Poland is for sale – this was the message brought by the country’s treasury minister Alexander Grad on a fleeting visit to London in late February.

Mr Grad visited London to announce a major privatisation programme for 2009, which will see the Polish treasury divesting its interests in about 800 companies in different industrial sectors over a period of four years or more, depending on market conditions and investor appetite.

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The minister acknowledged that the announcement comes at an interesting or even difficult time, but believes that the dangers of realising a less than optimum price for state-held assets are outweighed by the benefits of bringing them into private ownership.

 

No stopping

At a briefing in London on February 25, Mr Grad told fDi that his most “important message” for investors is that “we are not going to stop the [privatisation] programme just because of what is happening in the world”.

On offer are shares in companies representing sectors including finance, power and utilities, chemicals, engineering, metal, electronic engineering, food processing and transport and shipping – with the governments estimating sale proceeds of about 12bn zlotys ($3.4bn) in the first year of the programme.

In the face of global liquidity issues, clearly valuation will be an issue for the Polish government – which will not be able to realise the kinds of prices for assets which it might have been able to expect if the programme commenced a year previously.

However, Mr Grad insists that the Polish economy remains robust. “Our fundamental economic situation is much stronger than that of many of our neighbours. It is true that the economy is slowing – but we are not going into recession,” he says.

In the final quarter of 2008, he says, GDP was at 2.8%, compared with 4% year on year for the final quarter of 2007. Growth predictions for 2009 range between 1.7% and 3.7%, bolstered by a package of some 90bn zlotys in EU stabilisation funds.

 

Sound basis

A fundamentally sound market and economy will, according to Mr Grad, be one of the factors which will draw in investors. “Last year, we successfully privatised 100 companies. We believe that this gives us some credibility. We are prepared to sell at current market valuations because we know that price is just one consideration among many. It is much more important for us, for the sake of our employees, that we keep these enterprises afloat. And we know that the Polish treasury is not the right owner to ensure that this happens,” he says.

Some of the most exciting prospective assets are in the financial services, energy, minerals and chemical sectors. Pending clearance from an important constitutional court, investors will soon be invited to bid, for example, for shares in the Warsaw Stock Exchange, currently 98.8% owned by the Treasury, which plans to sell all but 25% plus one of the shares in the exchange within the next two to three years.

The government hopes that energy companies PGE Polska Grupa Energetyczna (which produces 40% of Poland’s domestically produced electricity), ENEA, the owner- operator of the largest coal-fired power plant in Poland, and ZE PAK will also appeal to investors. The government will keep a controlling stake in PGE, but will dispose of its 77% shareholding in (Warsaw Stock Exchange-listed) ENEA, and its 50% share in ZE PAK.

In the mining sector, the Treasury intends to sell a minority stake in Lubelski Wegiel Bogdanka. Currently, 97% of shares in the hard coal producer are owned by the Treasury, which intends to maintain a majority share but will initiate a public offering by the end of the year.

 

Economic outlook

Since its 2004 accession to the EU, Poland’s economy has boomed, with 5% growth right up until 2008. Private industry has taken off, largely financed by an increase in liquidity driven by both EU stabilisation funds and foreign ownership of the banking sector.

A negative associated with accession – or, more correctly, a mixed blessing – has been the flight of young, well-educated professionals who have sought employment elsewhere in the EU, gaining valuable experience but depriving Poland of the benefit of their presence. The slowdown in the West, not least in the UK, which has absorbed a significant number of Poles, has led to a reverse flight from which Poland will benefit – if the economy is able to find employment for its talented returnees.

Mr Grad says that the Polish banking sector has not seen anything like the toxic asset-

related issues encountered in the West, although the sector is mostly controlled by foreign parent banks, many of which are experiencing difficulties.

Nevertheless, the country faces difficult times. EU regulations on state subsidies are forcing the closure of a number of state industries – including some of the shipyards which spawned the Solidarity trade union, instrumental in the demise of Polish communism – which for decades have constituted major employers. The agricultural sector is also due for possibly painful reform.

 

Uncertain times

Given the economic uncertainties that Poland faces, and the sometimes difficult transformations that it has undergone, it is little surprise that a socialistic and protectionist bent represents a component of the country’s political make-up.

Poland’s president, Lech Kaczynski of the Law and Justice party, has tried to prevent a rapid transformation from a social welfare-driven state towards the free market. Prime minister Donald Tusk of the Civic Platform is endowed with a broader portfolio of executive powers, and has pledged to ease relations with Poland’s stakeholders and neighbours, including both the EU and Russia.

Mr Grad insists that despite political opposition, the Polish public is largely behind the sale – and has appealed through demonstrations in recent months for an acceleration of the privatisation process. The public, he says, is fully aware that privatisation will bring new challenges, but is prepared to attempt to overcome them in the interests of a sustainable economy in the long term.

The great unknown, however, is how investors will respond to the Polish government’s overtures during this period of all-round uncertainty.