Poland loses in PZU privatization row with Eureko

“Poland must be prepared to pay an enormous indemnity to Dutch insurance group Eureko, after a court of appeal in Brussels dismissed Nov. 26 the second petition of the Polish government to annul the unfavorable verdict of the London Court of International Arbitration over the PZU ownership row.

Two years ago the London court ruled that Poland, by preventing the completion of the privatization of national insurer Powszechny Zaklad Ubezpieczen (PZU), violated the terms of the Polish-Dutch agreement.

The agreement to sell shares in Polish insurer PZU SA to the consortium of Eureko and BIG Bank Gdanski was originally made in November 1999. The then Polish government of Jerzy Buzek sold 30 percent of PZU shares to Eureko and promised to sell another 21 percent, which would give it control over Poland’s largest insurance company. A turn around by the Polish government in 2002 truncated the agreement in a move to retain state control over the company.
This triggered Eureko’s lawsuit against Poland’s Ministry of the Treasury demanding the privatization of PZU be completed and a controlling stake in the insurer sold.

In response to the London tribunal’s 2005 decision, the Polish government made a counter claim that Eureko broke the agreement by suing for damages in an international court rather than a Polish court as agreed.

As yet, no amount has been set for compensation though it is expected to be substantial with Eureko and BIG Bank having paid 3.2 bln zloty ($1.2 bln) for the 30 percent stake eight years ago. The Dutch investor estimated its losses related to the government’s delay in selling the additional stake at 8 bln zloty. Other avenues for resolving the dispute are currently being negotiated with the new Platforma government, “”Our priority is to reach a compromise,” Michal Nastula, head of Eureko’s Polish unit told TVN CNBS Business. “”With former leaders of the Ministry of Treasury this failed but I don’t exclude a compromise with a new government. We don’t plan to stop the arbitration process until then.”

Treasury Minister Aleksander Grad is meeting representatives of the company in ongoing negotiations, with PM Donald Tusk seeking assistance from former PM Kazimierz Marcinkiewicz over the matter.

Eureko may withdraw their legal action at any time. The second phase of international arbitration has been put in train, although its schedule has not been finalized as yet.

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