Est. 8min 23-07-2003 (updated: 29-01-2010 ) Euractiv is part of the Trust Project >>> Languages: Français | DeutschPrint Email Facebook X LinkedIn WhatsApp Telegram Poland’s move to sell off two major branches of its economy, oil refining and steel, gives a clear idea of the government’s wish to create national and regional champions from traditional sectors of heavy industry. Polish Treasury Minister Piotr Czyzewski has made two long-awaited decisions crucial to two major branches of the Polish economy, oil refining and steel. While neither surprise decision will immediately result in privatization, both give a clear idea of the government’s underlying wish to create national and regional champions from traditional sectors of heavy industry in need of major restructuring. The decisions make it likely that the new owner of the bulk of Poland’s steel industry will be the Anglo-Indian group LMN Holding and increase the possibility that a new wholly Polish-owned oil refining giant will emerge. The privatization of most of the steel industry would remove what has been a major drain on public finances. The country’s failure to restructure its steel sector has also been a concern for both the World Bank and the European Union, which has been demanding cutbacks in production and greater efficiency. In the past, Warsaw’s failure to deliver on promises to cut customs duties on steel imports, writeoffs of tax and social security payments, and its payoff of debts run up by steel mills to local banks has led to run-ins with EU officials. The cost to Poland–in the form of losses racked up by the industry and bailouts–ran into hundreds of millions of dollars a year. The government’s major attempt to privatize the industry began in May 2002 when it merged the four largest steelworks, producers of 70 percent of the country’s steel, to form Polskie Huty Stali (PHS). Despite initial skepticism about the prospects of finding a buyer and the withdrawal of three large would-be buyers, the tender attracted both the world’s second-largest steel group, LNM Holdings, and the U.S. producer US Steel. For many, the decision to enter exclusive talks with LNM Holdings, an Indian-British group, rather than U.S. Steel was a major surprise. Several days before Czyzewski’s announcement, the daily Rzeczpospolita wrote that the American offer was less profitable but “politically proper”–and unofficial information had indicated that Polish and U.S. leaders had already struck a deal. Set against such political considerations was the recommendation of the government’s privatization commission, which felt that LNM’s offer was better. The earlier postponement of a decision was attributed in the press to attempts to find a nonpolitical justification to choose US Steel’s proposal. The surprise at the result was shared by Wladyslaw Molecki, the deputy leader of the Solidarnosc trade union in PHS. The sale is likely to be followed by significant layoffs. In a country where the unemployment rate is running at 17.9 percent, finding new jobs will prove difficult. Nonetheless, the promise of a good package of social benefits has muted trade union unhappiness. Jerzy Podsiadlo, the president of PHS, told Polish Radio that the better proposal has been chosen and in his eyes the steel producer is credible. US Steel, however, could still emerge as the new owner. Everything now depends on whether LNM Holdings and the state can agree on terms before 22 August, when the exclusivity period ends. If by then a deal has not been sealed–and Czyzewski has not ruled out this possibility–the government could resume talks with US Steel. The government’s demands include the assumption of $400 million of PHS’s debts, raising its capital by $100-150 million, and, in the last stage, buying shares worth at least $225 million. The strategic investor would also have to agree to a package to allay the social costs of laying off some of the 16,000 people employed by the four steelworks. The logic for an agreement appears strong. LNM Holdings already owns the two biggest steelworks in b oth the Czech Republic and Romania. However, the acquisition of Poland’s four major steelworks and their interests elsewhere in Central Europe could create a regional leader–and consolidate LNM’s prime position in the region. LNM’s expansion in the region has sometimes been controversial. In 2002, strong lobbying by British Prime Minister Tony Blair prompted a political storm in Britain after it emerged that, shortly before the Romanian government’s decision, LNM’s chairman Lakshmi Mittal had made a donation to Blair’s Labor Party. A LOTOS OFFERING The Polish government also believes that the country’s oil refineries could emerge as a regional powerhouse. This is the rationale for its decision to abort the tender for the purchase of Rafineria Gdanska, leaving another British company empty-handed. Czyzewski had been expected to announce the sale of a 75 percent stake in the refinery to a consortium comprising the Polish petrochemicals giant PKN Orlen and the British company Rotch Energy. Instead, he now says that the refinery will be merged with smaller refineries in southern Poland–in Jaslo, Gorlice, and Czechowice–and possibly with Petrobaltic, a firm exploring oil and gas fields in the Baltic Sea. The new group, which has already been established, is Grupa Lotos. The decision came after two years of effort to sell Rafineria Gdanska. However, this is unlikely to spell an end to PKN Orlen’s ambitions. Czyzewski said that he would like to see Grupa Lotos and PKN Orlen form a large Central European consortium. This could also include Hungary’s MOL and Austria’s OMV, which would increase the negotiating weight of Central European companies in talks with Russian and Arab oil suppliers. PKN Orlen, the biggest Polish fuel producer with 64 percent of the country’s fuel market, is already saying openly that it would like to buy Grupa Lotos. Pawel Olechnowicz, the president of Grupa Lotos, has indicated that the first talks could be held this autumn after the four refineries are merged. This time, though, PKN Orlen says it would not be looking for foreign capital–leaving Rotch Energy, which had once considered teaming up with Russia’s LUKoil, out in the cold. Kevin Rahimian, general director of Rotch Energy, is unhappy about Czyzewski’s decision, saying that he cannot find a logical explanation for the minister’s decison. Rzeczpospolita quoted him as saying that he could not rule out a court challenge to a change in the terms of the tender last year. PKN Orlen is already very actively trying to increase its interests in Central Europe–so far unsuccessfully. In 2000, it lost a struggle for a blocking minority stake in the Slovak company Slovnaft. It has shown an interest in Croatia’s INA, Unipetrol from the Czech Republic, and, two years ago, looked into the possibility of buying half of the German refinery Mider. None of these have yielded results. There were also rumors that Orlen wanted to buy a stake in Hellenic Petroleum. While the merger could make Rafineria Gdanska bigger, it could also leave it weaker. Adam Grzeszak, an economics expert who writes for the weekly Polityka, argues that “Rafineria Gdanska, a not very large company, could be dragged down by three obsolete factories that have received too little investment and whose existence is important more for social than economic reasons.” However, he sees one advantage in the minister’s decision: Poland has avoided a monopoly in fuel market–at least for the moment. It is an analysis that misses one important new opportunity. Grupa Lotos is one of the companies that won a subcontract from Kellog, Root & Brown, a branch of U.S. fuel services giant Halliburton, to help in th e reconstruction of the Iraqi oil sector. This could give Polish firms unprecendented direct access to oil wells. Visit Transitions Onlineto read more analyses about Eastern Europe.
