in the past 20 years. And in order to develop rapidly, we need to continue attracting foreign investors, both strategic and financial ones. The second pillar comprises Polish financial institutions, pension funds and investment fund companies. Another pillar necessary to build private ownership in Poland are individual investors buying shares in privatized companies in public offerings. In order to stimulate the activity of this group, we have changed some regulations in the case of the latest three large privatization projects as these regulations discouraged individual investors from buying IPO shares. Finally, the fourth pillar is employee share ownership—many Polish people became shareholders as the state-owned companies they worked for were privatized, with part of the stock distributed among the employees. We put the four pillars under an umbrella, with Warsaw at the top as the financial hub of Central and Eastern Europe. A group of key companies—that is those in which the state decided to retain controlling stakes—holds a separate place in this structure.

Some economists say the Treasury Ministry should sell its stakes in strategic companies as soon as possible because this would not only expand private ownership but also free the companies from political interference.

In the future, the state may give up its stakes in key companies altogether, but this cannot be done hastily and at any price. It is easy to imagine what would happen to some key companies listed on the Warsaw exchange if the state suddenly stopped being a shareholder in them without prior preparations. They could be withdrawn from the exchange, which would deal a major blow to the trading floor. The idea of key companies is not only aimed at building their strong position in Poland and the region. These companies are a very important part of the Polish capital market. And they determine the position of our exchange in the region.

Under the government’s Multi-Annual Financial Plan, some of the privatization revenue in 2011-2013 will come from the sale of shares in key companies such as PZU SA and PKO BP. The government wants to retain more than 25 percent of the shares in the companies. What is the rationale behind this policy?
We are not going to block the road to the full privatization of key companies, but when deciding to sell we have to choose the most opportune moment to benefit the shareholders the most. My responsibility as Treasury minister and at the same time a shareholder is to choose the right time for individual privatization projects so that the revenue generated is as high as possible. We cannot sell such large blocks of shares at one go because this is not in the interest of the Treasury. If I told the market today that I’m going to sell 20 percent of the shares in a company with a capitalization of zl.40 billion, for example, I would harm our stock exchange and pension funds as well as individual investors because such a large supply would certainly have an adverse affect on the share price.

You have mentioned the important role foreign capital plays in boosting the position of the Polish economy and capital market. In your view, can Poland hope in the near future to attract capital from countries that have not been interested in our region so far? Does the government intend to make efforts to this effect?
Of course, we want to see capital flowing into Poland from all the directions it has flown so far and from new sources as well. Our successful privatization program, which we promoted especially strongly in 2009, the time of the deepest crisis, was a draw for investors from new markets. The IPOs we placed so successfully on the Warsaw exchange impressed investors in the Middle East and Asia—regions that had not been particularly interested in Poland before. And this policy is now paying off. During my recent visit to China I met many [investment] fund company executives, who are beginning to include countries like Poland in their strategies. The interest Poland attracts among global investors was evident during the process of privatizing the Warsaw exchange, with investors from five continents taking part.

We are glad that the number of directions from which capital is flowing into Poland is growing. A steady inflow of foreign investment, both direct investment and investment in the form of taking part in privatization, is necessary for the development of our economy and our financial markets. Of course, over the past 20 years, we have developed our own strong financial institutions and business organizations that have successfully taken part in privatization processes as well.

How is Poland perceived abroad?
In recent years, Poland’s attractiveness has greatly increased and, paradoxically, the global crisis helped the country in this respect. Those thinking of investing their money cannot ignore the fact that Poland was the only European Union country to avoid recession in 2009 and that in 2010 it recorded one of the highest growth rates. Just how much investors are interested in Poland is reflected by the fact that the book building process for one of our IPOs worth 1 billion euros took only three hours. This means that investors have confidence in Poland and know a lot about it, which is partly due to our policy aimed at encouraging large financial institutions, investment banks, foreign brokerages and teams of analysts to enter Poland. As a result, investors have much insight into the Polish economy and are able to make investment decisions faster than before. Consequently, Poland has become an important market player in Europe and elsewhere.

When substantiating our decision to grant you The Warsaw Voice’s Chair of the Year award, we said that your greatest success was that you managed to gain public support for privatization. For many years privatization had been widely seen in Poland as thievery. In 2010, people rushed to take part in large IPOs, proving that privatization was accepted by the public as part of the government’s economic policy. What, in your view, is the reason behind this change in the approach of the public?
I must admit that this prestigious award was a nice surprise for me. Treasury ministers rarely receive awards in Poland so I am particularly pleased that our work over the past three years has been appreciated—especially our work in 2010, which was a crucial year in terms of privatization and building the position of the Polish capital market and the Warsaw stock exchange, and in terms of the way the public views privatization. It seems this can be attributed to the openness of privatization processes and painstaking educational campaigns. We will continue these educational efforts this year. We are carrying out civic education programs together with various institutions linked with the capital market. We want to show that it is a good idea to take part in privatization projects prepared by the Treasury Ministry, and that it is worth being active on the capital market and investing one’s money in a reasonable way.

You have said in an interview that you don’t want to be reappointed as Treasury minister after your term in office expires. Why don’t you want to continue your work?
So far Treasury ministers in Poland have not kept their jobs for long—for around 10 months before being replaced on average. If I stay in office for the whole term I will set a record. I think this will be enough.

What is the most difficult thing about being Treasury minister?
The most difficult thing is making decisions, because they are attributed to one person. Someone once said that when you are Treasury minister you have the entire state apparatus helping you, but when you are no longer minister the whole state is against you. Some of my predecessors experienced this as they had to defend some of their decisions for years. I hope I will be spared this experience.

Voice Editor-in-Chief Andrzej Jonas on why Grad was awarded the magazine’s annual Chair of the Year prize (excerpts):

Handling privatization at the government level was (and still is) a suicidal task or one for bomb squads crossing a minefield. And there’s no way to avoid mistakes. Plus, this particular bomb squad is in the line of fire the whole time...

Privatization is an area you cannot describe without mentioning numbers. Each project is positively dripping with numbers, each argument and counterargument is rife with them. I’ll use just two: zl.25 billion—the revenue generated by privatization in 2010, and zl.15 billion—the revenue expected in 2011. Ok, maybe two more: Aleksander Grad completed 400 privatizations in three years, and plans to complete another 150 in 2011...

Grad, the Treasury minister whose responsibilities include privatization, has had a good year. He succeeded in almost everything, including the biggest transactions, record breakers not only by Polish but also European standards...

Grad’s greatest success, though, was that he handled privatization in such a way as to win the public’s acceptance for the process. Privatization, both in principle and in individual cases, did not cause such controversy in 2010 as it had in the past...
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