Privatisation state of play

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In 2003, the privatisation process in Poland slowed down considerably and the contribution of the proceeds to public funds was much lower than predicted. The number of employees affected was relatively low and the threat of major job losses has not been as prominent lately as in the past. However, the remaining entities to be privatised from 2004 onwards include those in sectors such as mining, energy generation and armaments that have a strong trade union presence, and unions are sure to seek safeguards and benefits that will not always be acceptable to prospective investors.

Privatisation began in Poland in 1989. It has led to a change in the structure of the economy, which used to be subject to state interventionism and governed by politics. Privatisation involves denationalising the economy and passing state-owned enterprises into private hands. Ownership transformation has also entailed changing the system of industrial relations, for example altering the structure of corporate governance, weakening employee representation structures, and creating new economic attitudes among the workforce (PL0209103F).

In 2003, the privatisation process slowed down significantly, even taking into account the fact that the number of entities to be privatised is much smaller than it was even a few years ago. Around 30 companies were privatised by direct means, the ownership structure of several state-owned enterprises was transformed by indirect means, and 40 or so enterprises were liquidated. This lacklustre privatisation record in 2003 appears to have come as some surprise to the government, which had expected an inflow of some PLN 9.5 billion from the privatisation process (PLN 7.5 billion of which was to help cover the budget deficit) - as the year wore on, this forecast was reduced to PLN 4.5 billion. Matters may have been even worse were it not for the successfully completed sale of a 14.5% stake in Telekomunikacja Polska SA, the national telecoms operator, for an amount in excess of PLN 1.8 billion

Privatisation in 2003

According to data from the Ministry of the State Treasury (Ministerstwo Skarbu Państwa, MSP) only 83 economic entities were involved in ownership transformation processes in 2003.

Commercialisation

'Commercialisation' is regarded as a sort of introduction to privatisation proper. In 2003, the process whereby a state-owned enterprise is transformed into a commercial entity, with a view to its eventual privatisation, was commenced for 12 entities. Of these, more than half (58.3%) were in the industrial processing sector, and most of them were chemical producers. Most of the commercialised enterprises employed over 250 people and at the time of their commercialisation, the combined employment figure of the 12 enterprises stood at 10,387.

Indirect privatisation

In 2003, the 'indirect privatisation' method of ownership transformation was applied to six companies, which were thus opened to private capital. Most of the entities whose equity was placed on the markets were active in the industrial processing sector; the remainder were electricity producers/distributors and transport/logistics companies. Most of the entities for which the indirect privatisation method was chosen are medium-sized or large in terms of employment. While the employment structures of the various companies whose indirect privatisation commenced in 2003 were quite varied, those employing more than 500 employees were predominant. The aggregate employment figure of the enterprises covered by indirect privatisation in 2003 stood at 3,693.

As a general rule, the employment levels at such entities remains constant after commencement of the privatisation process; this is ensured by additional undertakings usually assumed by investors under 'social packages' negotiated with the participation of the trade unions active within the enterprise concerned.

Direct privatisation

Direct privatisation proceeds by one of three basic methods:

• outright sale;

• 'contribution' to a company;

• leasing/making available for use in return for a fee.

Sale is generally opted for in the case of enterprises with a weaker economic standing, which require short-order cash infusions and access to new markets. A total of 17 enterprises were sold in 2003; all of them were small or medium-sized enterprises employing fewer than 250 people.

The privatisation method whereby an enterprise is 'contributed' to another company is applied first and foremost for those entities which require long-term restructuring measures and investment outlays. Ten companies were privatised by this method in 2003, with the greatest proportion of them (40%) in the construction industry. These are typically medium-sized entities, with between 50 and 249 workers.

Leasing of an enterprise is a privatisation method addressed primarily to its workforce. It is generally applied in the case of entities enjoying a comparatively sound financial standing, which do not require large investment outlays in the immediate future. In 2003, the Minister of the State Treasury accepted nine applications for privatisation under this method, most of them from businesses in transport and production and employing between 50 and 249 people. According to information from the Ministry of the State Treasury, making available for paid use remains the most popular form of direct privatisation. Direct privatisation is generally resorted to in the case of enterprises of regional or local importance, whose continued existence and growth may have an impact on the broader economic situation of the locality.

Liquidation of state-owned enterprises

The most effective, and most often used, strategy for liquidating unprofitable enterprises while ensuring the continuation of their core activities comprises sale of blocks of assets to outside investors. This method, closely related to the direct privatisation procedures, usually leads to an improvement in the operating results of the saved portion of the liquidated enterprise and enables it to avoid mass redundancies. Such assets as are not sold to investors upon liquidation pass to the State Treasury.

In 2003, 35 liquidation procedures were commenced, 50 entities were deleted from the register of business enterprises, and 13 bankruptcies were announced. Most of the enterprises thus liquidated were ones carrying on industrial processing activity, qualifying as either small or medium-sized.

Appraisal of the privatisation process

The privatisation policies followed by the Polish government have been the object of some questioning, first and foremost as regards the sluggish pace at which privatisation is progressing. Agreement on this particular point is widespread. 'Acceleration of the privatisation process ought to be one of the priority tasks for the government. In recent years, privatisation has been dragging at a pace which is too slow by far', according to a member of the Polish Business Council (Polskiej Rady Biznesu, PRB).

It is argued that privatisation needs to progress with greater speed for two basic reasons. One is that large state-owned entities continue to suck up considerable amounts of money in subsidies. Thus, the argument goes, the sooner they are privatised, the sooner the state budget can realise large savings, in that it will no longer prop these enterprises up; the funds thus obtained can be put to better uses.

The PRB member quote above states that 'one can not forget that, these days, with the national budget stretched tight, the money from privatisation is much needed'. This summarises the second argument in favour of accelerated privatisation. However, the issue of augmenting the state budget with proceeds from privatisation has been a contentious one among experts. There is a widely held view that successive cabinets have been liberally devoting funds to stop-gap budgetary measures devised to assuage pressing problems and to soothe public opinion, rather than to long-term measures. As one Polish parliamentarian puts it, 'privatisation carried out in this way misses the point. Privatisation ought to guarantee growth, it should place new technologies at the disposal of companies.'

In the meantime, there is much to suggest that disputes of this sort are largely of a theoretical nature. Asked by an interviewer whether the expenses entailed in the reform of Poland’s pensions system will be covered with proceeds from privatisation, a former Minister of the State Treasury, Wiesław Kaczmarek, answered in the negative and explained that the State Treasury does not have at its disposal funds of this magnitude. The truth is that the holdings of the Polish state are dwindling, and that the market value of much of what remains is questionable.

Finally, successive cabinets have been accused of tolerating, or even cultivating, a close interrelationship between privatisation and party politics. It is claimed that enterprises that have not been privatised are useful for politicians, who fill management posts with their own supporters.

Privatisation plans for 2004

As of 31 December 2003, there were 1,166 state-owned enterprises in Poland, of which 24 had commenced direct privatisation procedures, 132 were in liquidation and 502 had been declared bankrupt.

Ministry of the State Treasury estimates put the proceeds from privatisation in 2004 at approximately PLN 8.8 billion, of which PLN 7 billion will go to the state budget. These funds will be earmarked, among other needs, for Poland’s contribution to the European Union budget and for compensation payments to farmers.

The government programme for privatisation of State Treasury holdings adopted in 2003 envisages a privatisation revenue of PLN 30 billion by 2006. The entities awaiting privatisation included Powszechna Kasa Oszczędności Bank Polski SA (PKO BP), the largest retail bank in Poland, and Polskie Górnictwo Naftowe i Gazowe (PGNiG) a major petroleum and natural gas producer. The list also includes an assortment of shipyards and steel plants, more energy/fuel companies, heavy chemicals operations, pharmaceutical producers, insurers and other financial institutions, transport operations, publishing houses and printing presses, spas, light industry operations, and research and development centres. Experts agree that, for roughly 80% of all these companies, actual privatisation must be preceded by restructuring and capital infusion; this is particularly true of the enterprises in the coal mining, steel processing, and gas extraction sectors and those producing chemicals, medicines, and armaments. It is envisaged that the Polish state will retain stakes of between 10% and 20% in the privatised companies, mostly in those dealing with various types of infrastructure. Such proportions would be typical of EU Member States. The State Treasury will retain control of airports, maritime and inland navigation ports, the railways, power networks, gas and oil pipelines, and telecoms trunk lines.

Commentary

Ownership structure transformations continue to stir up emotions in Poland, if not to the degree seen several years ago. There are not as many entities left to be privatised in the first place, and the spectre of mass redundancies does not loom as ominously as before. However, it is only now that privatisation of the mining, energy generation, or armaments sectors enters its decisive stages; these are industries with a strong trade union presence, and it is certain that the unions will press for safeguards and benefits which will not always be compatible with the interests of the prospective investors. Thus, there is some potential for conflict. (Rafał Towalski, Institute of Public Affairs [Instytut Spraw Publicznych, ISP] and Warsaw School of Economics [Szkoła Główna Handlowa, SGH])