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Poland

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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: 066 - (22/10/02)

The Poles are frustrated that things are not going as well as they could and indeed were in the 1990s. Proud of the way their country forged its independence and a post- communist future in 1989, they saw the economy develop in a dynamic fashion in the early 1990s.

Early reformists
This was largely due to the untiring reform efforts of Leszek Balcerowicz, the finance minister at the time, who pushed through measures that liberalised the economy and broke down old monopolies and restrictive practices. This was no mean feat in a country whose fate had been decided by Solidarity, a trade union movement after all.
Balcerowicz was finance minister again in the late 1990s but resigned from the Solidarity-led coalition government before its demise in elections last year, which saw the extinction of Solidarity and the emergence of ex-communists at the helm. Balcerowicz has since become chairman of the national bank, where his austere monetarist policies are unpopular with the government and, indeed, the people.

Economy picking up
Although Poland is still very poor by EU standards, its economy is doing well in many respects. A slowdown of growth to 1-1.5 per cent this year is not unexpected in the context of slow EU-wide growth. It has had the advantage of bringing inflation right down to just over 2% per annum this year from an expected 4.6% figure. A disadvantage, however, is that the national debt has risen from 41% to 50% of GDP.
Still these figures make Poland a possible candidate for entry into Euroland, the EU monetary union, which requires inflation of under 3%, the same for the budget deficit as a percentage of GDP and a national debt: GDP ratio of under 60%, all manageable by Poland. It just needs a return of growth and that depends largely on German and EU policies broadly outside its control.

Difficulties with the EU
Polish small-holders in the countryside (there are some two million of them) are worried about the effects of EU entry, as well they might be. Like the coalminers, they are not to receive full subsidies for at least eight years, possibly longer, during which many could be wiped out by fierce competition from EU farmers. The subsidies are initially to be fixed at 25% of the EU norms, an obvious slight in Polish eyes.
The quotas for production could mean that many a dairy herd is just wiped out. Naturally, there is concern that the traditional Polish countryside, the backbone of national life, could be altered beyond recognition.

Anomalies remain
Foreigners are due to be allowed to buy Polish land within a few years, arousing atavistic fears. Many Poles, not just the farmers, want there to be a delay here for twelve years, or at least as long as full CAP subsidies and quotas are being denied them.
The new government of ex-communists under Premier Leszek Miller is pressing Brussels to relent. The relevant chapters of the Acquis Communautaire have yet to be concluded by Poland. In this it is sticking up for small farmers and coalminers throughout the bloc of new entrants.
The Pope made a plea to the Poles on his recent visit home to remain steadfast in its course to join the EU. It is, indeed, virtually unthinkable that this should not prevail. But there are hard negotiations to come.

The policies of accession
The EU has announced that it would not release its official position on agricultural subsidies until November. Candidate countries should end negotiations by the end of the year if they are to enter the EU by 2004. But Brussels is leaving them precious little time to deliberate; and that around the pre-Christmas boom time when even the technocrats get distracted.
Deutsche Bank economists are urging caution and a 'wait-and-see' attitude. January 1st 2004 looks an unrealistic date for many observers, including the pro-EU members of the Sejm, Poland's parliament. At least that is so for all 10 candidate countries. 
Any delay, say to late 2005, would have dire financial costs for the Polish budget and dire political costs for the Democratic Left Alliance (SLD)-led government under Premier Miller. For Poland would receive up to 500m Euros (US$470m) in its first year as a member, the funds being earmarked for infrastructure projects, highways and the like.
The delay would help the prospects of Eurosceptic parties, which are growing. They could almost win the next elections in 2005, fear some observers, notably. Adam Bielan, a Law and Justice (PiS) MP and a member of the Sejm's European Committee; "some radical parties are now stronger than they were at the last election," he says, forecasting another improvement in their lot in 2005.
But by then an all-important referendum, due in 2003, should be over, with a clear majority for EU entry. At the moment two-thirds favour it. Yet that support could change if the economy does not pick up and if Poland is unable to improve the terms of its accession in remaining areas of negotiation. A lot depends on the negotiators. 

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AUTOMOBILES

Toyota eyes Poland for diesel engine production


Toyota Motor Corporation has plans to build a new plant for the production of cheaper diesel engines for mid-sized saloons built in Britain. The financial daily 'Nihon Keizai Shimbun' reported that a joint venture to be set up with Toyota Industries Corporation will build the factory in Poland. The cost of the plant, due to commence operations in 2005 and have an annual output of 200,000 units, have been estimated at US$124m. The engines, to be used in the Avensis and Corolla sedans, will have a capacity of 2-2.4 litres. While Japan's Toyota Industries presently produces diesel engines for the Avensis, Toyota Motor believes costs will be drastically reduced by transferring production to Poland.

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AVIATION

France planning to outbid US plane loan proposals for Poland


We have learned from unofficial sources that France does not rule out the possibility of presenting to us a much more attractive offset offer for the purchase of multirole aircraft than the current one. This is a response to President George W. Bush's proposal for a 100 per cent loan guaranteed by the US administration, 'Trybuna,' in Warsaw, has reported. 
'Trybuna' reported a month ago that France was the first bidder to come forward with a specific offer for financing the purchase of new Mirage 2000-5 Mk2 fighters manufactured by Dassault Aviation for the Polish armed forces. The proposal envisages French government loan guarantees for 85 per cent of the value of the contract. This is a preliminary offer and it may be changed in Poland's favour. 
This is one of the topics Polish Defence Minister, Jerzy Szmajdzinski, discussed with his French counterpart, Michele Alliot-Marie, during the meeting of NATO defence ministers in Warsaw. Alliot-Marie reiterated a statement issued by the French embassy that her government "is considering parallel proposals which will fully satisfy the Polish side." She did not specify the amount in question. 
On 13th September the US president presented to the Congress amendments to the 2003 budget law. They provide for a loan of US$3.8bn with which Poland could purchase F-16 fighters made by Lockheed Martin along with weapons and logistic support systems. The loan would be extended for a period of 15 years. Repayments would be suspended for eight years. 
Sweden and the United Kingdom have not been saying much about the financial terms of the contract for which they are also bidding for.

SAirLines looking to sell 25% LOT stake to the right buyer

The Dutch SAirLines Europe, currently holding a 25.1% stake in Polish Airlines LOT, is searching for the right buyer for the stake, the company said. SAirLines Europe was a member of the Swissair group, which was previously the owner of the stake in LOT, Bluebull reported. "I am not in a hurry. Dutch law does not force me to sell LOT shares fast and I can do it in two or three years. I am looking for an investor, which would be acceptable to LOT and the other shareholders, which is very important where minority stakes are involved," the official receiver of SAirLines Europe, Rutger Schimmelpenninck, explained.
However, LOT spokesman, Leszek Chorzewski noted that the final decision will rest in the hands of the state Treasury and will not be taken by LOT. He added the company is certain the stake will be purchased by a reliable company, and definitely one related to the aviation sector. Erland Olsen, the CEO of SAS in Poland, said the airline needs money to restructure and the shares might be bought by a financial group.

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BANKING

BISE confident in ability to attract new investor

French Banque Populaire's decision not to become a financial partner means the Bank for Social and Economic Initiatives (BISE) is again searching for a new investor. "We are already in talks with several foreign institutions," BISE president, Wlodzimierz Grudzinski, stated, without giving any names. He said a new shareholder can be certain of a controlling stake, as the Industry Development Agency (ARP) and Caisse Centrale de Credit Cooperatif, currently the biggest shareholders, are not averse to another party assuming control. 
BISE is considering issuing new shares worth some 100m zlotys if the new investor agrees, the Warsaw Business reported. Such a sum would permit the bank to progressively develop for three to four years. "The bank is in a good financial condition, but we need more capital to grow more dynamically and reach our potential," Grudzinski explained. BISE is now waiting for court registration of its merger with Cukrobank, which will increase the value of individual client deposits to 680m zlotys.

BRE takeover of Fortis could mean end of Commerzbank in Poland

BRE Bank's reported interest in taking over Fortis Bank Polska would allow it to bulk up its retail banking assets, its newest target market. But it could also herald a gradual paring of Commerzbank's strategic 50% stake in BRE, analysts said.
For the past year, Polish and German markets have been rife with as-yet unsubstantiated rumours that Commerzbank's position in BRE was up for grabs, amid worries that both banks' financial footings were too precarious to remain close partners. Commerzbank has announced plans to cut its staff this year. And BRE has put itself in a number of financial tight spots, a result of aggressive investments, such as its shares in ailing conglomerate Elektrim, the Warsaw Business Journal reported.
Analysts said that in the expected merger, BRE would likely issue new shares to give to the parent company Fortis, instead of paying cash. That would result in a dilution of Commerzbank's share in BRE.
Robert Sobieraj, a banking analyst at Bank Handlowy, said he expected that move to be the first step in the German bank's gradual withdrawal from the Polish market. "I think Commerzbank is withdrawing from the Polish market," he said. "I think that this means that Fortis may buy shares in BRE. One investor will replace another."
BRE, Fortis and Commerzbank declined to comment on any aspect of a potential merger. But an individual close to Commerzbank said: "That Commerzbank is no longer interested in Poland is nonsense." 
The source's comment differs sharply from those of Warsaw-based analysts.
"For Commerzbank, BRE Bank is not part of its core business," said Marcin Materna, a banking analyst at BIG Bank Gdanski. He added that the German bank is more of a financial investor than a strategic investor because it's not as active.
Whether or not their predictions come to pass, analysts said that Fortis Bank Polska's operations would dovetail with BRE's. "I would say it's a good move; it's what would be expected," Materna said.
He explained that the merger would agree with BRE's stated business plan to beef up its retail assets, the sub-sector that many banks now consider the next financial frontier in Poland. BRE might be spearheading the move. "I think it's in line with the expectations of Chief Executive officer, Wojciech Kostrzewa," Sobieraj said.
Also, if the merger goes through, BRE could find itself more attractive to other banks, such as Bank Przewyslowo-Handlowy PBK and Bank Pekao.
"BRE Bank is a bigger option for bigger banks," Materna said. He added that the banks' silence spoke volumes. "They didn't deny it, so there's some truth to it," he said.

Investors ready to do battle for Telbank shares

Tel-Energo and Enterprise Investors form part of the list of potential investors considering buying from the National Bank of Poland (NBP) a package of Telbank's shares. The sale is demanded by law and must be finalised before January 1, 2003. The shortlist of companies interested in Telbank, a banking telecommunications firm, was due to be announced, the Warsaw Business Journal reported. 
The company boasts 2,500 kilometres of modern fibre optical network, 2001 revenues amounting to 130.5m zlotys, and profits reaching 24.1m zlotys. Analysts have estimated Telbank's value ranging from US$100m to US$200m. Iwona Drabot, an Enterprise Investors' spokesperson, said: "In view of the company's policy I can neither confirm nor deny that we have placed an offer."

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CONSTRUCTION

Epit & KRWZ get green light for major investment

Poland's Environment Ministry has given initial permission to Epit & KRWZ for a US$6bn investment on a 508-hectare plot near Biala Podlaska, reports New Europe. The Polish-Turkish firm has pledged to build an airport, stadium, Formula One racetrack, hotel and casinos as well as replicas of the Eiffel Tower and the Seven Wonders of the World. The company has refused to disclose details on how the project, which would mark the country's biggest single foreign investment, will be financed.

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ENERGY

Polish minister says oil pipeline project depends on commercial viability

Economy Minister, Jacek Piechota, is of the opinion that the planned construction of the oil pipeline from Ukraine to Poland (from Odessa via Brody, Plock to Gdansk) must be a commercially viable project, PAP News Agency has reported.
"In all statements made by the president, the prime minister and myself in the course of economic forums with Ukraine we have said that the project is worthy of support from the oil security viewpoint, but it must be commercially sound and this required detailed research," Piechota told newsmen on 23rd September .
He added that a business plan of the project will be compiled by an American firm to the order of the Ukrainian government. The plan will be financed by a US government agency.
"This shows that the US sees political sense behind the project and that its economic viability will be checked by drawing up the business plan," Piechota went on. "So far Poland has not committed any public money to this project."
The cost of the Polish section of the proposed pipeline (from Brody to Plock) was estimated at 520m Euro. The section could be completed by mid-2006. From Plock to Gdansk the oil would flow through existing installations.

Poland wants to renegotiate gas deals with Russia

Prime Minister Leszek Miller said in the Sejm, lower house of parliament, on 26th September that Poland would not pay Russia for gas should it fail to meet its investment commitments that would prevent gas delivery, PAP News Agency has reported.
"We are conducting negotiations with Russia relating to gas deals. Poland will not be obliged to pay for undelivered gas," Miller said.
Poland wants to renegotiate a 1993 deal on Russian gas supplies. The economy ministry believes that the investment timetable relating to the second stretch of the Yamal gas pipeline and the amount of Russian gas supplies need to be modified.
Under updated government fuel consumption forecasts, gas consumption in the coming years will be 30 per cent lower than planned in 2000.
The Yamal deal envisions that most of the Russian gas would come to Poland from the second stretch of the pipeline, the construction of which has not yet been started. 

Polish government adopts new oil sector privatisation strategy

The government has changed its strategy of privatising the oil sector by allowing a possible merger between the Gdansk Refinery (RG) and PKN Orlen, Treasury Minister Wieslaw Kaczmarek declared after the 24th September cabinet meeting, PAP News Agency has reported. "The new strategy is flexible enough to allow a merger between the two major firms, if such an option is appropriate," he said.
The cabinet has not abandoned the concept of creating a central European oil concern that would include PKN Orlen, the minister added. So far, the privatisation programme for the oil sector provided for the existence in Poland of two major and rival production and trade companies, one based on RG, the other on the Plock refinery owned by PKN Orlen.
The change of plans means that PKN Orlen will be able to take part in the repetition of the tender for a majority share package in RG if talks on its sale to Rotch Energy and Lukoil, now under way, end in a fiasco. The sale by the treasury of its 75 per cent stake in the Gdansk refinery (RG) before the end of this year is rather unlikely, according to Treasury Minister, Wieslaw Kaczmarek.
"There are many factors which indicate that the finalization of RG sale this year is practically impossible," Kaczmarek told newsmen after the cabinet meeting. He added that the revised forecast of 2002 proceeds from privatisation of 3.68bn zlotys (about US$890m) did not include revenue from the sale of RG shares.

Firm still interested privatisation of G-8 energy distributors

El-Dystrybucja is still interested in taking part in the privatisation of G-8, the company's chief executive officer said on 19th September, PAP News Agency has reported.
El-Dystrybucja was one of the firms short-listed by the Treasury Ministry, the seller of G-8 group of energy distributors, last March. In mid-September, the ministry announced it would ask all the short-listed firms to present their updated offers. The decision follows the fiasco of talks on the sale of G-8 to E.On Energie AG.
Other short-listed firms were Electrabel of Belgium, Endesa SA of Spain, ESB of Ireland, Iberdrola SA of Spain, and the E.ON Energie AG and e.dis Energie Nord AG of Germany.
El-Dystrybucja is 99 per cent owned by Energia SA, controlled by Kulczyk Holding. G-8 is Poland's largest energy distribution network, operating in northern Poland. It employs over 8,000 people.

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ENVIRONMENT

Poland requires 40bn euros for environment protection to EU standards

Poland needs funding of 40bn Euro to achieve EU standards in environmental protection, EkoFundusz head Maciej Nowicki told a conference on EU ecological norms on 3rd October, PAP News Agency has reported.
According to Deputy Minister of the Environment, Krzysztof Zareba, the 40bn Euros should be gradually allocated by 2015. Before Poland's joining the EU, part of the funds will come from assistance programmes, after the accession - from structural funds. Nowicki feared there could be problems with securing EU funds in view of difficult conditions that have to be met by those seeking the funds.
Zareba said that most money would be spent on water treatment plants. He pointed to waste disposal as a significant problem for Poland with 95 per cent of urban waste sent to dumping grounds, which compares with 15 per cent in Denmark.

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EU ACCESSION

Poland closes EU negotiations on regional policy

Poland and the European Union on 1st October officially closed negotiations on regional policy. However, ahead is the most important part of negotiations - the amount of funds Poland may receive from the EU's structural and coherence funds.
Thus, the concluded talks only dealt with the procedural and institutional aspects of regional policy. The EU's joint negotiating stand does not include concrete sums which Poland could receive from the funds.
At the same time the EU called on Poland to increase efforts aimed at bringing to an appropriate level the administrative capabilities of authorities managing the funds.
The regional policy is the 27th chapter closed by the EU and Poland. Waiting to be closed are competition policy, agriculture and budget chapters.

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MINERALS & METALS

Amatsuji Steel Ball to spend 13m Euro for Polish plant

The Polish Agency for Foreign Investments has announced that Amatsuji Steel Ball Mfg Co plans to build a plant in Poland for the production of metal ball bearings. The investment would total 13m Euro, which the Osaka-based firm will make through its local subsidiary AKS precision Ball. 
This will be the first Japanese company to build a plant in the industrial park established last year solely for Japanese concerns, Kyodo News reported.

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PHARMACEUTICALS

Ciech pushing hard to consolidate Polfa's exports

Ciech has offered three state drug makers - Polfa Tarchomin, Warszawa and Pabianice - closer ties, reports New Europe Ciech, Poland's biggest pharmaceutical group, has created a new firm, Ciech Polfa (CP), and has plans to take over exports by the three pharmaceutical firms, offering each of the producers a 15% stake in the newly created enterprise. 
"CP has been set up on the basis of Dinco Grupa Ciech which was responsible for importing and exporting drugs. Ciech wants to hold at least a 51% stake in CP. It is possible that in the future the three Polfas will take control over the new firm," CP President, Marcin Dobrzanski, remarked

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SHIPPING

Government to grant credit guarantees to Gdynia shipyard

Gdynia Shipyard SA is to receive government credit guarantees totalling US$93m, Deputy Economy Minister, Maciej Lesny, said recently. Final decisions will be made at the next cabinet meeting.
"In addition to US$40m of guarantees already granted the yard by KUKE [Korporacja Ubezpieczen Kredytow Eksportowych] (state agency of export credit guarantees) I expect the cabinet to agree to guarantee two more credits worth a total of US$53m," Lesny said in Gdynia.
After his statement and reports by the yard's managing board, trade unionists from Stocznia Gdynia SA decided to call off a planned demonstration in Warsaw.
The Finance Ministry said it was working on ways of granting the yard support which would help the company to regain creditworthiness and financial liquidity.
Janusz Szlanta, president of the company, told PAP News Agency at the end of August that the yard wanted to receive government guarantees for a total of US$150m.
Lesny argued that the sum represented the yard's annual needs and the government will continue to grant guarantees as the yard continues to build new ships.

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