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Poland regained its independence in 1918 only to be overrun by Germany and the Soviet Union in World War II. It became a Soviet satellite country following the war, but one that was comparatively tolerant and progressive. Labour turmoil in 1980 led to the formation of the independent trade union "Solidarity" that over time became a political force and by 1990 had swept parliamentary elections and the presidency. A "shock therapy" program during the early 1990s enabled the country to transform its economy into one of the most robust in Central Europe, boosting hopes for acceptance to the EU. Poland joined the NATO alliance in 1999.

Update No: 057

The Poles are disgruntled with their lot, even while in conventional terms of transition economics their country is doing well. Growth of GDP was averaging more than 5% per annum for years in the 1990s. But in 2001 growth was only 1.5% and in 2002 a prospective 2.5% might prove to be unduly optimistic. A serious result has been a rise in unemployment to 17.4% of the work force in December, the worst since the collapse of communism in 1989.
A new government has come to power in Warsaw, the Democratic Left Alliance (SLD) or ex-communists. Paradoxically the interlocutors of Poland in Brussels concerning its adhesion to the EU welcomed the development, preferring them to their predecessors, the Solidarity-led coalition. Solidarity may have had its moment of triumph a decade ago, but has been less successful in winning the peace than it was in gaining independence. It was dragging its feet on adapting Polish legislation to EU norms to placate its peasant party allies and its trade union supporters in the coalmining areas and the ports.
The previous government was also unpopular with the voters, who showed their disillusionment by not even giving Solidarity 5% of the total vote, thereby disqualifying it from parliamentary representation at all. The SLD has the clearest mandate of any party since independence.
The main opposition indeed is really the central bank, headed by the veteran reformer Leszek Balcerowicz, who resigned from the financial ministry in the Solidarity-led government well ahead of its inevitable demise. The central bank is refusing to lower interest rates, determined to reduce inflation to permit Polish membership of Euroland as soon as possible after EU accession. The SLD government may even retract the central bank's independence if it does not change its tune. But this would be seen as a most irresponsible step by Brussels and be in effect vetoed by it. 
Poland is sure to be among the first entrants to the EU, most people assume, but there is one grave problem. The Poles have an inordinate fear of foreigners, especially Germans, buying their land, the occupation of which in earlier centuries led to national disaster, Poland losing its very independence for two centuries. The new government, like its predecessor, is sticking in its heels at disallowing foreigners to buy land in Poland, at least for 18 years. The other entrants have all complied with EU norms in this respect, agreeing a seven-year transition period, but not Poland. An opinion poll in July showed three-quarters remaining adamant in support of an 18-year moratorium, even if this delays EU membership.
The government may be holding out for a compromise of say 10-12 years, a marked concession recognising Poland's special status as easily the largest applicant country and historically the most wronged. The symbolic impact of Poland not being in the first wave would be outlandish. Some sort of deal is highly likely.

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Finance Mininistry to establish 3 bonds switch auctions

Poland's finance ministry said it will arrange three Treasury bonds' switch auctions by the end of January. The first was set for January 15th, the second January 22nd and the last January 29th. In its communiqué dated January 7th, the ministry said it wants to repurchase OS0202, OK0402 and KO0402 bonds as part of the first two auctions, and OK0402 bonds on January 29th, according to ISB..
The ministry added it will convert OS0202 into PS1106 bonds, while the offer for OK0402 and KO0402 and KO0402 bonds will be extended, ISB wrote. Interested buyers will be able to convert OK0402 and KO0402 into both PS1106 and OS1004 bonds.
OS1004 will be at 8.5 per cent and its maturity date akin to the initial maturity date of bonds meant for switching, the communiqué said. The ministry could slash its debt with Treasury bonds' switch auctions. 

Poland to receive new bond tranches from EIB

Poland will receive new bond tranches from the European Investment Bank (EIB), according to the Polish News Bulletin. The initial two tranches were completely obtained by institutional investors, Bank Handlowy's, Marcin Burda, was quoted as saying. Bank Handlowy was the only arranger and underwriter of this issue. The profits generated from this issue will be reinvested into Polish projects. How they will be used is not clear. EIB initiated bonds distribution, valued at three billion zlotys in December 2001, with maturity dates in 2011.

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Builders to benefit from construction lull

Growing demand for office space in Warsaw resulting from a lull in construction will help stimulate the recovery of office construction firms by the end of 2002, property analysts said.
Private construction firms have fallen on hard times with the slowdown in the Polish economy leaving order books unfilled and construction stocks plummeting in value, the Budapest Business Journal reported.
The Central Statistical Office (GUS) business confidence indicator for the construction industry in November hit its lowest level since records began in 1993 with -19 points, compared to -5 points last year. GUS' research regarding business optimism in the construction industry concludes that the financial condition of builders will worsen in the next three months, prices for construction services will fall and further job cuts are likely.
Moreover, with 29% of construction companies declaring overcapacity, a further decline in order books will lead to falling prices for construction services and profits, according to GUS. Arkadiusz Skowron, construction analyst at Dom Maklerski WBK, said government cutbacks on expenditures designed to minimise the 2002 budget deficit would reduce the number of public sector construction projects. "The budget problems mean that the construction industry cannot expect large public sector orders next year," Skowron said.

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Elektrim to sell Kable to KFK for US$110m

Elektrim will part with its cable unit Elektrim Kable. Krakowska Fabryka Kabli (KFK) will pick up the stake for US$110m after it offered 5.26 zlotys for each share, Elektrim said in a statement, reports New Europe. Kable is 70.5 per cent owned by Elektrim, which had consented to the stake sale for US$100m to KFK before the watchdog stepped in and blocked the agreement. The ban was finally lifted and allowed Elektrim to sell its share, which will help it boost its coffers with some urgent funds.

Mining industry reform needs US$577m

The state budget will have to come up with around 2.3bn zlotys (US$577m) by the end of 2002 to conclude a reform of the mining sector, according to the Economy Ministry, PAP News Agency has reported.
Economy Minister, Jacek Piechota, has said that the reform should have a wider scope. Also necessary are organisational changes in the structure of this sector.
Piechota stressed that when taking over the ministry he found "an unsolved situation of the mining sector's indebtedness and dramatically deteriorating situation of a number of other Polish enterprises, including shipyards."
He stressed that the government will use funds from privatisation more rationally and that it plans to earmark them, in part, for the restructuring and modernisation of the mining, steel and arms industries.

Poland plans to discuss gas supply contract with Norway

The government wants to meet Norwegian officials to discuss whether it is possible to implement a contract on the delivery of 74bn cubic metres of natural gas to Poland, the Economy Minister said on 17th December, PAP News Agency has reported.
"We want to meet the Norwegians for talks about the possibility of the implementation of the Norwegian contract," Jacek Piechota said at a news conference.
The date and details of the planned meeting were not disclosed.
The minister said that according to his information at the Swedish embassy, Sweden is not interested in gas purchases from the Norway-Poland gas pipeline. Norway earlier said that it needs to find additional gas users in southern Sweden to make the project profitable.
In early September, Polskie Gornictwo i Gazownictwo SA (Polish Oil and Gas Company) and five Norwegian companies signed a contract on the delivery of 74bn cubic metres of natural gas in the years 2008-2024.
Poland signed the agreement to diversify its gas supplies as the former Jerzy Buzek government wanted to make Poland less dependent on Russia, a single external gas supplier, but the agreement was criticised by the Leszek Miller government.

Russia wants majority stake in gas company

Russia is in interested in holding between 70 to 80 per cent in EuRoPol Gaz, Marek Kossowski, the undersecretary of state at the Economy Ministry, said in the Sejm PAP News Agency has reported. 
"We know that the Russians would be very interested in changing the proportion and stock-sharing in the company, but more or less at a ratio of 70:30 or 80:20 to Russian side's favour," he said.
The issue was not discussed by a Polish delegation with Russia's Gazprom during the visit of Deputy Prime Minister and Infrastructure Minister Marek Pol to Moscow.
Russia wants to change the proportion because it claims that Poland has not provided financial guarantees to finish the construction of the first strand of the Yamal natural gas pipeline, Kossowski said.
In his opinion, under the 1993 agreement, Poland, was required to provide US$300-350m in guarantees for the pipeline project, and has made available only US$157m.
Kossowski confirmed that Poland has met its obligations because the building of the second strand has not been started yet, saying that Poland has met them in the right proportion to the state of the Yamal pipeline project.
Poland, through PGNiG, and Russia through Gazprom, each holds 48 per cent in EuRoPol Gaz, the owner and operator of the Polish stretch of the Yamal pipeline. Gas Trading owns the remaining 4 per cent.
Gas Trading is owned by PGNiG (43.41 per cent), Bartimpex (36.17 per cent), Weglokoks (2.27 per cent), Russia's Gazexport (15.88 per cent), and Germany's Winterhaall (2.27 per cent).

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Treasury to get only 100m zlotys from distillery sale

The Treasury will probably not receive more than 100m zlotys from the privatisation of Polmos Zielona Gora, according to local reports. Poland's former government said the stake's worth was more than 200m zlotys with a valuation of 600m zlotys for Bialystok Polmos, reports New Europe.
"The government will have to revise down significantly its estimated revenues," analysts said. The industry's woes stem from the fact that the "anvil of high excise" duties and illegal imports are competing tête-a tête in the beverage industry. "The hangover will last another two to three years and then the industry will recover," said Joseg Kapela, head of the distillers Council and chairman of the Bielsko-Biala Polmos. "Provided there is no increase in excise on spirits in the interim," he added.

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EBRD/EU, Fortis Bank Polska to develop small businesses

A €20m credit line from the European Bank for Reconstruction and Development (EBRD) to Fortis Bank Polska will help the bank to continue its support for the growth of small and medium-sized enterprises (SMEs) across Poland, an EBRD press release reported recently. Fortis Bank Polska, which specialises in servicing SMEs in Poland, will use the loan to build on the first credit line signed under the facility in January 2000.
The EBRD is providing a credit line to the bank, with €15m being made available by the European Commission (EC) in funds to help develop the project. This financing is part of the EC SME Finance Facility, a programme of the European Commission in cooperation with the EBRD aiming to facilitate the access to finance of small and medium-sized enterprises and to promote SME growth and development.
Hanna Gronkiewicz-Waltz, Vice President at the EBRD, in Warsaw signing the loan, said the Facility to Fortis Bank is important for Poland and provides a successful means of providing local entrepreneurs across the country with greater access to medium-term financing. She noted that SMEs play a vital role in the economy by underpinning growth and providing job opportunities.
Under the first SME credit line, Fortis Bank Polska has granted around 309 loans to small and medium-sized businesses throughout Poland. The second credit line will help the bank to build on its success, to help strengthen Poland's economy by developing small businesses.
The SME Facility was launched in April 1999 under the Phare Programme by the EC with the EBRD to encourage the growth and development of SMEs by facilitating their access to loans, leasing and equity finance from local financial intermediaries in the candidate countries.
Leszek Niemyeki, Vice President of Fortis Bank Polska, considers the credit line to be an advantageous facility for the Polish entrepreneurs, which enables faster and more dynamic growth of the SME sector. In his opinion, thanks to help of the EBRD's consulting team, Fortis Bank Polska can provide higher quality services to the SME sector.
The Phare Programme is currently the main channel for the European Union's financial and technical cooperation with the candidate countries of central and eastern Europe. The budget earmarked for the Phare Programme as a whole is approximately €1.5bn per year. For any further details contact Jazz Sing, Tel: +44 207 338 793 or by E-mail:

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Airspan, Szeptel in deal for wireless DSL system

Airspan Networks Inc. inked a deal with Polish group, Szeptel SA, for the supply of AS400 wireless DSL system with PacketDrive for deployment in Bialystok (northeastern region). Szeptel is scheduled to deploy Airspan's equipment by the end of January. At first it will offer commercial service to more than 500 subscribers, in both small businesses and high-end residential configurations, the Polish News Bulletin reported. With Airspan's programme, Szeptel will offer its clients high-speed Internet services.
The group's PacketDrive technology will be used to boost the entire network and provide better use of the backbone network. The Bialystok-based Airspan system will run within the 2.5Ghzfrequency band, offering "the last mile" link for the company's fibre optic network between Bialystok and the capital city and fixed cellular network in Bialystok county, the Bulletin said. "We are looking forward to offering the fastest and most efficient Internet connections in Poland," Andrzej Wyszynski, Vice President of Szeptel, was quoted as saying. "Airspan's wireless DSL system provides us with the opportunity to immediately serve the pent-up demand for high-speed connections to the Internet, while also providing carrier-quality voice services."

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PKN Orlen privatisation under review

Polish Treasury Minister, Wieslaw Kaczmarek has announced that his ministry is mulling over the privatisation of a strategic stake in PKN Orlen, Poland's No.1 oil company.
"The company's privatisation would not be carried out before April," the ministry said. According to Kaczmarek, the final decision on the 17.6 per cent stake sale in PKN Orlen would be contingent on the result of negotiations to sell its rival Rafineria Gdanska. Austrian OMV and Hungarian MOL have already expressed interest in gaining the PKN Orlen stake. "We will be able to talk about the future scenario for PKN in April or May. A key for it will be the sale of Rafineriaa Gdanska," Kaczmarek told a news conference. "By this time, the best way would be to have both investors (MOL and OMV) on a standby," he added.
The Minister said the government is currently discussing plans to part with a 75 per cent stake in Gdanska to Rotch, a privately owned UK company. Rotch has been having trouble proving that it does have the mandatory funds for the transaction, which is valued at US$1bn. Kaczmarek said the government would consider consolidating PKN Orlen and Gdanska if the latter's deal breaks down. The UK group was due to reveal its investment programme and funding sources by January 15th, the minister said. "If the programme is accepted, then we could close the sale at the turn of the first and second quarter," Kaczmarek said. "But if the transaction is not finalised, it would drastically change the privatisation of PKN."

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Malls blossoming despite economic squeeze

The screw may be tightening on the Polish economy, but there has never been a better time to shop, reports the Warsaw Business Journal.
Despite a looming recession, shopping mall construction continued without let up last year - particularly in Warsaw - with the trend expected to continue this year, developers said.
They pointed to the construction last year alone of 212,500 square metres of modern retail and leisure space in the city, adding to the capital's existing 544,000 square metres. "The current economic decline is being offset by the growing popularity of mall shopping," said Wiktor Rodziewicz, director of the Centrum Handlowe Targowek (CHT) mall in Warsaw.
As a result, Warsaw malls such as Promenada and CHT are able to expand their retail space to include more shops and entertainment to draw customers in. Forthcoming development projects such as Zlote Tarasy by the Netherlands-based ING Development are still attracting Polish and international retailers to set up new stores. "I do not consider there to be any problems in filling schemes," said Mark Gamble, a retail agent at Anglo-Dutch real estate agency, DTZ Zadelhoff Tie Leung. "Provided developers are flexible in terms of rent and leases and have a well-designed product."
In September last year, CHT completed an expansion boosting its number of shops from 60 to 135, and now has 22,000 square metres of retail space in addition to a 25,000 square metre Carrefour hypermarket. Rodziewicz said the mall would also have a new multiplex cinema in spring 2002, but remained tight-lipped about the choice of operator as talks are still underway.
Netherlands-based retail developer, ECC, is to follow suit this year by expanding its Promenada mall in Warsaw. According to the mall's manager, Jaroslaw Zamojski, the company plans to double the facility's 47,000 square metres of retail space, which already contains a bowling alley and multiplex cinema, to include new shops and restaurants. Although the expansion will not be completed until the first quarter of 2003, Zamojski said he has already concluded a number of pre-lease deals.
"We would not have decided to expand if we weren't 100% certain that we can fill the centre and make a profit," Zamojski said. "We have a niche as the only luxury shopping centre in Warsaw and we dominate this part of the city." He added that the economic downturn is not adversely affecting the mall's 150 shops. "Nothing terrible is happening to them," Zamojski said. "Quite the opposite - they are being expanded, renovated and upgraded. Their owners are convinced that things will improve."
ING Development is confident that its 205,000 square metre Zlote Tarasy shopping, leisure and office complex behind Warszawa Centralna will be fully leased before its opening in 2005. "There is a huge interest from tenants because there isn't a brand on the Polish market that wouldn't want to open their own flagship stores in the centre," said Jerzy Hanczewski, Zlote Tarasy project manager. "We expect the centre to be 100% leased on opening." ING Development is examining preliminary offers in its tender for a general contractor and work on the main part of the project will begin between March and April this year.

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