Tuesday, 5 April 2011

Selling the Crown Jewels

The Polish government is speeding up the privatisation process by selling off some of its most prized assets. Under pressure to reduce its deficit the PO adminstration has announced a series of equity sales by the end of the year that should earn the government more than zł15bn.

The largest single asset sale concerns the potential selling off of zł14.5bn worth of government shares in the bank PKO Bank Polski SA (PKO BP). The Polish state owns 40.99% of PKO BP shares outright, with the state-owned Bank Gospodarstwa Krajowego (BGK) holding a 10.24% stake. The Polish treasury has announced that BGK will sell its entire stake, whilst the number of shares being offered by the Ministry will depend on market demand, with the government planning to retain around 25% of the bank's shares. The government is carrying out and planning a series of other high-profile privatisations in 2011. By the end of June it hopes to launch Eastern Europe's biggest IPO this year, through selling the European Union's largest coking coal miner - Jastrzębska Spółka Węglowa (JSW). Last month the Polish government sold an 11.9% stake in the country's second-largest power utility, Tauron Polska Energia SA. The government is also attempting to sell its controlling stake in smaller utilities such as Energa SA and Enea SA and the crude oil refiner Grupa Lotos SA. Between 2008 and 2010 the sale of state assets increased considerably, earning the Treasury around zł33bn. This is below the projected zł40bn planned by the government for 2011 and explains its decision to speed up privatisation so as to make up for the shortfall in its revenue.

Once again the Polish state is selling companies and assets - built during communism - to cover its deficits. This is not a new situation. Privatisation speeded up significantly towards the end of the 1990s, with income from privatisations quadrupling between 1997 and 2000. Income from these privatisations were used to control the country's public finances. However, once the privatisations subsided then the budget deficit, already strained by stagnant economic growth and soaring unemployment, doubled to 4.5% - triggering a crisis that brought down the government. What is particularly worrying about the present privatisation drive is that it concerns large strategic companies that are also increasingly profitable.

During the first 9 months of 2010 JSW earned a net profit of zł741m. Miners from JSW are planning on holding a strike ballot this week - arguing that the company is only being sold to cover the government's budget deficit. PKO BP achieved the best results of the whole recovering banking industry in Poland last year, gaining a profit of zł3,311bn, an increase of 36,1% from 2009. In 2010 the profits of Tauron Polska Energia SA grew to zł859m from zł774 in 2009. In the first 10 months of 2010 Energa SA cleared a profit of zł645m - compared to zł425m for the whole of 2009. In the first 3 quarters of 2010 Enea SA recorded a profit of zł574,4m, compared to zł446,4m during the same period of 2009. Finally, in 2010 Grupa Lotos SA scored a profit of zł770m- 83% greater than in 2009.

While the government seems keen to sell all that it can get its hands on, Polish society is more skeptical. 67% of society (against 18%) believes that the government's large strategic companies should not be privatised. Also, 68% of Poles (against 16%) think that state assets should not be privatised in order to cover the government's budget deficit.

One wonders what will happen when the Polish state eventually manages to sell off all those assets that it inherited from Communism? At the current rate of privatisation we will soon find out the answer.

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