Social partners divided over government plans to maintain influence over privatised companies

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In July 2004, the Polish Ministry of the State Treasury proposed the creation of a 'golden share' mechanism, giving the state considerable influence over the activities of some privatised companies. Following criticism, the Ministry withdrew this plan and instead called for the government to have a power of veto over certain decisions taken by privatised firms. The Ministry's plans are strongly opposed by employers' organisations, notably the Polish Confederation of Private Employers (PKPP), but supported by trade unions, especially the All-Poland Alliance of Trade Unions (OPZZ), which see this as a way of preventing redundancies in former state-owned companies.

Privatisation of state-owned enterprises in Poland has brought in revenue for the national budget (PL0406105F) while leaving many of the enterprises themselves with better prospects for growth. On the other hand, as the State Treasury continues the privatisation programme, it gradually relinquishes control over the entities being privatised. Opponents of privatisation argue that, in some cases, this loss of control may be tantamount to compromising the national interest in terms of, for instance, the availability of fuel and of energy (and of the economic stability based on this availability). Furthermore, from the point of view of the government, the fact that privatisation diminishes its influence on appointments to the management and oversight bodies of the enterprises involved is also a consideration.

In 2004, the government proposed a partial resolution of this dilemma though the introduction of 'golden shares' controlled by the Ministry of the State Treasury (Ministerstwo Skarbu Państwa, MSP). The idea is that the holder of the golden share in an enterprise, most typically the State Treasury, is entitled to special privileges, even if the monetary value of this share stands at as little as 1% of the given entity’s capital. Probably the most extensive use of the golden share scheme was made by the UK government in the course of a sweeping privatisation programme carried out in that country during the 1980s. Since then, similar legal solutions have been implemented by other western European countries.

Golden share or veto power

A proposal for amendments to the Commercial Companies and Partnerships Code, announced in Ministry of the State Treasury communiqués at the beginning of July 2004, provided for the implementation of a golden share mechanism in Poland. However a lack of precise delineation of the State Treasury’s prerogatives with respect to these golden shares, the privatisation track record to date, the varied understanding of golden shares in those countries that already have practical experience with their use, and European Court of Justice (ECJ) case law on the matter, caused Polish employers' organisations (PL0209104F), most notably the Polish Confederation of Private Employers (Polska Konfederacja Pracodawców Prywatnych, PKPP), to speak out strongly against the proposals.

The Minister of the State Treasury took this criticism into account, modifying his proposals for amendments to the Commercial Companies and Partnerships Code by deleting the provisions concerning the golden share and, in their stead, introducing a veto power. Under this mechanism, as stated in the Ministry’s relevant communiqué, 'the minister charged with the State Treasury shall hold veto power with respect to certain resolutions of the governing bodies of [state-owned] companies'. The communiqué then elaborates on the motives underlying this decision: 'inalienable duties of the state concerning, in particular, guaranteeing security, public health, public security and operation of utilities, have actuated preparation by the Minister of the State Treasury of proposed amendments to the Commercial Companies and Partnerships Code.'

The veto power would remain independent of the number of shares in the given enterprise held, whether directly or indirectly, by the State Treasury. Under the proposed amendments, the Minister of the State Treasury would gain the right to assign one or two observers to the former state-owned enterprise; these observers would have the right to sit in on meetings of the board of directors (but not to vote) and to inform the Minister of decisions arrived at. These observers would receive remuneration out of the state budget.

According to the Ministry of the State Treasury communiqué, use of the veto power would be limited to not more than a dozen or so companies, a list of which would be announced in a separate instrument. Ministerial abuse of the veto power would be safeguarded against by judicial control - ie a legal avenue for challenging Ministry of the State Treasury decisions before the courts. Where such a challenge is mounted, the directors of the company in question would have to refrain from acting until such a time as the question of the veto has been definitively settled by the courts.

The golden share in EU law

The basic principles on which the market of the European Union is founded include the free movement of capital, as expressed in Article 56 of the Treaty establishing the European Community (TEC). Divergent interpretations of Article 56 with reference to golden shares led the European Commission to issue in 1997 a document dealing with the legal aspects of internal investment in the EU. In it, the Commission adopted the position that a golden share may be used only in defence of the public interest (as defined in Article 58 of the TEC). Having arrived at these conclusions, the Commission proceeded to bring proceedings before the ECJ against a number of countries (including Belgium, France, and Portugal) which, in its belief, made use of golden shares in irregular ways. Overall, the verdicts issued by the ECJ in these cases vindicated the Commission’s position; only in the case of Belgium was it held that the golden share had been legitimately used, in that the 'energy security' of the country - and thus the public interest - was at stake.

These limitations on use of the golden share laid down in the legal practice of the EU are of relevance to the proposed amendments to Poland’s Commercial Companies and Partnerships Code. It may thus be the case that the list of state-owned entities over whose management the State Treasury would hold veto power could include the petrochemical companies - PKN Orlen, Grupa Lotos and the Naftobazy storage company - and electricity generation companies - Polskie Sieci Elektroenergetyczne (PSE), Południowy Koncern Energetyczny (PKE) and the power plants in Bełchatów, Opole, and Turów. Also, the State Treasury would certainly want to retain control over KGHM Polska Miedź SA, a major copper producer, although the extent to which this may be possible without running foul of EU law is presently unclear.

Assessment of proposed amendments

The social partners have been taken diametrically differing views of the issue of State Treasury control over selected former state-owned companies. The most uncompromising positions - for and against the amendments, respectively - were adopted by the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) and the PKPP employers' organisation.

For their part, the Independent and Self-Governing Trade Union Solidarity (Niezależny Samorządny Związek Zawodowy Solidarność, NSZZ Solidarność), the Confederation of Polish Employers (Konfederacja Pracodawców Polskich, KPP) and Business Centre Club - the Employers’ Union (Business Centre Club - Związek Pracodawców, BCC) have published no official statements on the subject. By the same token, this issue has not been taken up by the national Tripartite Commission for Social and Economic Affairs (Komisja Trójstronna do Spraw Społeczno-Gospodarczych) (PL0210106F). The session of the Tripartite Commission convened on 20 July 2004 was devoted in its entirety to the premises of the national budget for 2005 and to the related subjects of indices tracking increases in remuneration in the public sector and in the minimum wage. It is currently difficult to predict whether state control over enterprises will be included on the Tripartite Commission’s agenda at any time in the near future.

As regards the position of OPZZ, the second-largest trade union organisation in Poland, its support for the proposals formulated by the Ministry of the State Treasury has been unqualified. The union’s chair, Jan Guz, has been quoted by the Polish Press Agency (Polska Agencja Prasowa, PAP) as saying that 'somebody must have the possibility to step in so that privatisation does not end in redundancies. The employees themselves, or the trade unions, will not do this.' This statement suggests that OPZZ favours, first and foremost, preservation of the status quo as regards employment levels. This stance comes as no surprise, as it is fully in line with the traditional position of trade unions. However, the declaration by Mr Guz might also be taken as meaning that, no matter what, no workforce reductions should take place - even if, for instance, the enterprise in question is losing money. Such an outcome, in the view of the OPZZ activists, can be guaranteed only by the State Treasury, equipped with a veto power. The question arises, according to some commentators, of how preserving current employment levels at all costs sits with the principle of safeguarding the public interest which, under EU law, can be invoked in wielding such a veto.

A polar opposite of this view has been adopted by PKPP, which explained its position at length during a press conference organised on 26 July 2004. It was in the wake of this same press conference that the Ministry of the State Treasury abandoned its original proposal dealing with golden shares and, instead, began to propose veto powers for the state.

PKPP views the proposed amendments to the Commercial Companies and Partnerships Code as nothing short of a violation of the very principles of the market economy, and has expressed surprise that, following 15 years of market reforms, the government now appears to be taking a step or two in the opposite direction. Representatives of PKPP have stated that greater rights for the State Treasury contravene the basic principle of equality among participants in market relations, as well as breaching the constitutionally guaranteed right to ownership of property by impinging on the freedoms of private business.

In the opinion of PKPP, if state control over companies whose privatisation is already well underway were to be increased, the message received by investors who had bought shares in a given enterprise on specific terms would be that these terms are subject to change at the whim of the government, leading to a drop in investor confidence. 'Reduced trust'[by investors] 'in the state', the PKPP argues, 'will result in lower valuation of any shares offered for sale in the future in that the investors will have no certainty whether their specific companies will not be deemed by future cabinets to be entities of strategic importance to state security or to the public interest. In addition, by breaching contracts made by it in the past, the state is undermining respect for the law and increases the general propensity for underhand behaviour, increasing the risk - and thus the expense - entailed in pursuing business activity in our country.'

As regards the enterprises yet to be privatised, the potential implications of the proposed amendments to the Code, as viewed by PKPP, are equally grave. It may be that the prospect of significant state interference in an enterprise’s management will cause prospective investors to regard shares in such enterprises with much caution. This, PKPP reasons, is because investors think in purely mercantile terms; the politicians who, according to the proposed legislative amendments, would a major say in the enterprise’s running, meanwhile, 'often pursue otherwise defined goals of a national, partisan, or even personal nature'. All this would amount to a negative impact on the value of the enterprise in question and, as a result, the State Treasury could not realise the hoped-for revenues from its privatisation, PKPP claims.

A point of particular concern for PKPP is the proposed assignment of Ministry of the State Treasury observers to the enterprises concerned. KPP considers this to be too strong an instrument, 'interfering with private entrepreneurship. The proposed regulation is freighted with considerable risk of uncontrolled 'leakage' of information ... It is an object of protest and of concern to the business community that persons not vested with a mandate from the directors of the company can, among other rights, take part in board meetings and, thus, enjoy access to the commercial secrets of private enterprises.'

Representatives of PKPP have also expressed some scepticism over the Ministry of the State Treasury’s claim that it will be restrained in drawing up the list of companies subject to its veto power.

Thus, overall, PKPP is worried about the legal aspect of the proposed amendments to the Commercial Companies and Partnerships Code - notably in terms of violation of the inviolability of private property, as guaranteed in the Constitution - as well as by their economic implications - eg a reduction in state budget revenue.

Experts in the relevant fields are as divided in their assessment of the proposed amendments to the Commercial Companies and Partnerships Code as the social partners. The general view expressed by PKPP is endorsed by Bogdan Wyżnikiewicz of the Institute of Market Economy Studies (Instytut Badań nad Gospodarką Rynkową, IBnGR), who believes that 'such a move would be tantamount to admission by the State Treasury of its inability to make use of its existing rights as shareholder'. Mr Wyżnikiewicz adds that 'such a legislative provision will make the Polish economy less competitive in that it will undermine the confidence placed in it by foreign investors'.

A different view has been expressed by Stanisław Sołtysiński, a lawyer specialising in the commercial field, who welcomes the proposed amendments and believes them to be very much needed. In his opinion, the regulations proposed by the Ministry of the State Treasury may 'accelerate the process of privatising companies of strategic importance over which the state must maintain control. Now, in order to have such control, it must hold at least 34% of the shares; this control can be assured by way of the veto power'. Professor Sołtysiński believes that, in practice, the scope of government intervention will be very limited, confining itself to basic decisions of a purely economic nature rather than to politics or to personnel matters. He believes that the state might resort to its veto power if, for instance, PKN Orlen - motivated by considerations of economy - were to begin maintaining oil stockpiles in Slovakia. If implemented, such a decision would compromise the 'energy security' of Poland, and its implementation could be prevented by a State Treasury veto. Professor Sołtysiński also seeks to assuage the fears of the amendments’ opponents by suggesting that, no matter what course is taken by the Polish government, compliance with EU law must be maintained at all times; EU law imposes extensive restrictions on the state’s room for manoeuvre in this respect.

Commentary

The amendments to the Commercial Companies and Partnerships Code proposed by the Ministry of the State Treasury, which would enable the State Treasury to retain some control over nationally owned enterprises following their privatisation, have met with sharp criticism from employers' organisations while being embraced by the trade unions. The ensuing debate has illustrated with striking clarity the basic contradiction in the thinking of the social partners. The employers' organisations propagate laissez-faire free markets. The unions, meanwhile, adopt the position that only the 'state as owner' will be ready to accede to union demands, and they regard the economic and social situation in the light of the formula 'more state ownership = greater union power'. This power, in turn, would be directed by the unions first and foremost to maintaining current employment levels at the individual enterprises.

State control exercised over enterprises can be justified in the case of entities that provide raw materials and/or energy; in such instances, the state acts as the guarantor of the country’s energy security. Control over the fuel or energy sector and influence on decision-making within specific enterprises active in those sectors also assume the role of instruments for pursuit of sectoral policies in these areas. The experiences of recent years, however, suggest that, all too often, control by the state becomes not an instrument for cohesive implementation of concrete programmes, but a goal in and of itself.

The issues discussed above are complex, given the mutually contradictory interests at play (those of the employers' organisations and of the trade unions, for instance) and the fact that, no matter what means of blocking action by former state-owned enterprises is placed at the disposal of the State Treasury, the legal and economic impact will be a multi-faceted one, bringing advantages as well as problems. One should also consider whether, in the longer term, the uncompromising stance adopted by the OPZZ union - comprising blanket refusal to countenance any redundancies at the enterprises being privatised - will not actually contribute to the bankruptcy of all companies concerned, bringing the loss of not some, but all of the jobs at stake. The purely economic dilemmas associated with privatisation, concerning the choice between maintaining State Treasury control and increasing state revenue from privatisation, go hand in hand with political problems - the further privatisation of state-owned enterprises progresses, the less influence is left to the government with respect to appointments within those enterprises. (Piotr Sula, Institute of Public Affairs [Instytut Spraw Publicznych, ISP] and Wroclaw University [Uniwersytet Wrocławski])

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