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  POLAND

REPUBLICAN REFERENCE

Area (sq.km)
304,500

Population
38,633,912

Capital
Warsaw

Currency
Zloty

President
Aleksander Kwasniewski

Private sector
% of GDP

70%

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Background:
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: 062 - (20/06/02)

Poland takes the lead
The Poles are in 'pole position' (to the latest cliché). They are the really numerous post-Warsaw pact country, except of course for Ukraine and Russia, 40 million, makes them people, comparable to the larger nations of Europe. 
It is not for nothing that France and Germany some time ago decided to grant Poland a very special dispensation, equality within a new triumvirate of the three countries, with an annual meeting of their presidents. This is just as well in the current circumstances, which are as not favourable as all that. 

Economy in the doldrums
GDP growth has been desultory over the last few years, 4% in 2000, but only 1.1% in 2001 and a prospective 1.5% this year. The central bank chief, Leszek Balcerowicz, has been sternly uncooperative with successive governments, first the Solidarity-led coalition (from which he defected) and then after its demise last year the ex-communists. Solidarity, indeed, failed to secure the 5% of the vote needed for representation in parliament.
The new government has its work cut out, however. It needs to turn the economy around and reduce the 20% rate of unemployment or face electoral annihilation itself in 2005. It is banking on the multiplier effects of big infrastructural projects, an upgrading of the housing stock, of the roads and a host of new facilities in the health and educational sectors. A four-year programme to this effect was adopted in January. Some sceptics compare it to the five-year plans of the communists. Previous governments have talked about road-building and infrastructure, housing and so on, but not delivered. Wojciech Janczyk, the infrastructure minister overseeing the roads programme, is confident things will be different this time.
Some 20-25bn zlotys (€5-6.5bn) have been allotted, partly from local and excise taxes, to construct 200,000 new apartments by 2005 and 10bn Euros for roads, express ways and bypasses, also by 2005, the vital electoral year. Tenders will only be called after the financing has been lined up. The EBRD, the World Bank and other international financial institutions are lining up to assist. 


FDI to the rescue
Poland's one positive trend is a massive amount of inward foreign direct investment (FDI). It stands at over US$40bn in all, with inflows for the last three years of US$8.171bn in 2000, 6.5bn in 2001 and a prospective 7bn this year. This is the largest amount of FDI in any ex-communist state. Russia would dearly love to attract as much.
Poland has assets the Russians lack, proximity to the EU which it will shortly join, NATO membership and the 'special relationship' with Germany and France within the triumvirate. It has a long tradition of smallholder agriculture, an anomaly in the current world economy, but capable of feeding its people adequately for all that, something the Russian agrarian sector still cannot do. 

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AVIATION

Silesia Air to fill niche in passenger airline market 

The Katowice airport operator has set up Silesia Air to fly both passengers and cargo to other inland destinations. By the end of this year, the new airline will also begin flying abroad, Director Eugeniusz Piechoczek informed the press, saying "Our concept is to fill a niche in the market," New Europe has reported. 
Silesia Air aims to be Poland's first carrier, besides the national carrier, LOT Polish Airlines, to offer scheduled passenger traffic, Warsaw Business Journal reported. This will be worked towards, however, with routes flying clear of the main Warsaw hub, transporting passengers and goods between Katowice and other destinations in Poland, mainly in the north.
Piechoczek noted that marketing studies have revealed a demand for such a service in regional ports. "We want to induce a partial shift from road and rail traffic on these routes," he explained.
Piechoczek did not reveal the project's financial sources, saying only that Silesia Air would fly three Beechcraft 1900 aircraft (with a capacity for 19 passengers) and one cargo Turbolet. The new endeavour's first flight will take off before year-end but not earlier than September, the director noted.
The airline is owned by the Upper-Silesian Aviation Group (GTL), which operates Poland's fourth biggest airport in Kotowice. Three public institutions make up GTL's key shareholders: the Polish Airports State Enterprise (34 per cent), the Kotowice-based coal distributor Weglokoks (24 per cent), and the Slaskie voivodship (15.2 per cent) as well as ING Bank Slaski (10 per cent). Observers and industry sources believe the new service has a good chance of benefiting from unfulfilled demand.
"There are no competitors in this sector," Edward Maniura, a Civic Platform MP and a member of the Sejm's infrastructure subcommittee responsible for air transport, stated. "Routes between Katowice and such other cities as Gdansk, Kolobrzeg and Szczecin, if covered by 20-passenger aircraft, would have a guaranteed load."
Maniura is confident that any road and rail users, especially business travellers, would make the switch to air, thus avoiding the country's poor road infrastructure and relatively low quality, yet expensiv, rail travel. 
Noting that the "business plan will work if we have 60,000 passengers annually," Piechoczek added: "We are no threat to LOT," which carried 3.2m passengers in 2001.

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ENERGY

Norway: Polish premier says talks on gas supplies to continue 

Prime Minister Leszek Miller encouraged Norwegian businessmen to invest in Poland and assured them that Poland was interested in the diversification of gas supplies, PAP News Agency has reported.
The prime minister, on a one-day official visit to Norway on 5th June, stressed that so far US$55bn had been invested in Poland by foreign investors. Poland is open to further investments, the prime minister said.
One cannot build capitalism without capital, Miller said, adding that all investors would be welcome in Poland.
He stressed Poland was interested mainly in attracting investors who can provide the economy with latest technologies, want to create new jobs in Poland and can improve the competitiveness of the Polish economy.
"We are sure that after Poland joins the European Union our investment attractiveness will grow. Poland is a safe country with a stable political situation. It is safe for long-term investments," Miller said.
The prime minister also stressed that Poland offered a big market, great human and economic potential, well-qualified staff and readiness to hard work.
"We know that Poland's fate and its future place in the EU will be decided by competitive and efficient economy," Miller said.
Asked by Statoil president, Peter Melbye, if his government had the same vision concerning gas issues as the previous cabinet, Miller said: "The present government does not differ from its predecessors. We believe that gas supplies must be diversified. Poland cannot receive gas only from one Russian source. That is why Statoil's offer is interesting."
But at the same time Miller added that an excessive amount of gas is a problem not only for Poland. He recalled that an agreement signed with Russia many years ago results in Poland having 41bn cubic metres of gas more than it needs. And the agreement with Statoil will result in Poland having in 20 years 74bn cubic metres, he added.
This means that an excess of gas in 20 years will amount to 100bn cubic metres. Poland is conducting talks with Russia but they are difficult, Miller said.
He also added that the agreement with Statoil provides for annual transmission of 8bn cubic metres of gas, 5bn of which is to be sold to Poland. And Statoil promised to find another buyer for the remaining 3bn cubic metres, Miller said.

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INFORMATION TECHNOLOGY

HP, Compaq prepare to strengthen marriage vows in Polish operations


By the end of this year Hewlett-Packard Polska and Compaq Computer Polska will complete their full integration, increasingly concentrating the new entity's strategy on the lucrative IT consulting market and outsourcing services, New Europe has reported.
Officially launched on May 7th, 2002, the new company, called Hewlett-Packard, is the world's biggest IT merger ever at US$18.7bn. The move to merge the two concerns was decided on last September, with the actual legal merger in Poland slated for completion by November 1st, the end of HP's fiscal year.
By year-end, all remaining employees in Compaq's office will be moved to HP's headquarters, although the relocation has not started yet, Inga Kasak, an HP Polska spokeswoman informed. As Poland's largest high-tech company with some 18 per cent of the IT market share, HP now employs 600 workers with 400 from the old HP Polska and 200 from Compaq Polska.
HP Polska's revenue last year amounted to US$373.1m, while Compaq's totalled US$140.3m, Warsaw Business Journal reported. The California-based HP parent company believes the merger will enable it to achieve annual cost savings of around US$2.5bn, keeping revenue losses at five per cent. However, according to Kasak, it is too early to determine the amount of cost savings for the Polish operations with merger costs, including retention bonuses and voluntary buyout packages as well as other expenses, still unknown.
Although the parent company expects global layoffs to total some 15,000, about 10 per centof employees in 160 countries, job cuts in this eastern European country would be less than 10 per cent, noted Andrzej Dopierala, Hp Polska's president and director of the firm's enterprise systems group. Neither of the two firms in Poland have duplicate factories making the same products.
Without indicating the precise number of layoffs, Dopierala said there would be headcount reductions in management, administration and possibly the marketing department, while Compaq's computer assembly plant in Szczecin, employing 60, will remain in operation.
"It's one of the most important factors that made HP merge with Compaq (which) had a strong services organisation," Kasak said. "We will definitively move forward with it in Poland." She could not provide further details regarding the strategic shift.

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SHIPPING

Government to save shipyard in "regressive" free-market move

The Polish government recently announced that the state Treasury would assume a 35 per cent share in the Szczecin shipyard, one of the country's biggest majority privately-owned shipyards threatened by bankruptcy, New Europe has reported.
Once hailed as a success story in Poland's privatisation process, the currently Grupa Przemyslowa-controlled operation is now negotiating with private banks for a US$40m loan needed in order to continue production. Grupa Przemyslowa is a group of private entrepreneurs serving as the shipyard's Board of Directors.
The move means the state will take on management of the Szczecin yard and considerably increase its current 10 per cent stake in the operation.
Following the government announcement by the Prime Minister, Leszek Miller, banks in talks about the US$40m in credit said they would need extra time to examine the enterprise's financial condition before committing to the hefty sum.
Polish analysts are less than enthusiastic with the decision, terming the move to regain control of the yard as "disturbing." Andrzej Szalamacha from the Warsaw-based liberal Adam Smith Centre think-tank told dpa News Agency: "We've been privatising state enterprises for the last decade and today's move looks like a regression in that process." He added, "This government intrusion is one of the worst things which could have happened."
Szalamacha believes state Treasury guarantees for the much-sought-after bank loans would have been a better move for the government, more in keeping with the principles of the free market. Recording losses of nearly 100m zlotys in 2001, the Szczecin yard is struggling with debts reaching 300m zlotys.

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TRANSPORT

US firm signals interest in Polish Railway's subsidiary 

US-based operator, Rail World, is interested in acquiring a majority stake in the Polish State Railway's (PKP) cargo arm, the biggest chunk of the Polish state-owned rail company set for privatisation, according to Janusz Wellman, vice president of Rail Polska, a subsidiary of Rail World, the Warsaw Business Journal has reported. "We are interested in a majority stake," Wellman said.
The sale would be part of Poland's biggest rail privatisation project, the sale of PKP subsidiaries PKP Cargo and PKP Intercity. Krzysztof Celinski, president of the state-owned rail monopoly announced the spin-off of the subsidiaries as PKP looks to make a profit for the first time.
PKP's management board said that PKP Cargo, responsible for hauling 166.6m tonnes of cargo in 2001, and PKP Intercity, which operates express passenger service, will be sold in 2004 or 2005.
"The project coordinator for the privatisation of PKP Cargo and PKP Intercity will begin his work in a few days," Celinski said. "The consulting firm for the privatisation of PKP Cargo and PKP Intercity should be chosen in June."
PKP management sees the sell-off of the four subsidiaries as the only way to enable their further operation in an increasingly competitive market with road haulers eroding the railways' traffic volumes and foreign railroad companies looking to enter the Polish market following the expected liberalisation of the Polish tracks when the country joins the European Union. Celinski expects a strong response from European and global rail companies.
Germany's national Deutsche Bahn (DB), Europe's biggest rail operator, has repeatedly expressed its interest in PKP Cargo, planning to include it in its growing pan-European group that now includes DB's cargo arm, the Danish DBS Cargo and the Danish NS Cargo. But Celinski is wary of the German partner, which could restrict PKP Cargo's independence and run its own policy on the Polish market. "In this group PKP Cargo would definitely not have a 50% voting majority," Celinski said.

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