Friday, October 26, 2012

Polish Government Continues to Privatize State-Owned Businesses to Reduce Budget Deficits and Strengthen Economy

Bloomberg: Poland to Overshoot Deficit Target as Economy Slows 
BNE: Poland Mulls Selling JSW Stake to Hit Privatisation Target
FT: Privatisation: State Takes Strategic Approach to Sell-offs
Warsaw Business Journal: Treasury Reveals Plan to Hit 2012 Privatization Target
Warsaw Business Journal: Treasury Expects zł.5 billion from Privatization in 2013
Warsaw Voice: Privatization Plan for this Year is Feasible - Treasury Minister
WSJ: Poland Steers Small Firms Private
WSJ: Poland to Privatize via Public Offerings, Book Buildings

The Polish government, as part of its 2012-2013 privatization program, is planning to sell over 300 large and small state-owned companies to reduce the federal budget deficit and strengthen its economy. The Polish government owned all of Poland’s means of production when the state was a communist nation between 1945 and 1989. However, Polish government officials have been attempting to privatize the country’s businesses since the country moved from a communist economic system to a market economy. Privatization activity increased in 2007 when the center-right Civic Platform party came to power. The Civic Platform’s last privatization program ran from 2008 to 2011 and raised almost 44 billion zlotys (Poland’s currency) from asset sales. The party instituted its current privatization plan in April 2012 with the goal of raising an additional 10 billion zlotys from sales by the end of the year, and an additional 5 billion zlotys throughout 2013.

The central component of Poland’s privatization program involves selling stakes in large state-owned blue-chip (nationally known and reliable) businesses through stock offerings—sales of fractional ownership shares to private investors. Sales of these companies are driven by the Polish government’s need for revenue to reduce the country’s budget deficit. Poland’s Finance Ministry expects the country’s deficit to total 35 billion zlotys in 2012 and 35.6 billion zlotys in 2013. Although the government would like to maximize the funds from its asset sales to reduce this deficit, it has chosen to sell only partial stakes in many large companies that it views as vital to national interests. For example, Poland was able to raise 5.5 billion zlotys earlier this year by selling a 7% stake in PGE, a power generation company, and a 15.8% stake in PKO, Poland’s largest insurer. This allowed Poland to raise a substantial portion of its 10 billion zloty target for 2012, while retaining control over two companies operating in important industries.

Another part of Poland’s privatization program involves selling 100% ownership stakes in smaller businesses to private investors. While revenue from these sales ultimately helps the government reduce its deficit, the primary motivation behind them is to improve the competiveness of Poland’s small businesses. Many of these small, non-strategic, state-owned companies are unprofitable or poorly managed. The government has hesitated to shut them down outright because they can employ hundreds of Polish workers. Instead, the government sells the companies to new private owners in the hopes that these owners will invest additional capital in the businesses and improve the efficiency of their operations. For example, in August 2011 Poland sold an unprofitable match factory employing 300 workers to a German corporation for approximately 13 million zlotys. Although the German company cut 50 jobs at the factory, it also invested in new technologies and made the factory profitable within one year. Poland’s Prime Minister, Donald Tusk, believes sales like this will make Poland’s businesses more competitive and ultimately keep the Polish economy growing.

As of September 2012, the Polish government had already raised 8 billion zlotys from sales of state-owned companies. Despite recent problems finding investors for large oil refineries and power generators, Poland’s Treasury Minister, Mikolaj Budzanowski, believes the country will meet its privatization target for the year. He expects the remaining 2 billion zlotys in asset sales to primarily come from an IPO (initial public offering of stock) of a 50% ownership stake in ZE PAK, a power complex, and PHN, a portfolio of government owned real estate. Budzanoski also plans to raise several hundred million zlotys from the sale of smaller companies, including an animal-breeding station, some health spas, an animation studio, and a pottery manufacturer. In 2013, the Treasury Ministry hopes to raise an additional 5 billion zlotys through the privatization of state-owned financial and chemical companies. The timely completion of these asset sales will help Poland reduce budget deficits in the short run through increased revenues, and grow its economy in the long run through a more competitive private sector.

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