Poland Goes Private

Around a month ago I was speaking to a friend of mine about the problem of state-owned enterprises in Poland. Nothing too serious, but certainly enough to warrant a couple of cigarettes and a cup of gritty coffee that, in fact, is very hard to come by these days in Krakow. He started his diatribe with the inevitable words, “In the good old days…”.

OK. So what good old days? “Well, you know, when the state managed to pay for everything, and industry was really important, and, well, you know, people just got on with it and, oh damn, I just got some coffee froth on my shirt.” Without going into too much detail about the understandable gravitas of the situation, knowing that men in general do not like to get coffee on their shirts, it got me thinking. There really is a problem with state-owned enterprises in Poland. Without trying to make any drastic reference to Britain before Maggie Thatcher wielded her iron beating-stick, one can draw a comparison with the state Poland is in now; there are a few simple similarities that one can make about what can be done, what should be done, what might be done (if you’re lucky), and what’s not going to be done, even though in secret you really would like ‘it’ to be done.

Ah, the ‘it’ word. Privatisation. At the end of April, the Polish government decided that it would be a good idea to start privatising old state-owned enterprises. And this is the crunch: Between 2008 and 2011, 740 public sector companies are to yield an estimated figure of around 30 billion zloty revenue to the State Treasury, not a sum to be snubbed at. Out of these 700-or-so companies, only 19 are to be floated on the Warsaw Stock Exchange (which co-incidentally is also up for privatisation). LOT Polish Airlines (PLL LOT) and two subsidiary firms of the PKP, the Polish rail consortium, are to be amongst them. Looking at the British experience, privatisation of rail transport may be seen as a risky move.

But I’ll get back to that later. There is of course the issue of mining in Poland. And this is where the Thatcherite thinking comes in. Ever since Civic Platform came into power, Poland has seen a wave of strikes across the public sector, especially in mining. In the latter months of 2007, the Budryk mine in Ornontowice in Silesia, the industrial heartland of Poland, saw a strike that Poland hasn’t seen before. Problems with takeovers and a worry over lay-offs saw around 130 miners go on strike for 46 days. Occupational strikes, that turned into hunger strikes in extreme cases, kept the Polish people glued to their TVs for hours on end. Of course money was promised and work began soon after, but it shows how fickle the sector is at the moment. Now nine companies in the mining sector are to be privatised.

Transport is another sector that is going to be facing changes. The state rail subsidiaries PKP Intercity and PKP Cargo are to undergo privatisation. Having lived so long in the UK, the very though of privatising any rail company sends shivers down my spine. But then again it is not the tracks that are up for sale, just two of the transportation companies that use the Polish rail network. PKP Intercity is one of the main passenger rail transport companies in Poland, with PKP Przewozy Regionalne coming in a close second. With the privatisation of one company, one can but wonder what will happen to the second, which might begin to catch on the Public-Private-Partnership (PPP) or Private Finance Initiative (PFI) schemes within certain Polish regions (voivodeships) to keep afloat.

Rail transport in Poland could be profitable for as long as the roads in the country are still lacking in any serious clout, and private investment that would come from privatisation would result in better services that are more tailored to the end user. But for that to happen, the lines need to be upgraded, and the lines are still in the hands of the state.

But moving away from rail, Poland’s national carrier LOT Polish Airlines is finally going to be sold, after almost being sold, floated, bought, and what-have-you a number of times. And with a new fleet of Boeing 787s coming in very soon (the airline is the first in Europe to have ordered such machines), any serious investor is going to give it a try. And why not? The airline is to float on the Warsaw Stock Exchange by the end of February 2009, and I don’t know whether I’ll buy some shares myself.

But back to this idea of getting coffee stains. The present government is going to have to work very hard so that this new wave of privatisations goes smoothly. Yes, the government promises to retain 26 key companies that lie in the public interest, such as Lotos and PKN Orlen, the main refineries, as well as the PAP Polish Press Agency, and TVP and Polish Radio. But as soon as the government announced to sell so many stakes from the State Treasury, the opposition Law and Justice (PiS) party slammed the idea. Too few companies floating on the stock market means that it might be hard to track the transparency of the whole affair. But the present government’s probably not too worried about that anyway. 40% of the monies collected from the privatisation deals are going to the so-called “Demographic Fund” ? basically pensions. And what does that mean? Early retirement all around.

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