Polish Deputy Treasury Minister Interviewed on Four-Year Privatization Plan

Excerpt from report by Polish leading privately-owned centre- left newspaper Gazeta Wyborcza website, on 21 March

[Interview with Polish Deputy Treasury Minister Krzysztof Zuk by Renata Grochal; place and date not given: "We Are Unveiling the Four- Year Privatization Plan"]

[Introductory passage omitted]

[Grochal] Prime Minister Donald Tusk pledged that privatization would accelerate, but this is not yet visible.

[Zuk] We have included 722 companies in the four-year privatization plan.

[Grochal] But the state treasury holds shares in more than 1,200 companies, and Treasury Minister Aleksander Grad was supposed to complete privatization.

[Zuk] Over 20 companies are included on the list of strategic companies, which will not be privatized, for example Polskie Gornictwo Naftowe i Gazownictwo [PGNiG], Operator Logistyczny Paliw Plynnych, PKP Polskie Linie Kolejowe [Polish railroad service] etc. Another list includes several dozen companies that we do not want to privatize, because their stocks are frozen, for example the company that Bank Gospodarstwa Krajowego [BGK] is using to finance restructuring. In addition, there are the companies that have gone into bankruptcy or liquidation. Deducting these companies, we get 722 companies.

The privatization plan includes both large companies – nitrogen plants, energy companies, or banks – and smaller companies – the remnants of the wood or textile industry, the Pekaes [bus transport] and Polmos [alcoholic beverages] companies, which are in a very difficult financial situation. Privatization is the only way to prevent some of them from facing bankruptcy.

Interest on the part of investors in not great at all. For example, I doubt if we can sell all the Polmos companies, which are going bankrupt one after another. Polmos companies in Sieradz and Lodz as well as Warszawska Wytwornia Wodek Koneser [vodka manufacturer] have already filed for bankruptcy. These are the results of the lack of privatization in recent years.

Today, we do not need privatization fireworks but the methodical completion of privatization that would be well-prepared in its substantive aspects and also actions supporting the companies’ strategy.

[Grochal] But we could find several fireworks. When will BKO BP [bank] be privatized? You have reached an agreement with the PSL [Polish Peasant Party], which wants to keep the bank under state control, even though PKO BP needs capital.

[Zuk] Experts are discussing this issue. We are looking for solutions that would make it possible to maintain the bank’s national nature together with the state treasury’s effective control. The concept will be chosen by the Council of Ministers.

[Grochal] If the government does not reach an agreement or gets afraid of the PiS [Law and Justice], which will surely raise the alarm that you want to sell off the crown jewels, then it may turn out that there will be no privatization.

[Zuk] Next year the Council of Ministers will receive the concept for further ownership transformations in PKO BP from us in line with the adopted strategy for the bank’s development and decide whether it wants further privatization or not.

Personally, I support the view that in the first place we should do the things that are less controversial, though not necessarily easy. Wherever privatization involves great complexities, let us extend the deadlines and hold a public debate.

[Grochal] Does this mean that you are leaving the privatization deals on which no political agreement has been reached on the shelf?

[Zuk] The lack of political agreement is a complexity, it forms a strong barrier to privatization. This is why this process has been going on for as many as 17 years now.

[Grochal] Sticking to the terminology, the energy sector is likewise full of complexities, because the treasury minister from the PO [Civic Platform] says that the state should give up control over the energy sector within four years, while the PSL agrees only to the sale of minority stakes.

[Zuk] For the time being, there is a consensus that in the first stage of privatization energy companies will be floated on the stock exchange, because they need capital for investments. The state treasury will not receive any budget revenue from this deal.

However, if we are to ensure privatization revenue of 5-7 billion zlotys [Z] per year, as the finance minister expects, then the state treasury will have to sell its shares in the next stage. However, the four-year privatization plan does not envisage giving up control over the four energy groups – Enea, PGE, Tauron, and Energa – which emerged from the consolidation of state-owned electricity companies.

Enea will be floated on the stock exchange this year. The second stage of privatization could take place in 2009. The same applies to PGE, which should be floated in late 2008 or early 2009.

If PGE is talking about building two or three power plants, and is simultaneously considering building a nuclear power plant, then there will be no resources to achieve this without additional capital. Nuclear energy is very expensive but it is necessary. Given the current carbon dioxide caps, nuclear energy will become a real alternative to traditional energy in the course of less than 20 years.

[Grochal] When will Energa and Tauron be floated?

[Zuk] Realistically, no sooner than in the second half of 2009, which means that minority stakes could be sold for example in 2010.

[Grochal] So how many sensitive companies are there – ones whose privatization has not been fully agreed in the coalition?

[Zuk] It is not only a matter of agreement between the PO and the PSL. I myself am taking part in interesting discussions concerning the privatization of chemical companies. This is because there are doubts whether the companies (Zaklady Azotowe Tarnow [nitrogen plant in Tarnow] and Zaklady Azotowe Kedzierzyn [nitrogen plant in Kedzierzyn-Kozle]) should be privatized separately, or whether we should seek synergy in some sort of consolidation and then sell shares. The decision will be made in late April, because that is when we will receive the studies we have ordered. Nevertheless, these two companies will be definitely floated on the stock exchange.

[Grochal] When will the state treasury sell its stock?

[Zuk] We assume this will happen in 2009.

[Grochal] The state still owns shares in Zaklady Azotowe Pulawy [nitrogen plant in Pulawy] and Zaklady Azotowe Police [nitrogen plant in Police].

[Zuk] We are planning to privatize them in 2010. At that time, we will also be privatizing, for example, 10 spas scheduled for privatization in accordance with the government programme adopted in 2007. In 2011, wholesale markets should be privatized, for example Warszawski Rolno-Spozywczy Rynek Hurtowy Bronisze or Lubelski Rynek Hurtowy Elizowka. We will have to develop the concept of how they should be privatized.

We have planned that at the end of this period the companies producing technological progress in agriculture will be privatized, for example the companies dealing with breeding animals and farming. We have to think this over seriously. Currently we do not know yet how to carry through these transformations to fully take advantage of these companies’ innovation potential.

[Grochal] What about privatizing mines? Apart from Bogdanka [coal mine], will any mines be privatized?

[Zuk] Katowicki Holding Weglowy, and I hope also Jastrzebska Spolka Weglowa as well as Koksownia Walbrzych [coking plant], will be floated on the stock exchange in 2009, just like Bogdanka. The first stage of privatization will involve raising capital. Then the state treasury’s stakes will be sold.

[Grochal] Recently there have been rumours about privatizing TVP [public TV station].

[Zuk] The four-year privatization plan does not provide for this.

[Grochal] What about Orlen and Lotos [energy concerns]?

[Zuk] The plan for the next four years does not include the privatization of Lotos or any further sales of Orlen stocks. As for the merger between the two companies, currently there are no business reasons for this.

[Grochal] So how are you planning to get this Z5.5 million that, according to what the treasury minister says, the budget should receive in revenue from privatization this year? Most of the privatization deals will involve raising capital, so no money will flow into the state budget.

[Zuk] This is a large amount in revenue for this year given the current situation on the stock exchange. The budget provides for Z2.3 billion in privatization revenue, and we are able to achieve this.

[Grochal] But these are the assumptions made by the PiS treasury minister, who was criticized by the PO for the lack of privatization. You were supposed to accelerate privatization.

[Zuk] Our predecessors did not leave us ready privatization projects. We have no resources to cover privatization costs either. Moreover, when the PiS was in office, over 200 experienced civil servants left the ministry, which substantially reduced the effectiveness of the ministry’s activity. We are hoping to employ new people this year, who will not be afraid of privatization.

[Grochal] Were the ministry’s employees afraid of the privatization inspection team appointed by previous Treasury Minister Wojciech Jasinski? The team filed more than 10 notifications with prosecutors.

[Zuk] This team extended its activities to such an extent that it paralysed privatization. Minister Jasinski did not want to privatize. But even if he had wanted to, he would not have been able to do it, because the inspections totally paralysed the ministry. The ministry’s employees do not want to work in privatization teams, they prefer to supervise companies.

If we additionally take into consideration the difficult discussions held with the opposition in parliament and the Rejtan- like gestures [Rejtan was an 18th century parliamentary deputy famous for his vociferous protests against the partitioning of Poland] that will probably be made soon in connection with the privatization of PGE, Enea, or Gielda Papierow Wartosciowych [stock exchange], then, needless to say, this does not make the civil servants’ job any easier. Laying the foundations for dynamic and transparent privatization that would be carried through in a reliable manner requires time. And this is the task for this year.

Originally published by Gazeta Wyborcza website, Warsaw, in Polish 21 Mar 08.

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