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POLAND


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 187,670 176,300 157,600 22
         
GNI per capita
 US $ 4,570 4,230 4,170 71
Ranking is given out of 208 nations - (data from the World Bank)

REPUBLICAN REFERENCE

Area (sq.km) 
304,500

Population 
38,633,912

Capital
Warsaw

Currency 
Zloty 

President 
Aleksander 
Kwasniewski 

Private sector 
% of GDP 
70% 

  

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: 079 - (01/12/03)

The Poles are making a major contribution in Iraq, leading a 9,000 troop contingent in the south centre of the country, with over 2,000 troops of its own. A Polish major was killed in early November, the first combat fatality since the Second World War, which was occasioned by the Nazi invasion of Poland. Polish airmen played a distinguished part in the Battle of Britain in 1940 and in resistance to the Nazis thereafter. All they got for their pains was forty years of communism, which as Stalin himself said fitted Poland like a saddle does a cow.
The removal of a vile totalitarian regime is enough justification for them for the war in Iraq, in which 200 Polish special forces played a role. As TV host on Polish evening news show, Tamasz Lis puts it: "Until 1989 we were the people who needed to be liberated. While aware of the dangers of WMDs in the wrong hands, most Poles were more convinced that the main reason for the intervention was to free the Iraqi people from the rule of an evil dictator."

A whiff of scandal
Not everything is rosy in the state of Poland itself. The population are disillusioned with the political class as a whole. They used the occasion of parliamentary elections last year to eject the Solidarity-led coalition government and replace it with the former communists, led by Leszek Miller, whose government has been having a sticky time of it. The reform achievements of Poland in the 1990s are not being built on in the new decade when GDP growth has been dismal. Even more galling is that corruption is still rife.
The Polish newspaper, Zycie Warszawy, reported on November 13th that many tenders for buying equipment for the Polish army between 2002 and 2003 were allegedly dishonest, including for procurement of gear for the Polish contingent in Iraq, of which the public generally feel proud. Conditions for the tender, according to the newspaper, were set so as to favour one company, which then paid a bribe to clinch it. Some 30 people have been arrested on charges of involvement in the affair.
The opposition Law and Justice (PiS) party has called on the defence ministry to report urgently on the matter to the Parliamentary committee for National Defence. "If the press reports are confirmed, the consequences should be borne not only by the accused, but by the high-ranking officials and politicians responsible for supervision at the Defence Ministry," PiS said in a statement. Heads will have to roll to appease the public.

The EU beckons
The entry of Poland into the EU in June next year is the burning issue in Polish politics. That and the Polish contribution in Iraq are related concerns. The public has not forgotten the chin-wagging of the French and Germans at the Polish decision to participate in the operation in Iraq in the spring or for that matter the post-war settlement either. German Foreign Minister Joschka Fischer was in Warsaw on November 13th to mollify the Poles on the issue of the new draft EU constitution, proposed by the European Commission. 
It is opposed by Poland and Spain because of its stipulation that key decisions in an enlarged EU would be made by at least a simple majority of 60% of EU citizens. That would effectively mean that Germany, France, Italy and Great Britain could steam-roller decisions through over the heads of the smaller countries, Poland and Spain are not of course that small, both having populations of nearly 40 million.
Fischer suggested that the 60% threshold could be raised, thus making it easier for smaller countries to block the big four. "We can find a compromise here," he said." There are other points where we can find solutions ensuring Poland will not be discriminated against," he added.

Euro popular
The entry into the EU is popular for all that, and so is the idea of Poland joining Euroland soon. Some 57% are in favour, while only 33% are against the proposal, now planned for implementation in 2008.
The Poles are not so enamoured of the Zloty, nor of the independence of their central bank, chaired for long by the highly respected but austere figure of Leszek Kalcerowicz, who was the main spirit behind Polish reform after independence in 1989 as finance minister. The central bank has been pursuing a tight monetary policy for years, meaning high interest rates and mortgage payments. An unpopular policy that is not likely to be abandoned by the European Central Bank either.

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AUTOMOBILES

Gliwice to become Europe's sole producer of Astra II

200 new jobs will be created at General Motor's (GM) Opel plant in Gliwice, said president of General Motor's Opel plant in Gliwice, said president of General Motors Europe, Michael Burns - who launched production of Astra II at Gliwice on October 3rd, the Warsaw Business Journal reported.
Michael Burns confirmed GM's plans to shift production of Astra II cars from plants in Western Europe to the Opel plant in Gliwice, which will become Europe's sole producer of Astra IIs.
In addition to Agila vans, which it currently produces, the Gliwice plant will turn out 2,000 Astra IIs by the end of this year and another 40,000 in 2004.
The Gliwice plant, which is the largest foreign investment in the Katowice special economic zone, currently employs 2,000 people and in 2002 produced 85,000 cars, 95% of which were exported to most countries in Europe and even China. About 80% will be for export to Eastern and Central Europe, Australia, New Zealand, RSA and South America. Burns predicts that over the next four years, Astra exports from Gliwice will be worth about US$840m.
"The successful introduction of the principles of GM's global production system at this plant and the positive climate for investment here in Gliwice played a key role in the decision to produce the Astra II at Opel Polska," Michael Burns said.
What also played a key role was the Offset Program. The program, which arose from the purchase of F-16 planes for the Polish army, has been hailed by many as Poland's 'Contract of the Century,' and without it, says Burns: "the Gliwice investment would not have been possible."
Weapons companies, Lockheed Martin and Raytheon, are funding part of GM's investment in preparing production lines for the plant's second model - 40% of the equipment will be brought over from factories in Western Europe, while 60% is brand new. Burns was unwilling to reveal the financial details of the offset deal.
It's no secret that GM has been struggling to defend its market position over the last few years - following a net loss of US$767m in 2001. A global 'turn-around' program, initiated since then, aims to cut costs, increase revenue and generally address the fact that, as GM Europe's (GME) vice president for vehicle operations, Tim Lee, puts it: "The suit we were wearing was simply a few sizes too large."
According to Michael Burns, the turn-around programme is beginning to show results: in 2002 losses were reduced to US$549m, while the US$68m loss in the first half of 2003 is "a solid improvement" on losses in the first half of 2002. But, although the last three quarters have seen GME increasing its market share, the company is still behind its European competitors in both manufacturing and engineering.
"The Gliwice plant is one of GME's most up-to-date plants," says Burns. However, he admits that, "It still has some experience to gain."
This is why Gliwice is to produce the Astra II and not the newest model, Astra III. He said: "We decided to locate production of Astra III in Western Europe because those plants have more experience."
Nevertheless, Burns confirms that GME is already working on plans to introduce production of a new model to Gliwice in the next few years.

Korea's Hyundai/KIA examines potential investment in Poland

Representatives of South Korea automaker, Hyundai/KIA, discussed recently what was reported to be a possible billion-dollar investment with regional officials in the Wroclaw area of southern Poland, PAP News Agency said in report.
A spokeswoman for the local authorities in Lower Silesia, Anna Poznanska, said the delegation had had "very concrete talks on the labour market in the region I think that we are a serious candidate."
The delegation also held talks in Warsaw with President Alexander Kwasniewski and Prime Minister Leszek Miller.
Hyundai is keen to locate a facility capable of producing up to 300,000 cars a year in central Europe, according to recent unconfirmed Polish media reports. The Czech Republic and Hungary are also competing for the hefty investment, which could create some 3,000 jobs.
After Poland recently lost a bid for a valuable investment by French carmaker Citroen-Peugeot to neighbouring Slovakia, Wroclaw regional officials have vowed to do everything possible to accommodate Hyundai's needs, dpa reported.
Hyundai/KIA is likely to make a final decision on a location in three months, reports say. Poland, the Czech and Slovak Republics and Hungary are all among the 10 mostly ex-communist states slated to join the European Union next May.

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AVIATION

SAS reportedly mulling stake in Polish LOT

Scandinavia's SAS airline is interested in gaining shares in its new Star Alliance partner, Poland's flagship carrier LOT, a leading polish newspaper reported recently. SAS president, Jorgen Lindegaard, told Rzeczpospolita that SAS is attracted by the Polish carrier's large potential for growth. SAS has yet to contact the Polish Treasury, LOT's majority stake holder (68%) or the liquidators of the defunct Swissair Group which currently control a 25% share in LOT. Employee-held stock accounts for 7% of the company. 
The Treasury Minister, Piotr Czyzersku, said an initial public offering of LOT shares on the Warsaw Stock Exchange (WSE) was unlikely to go ahead before 2005. The minister said the status of LOT shares held by the liquidator of the defunct Swissair Group would have to be clarified before an offering could proceed. The same applied to potential institutional investors. On October 26th, LOT became a member of the Lufthansa-led Star Alliance, which, controlling some 26% of the global market, is the largest of the world's three airline associations.

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CREDIT RATINGS

S&P changes Poland outlook to negative

Poland's local currency rating was downgraded on 5th November by Standard & Poor's because of concerns about the country's high budget deficits and a rapid increase in government debt, the Financial Times has reported.
Bond traders said they were not surprised, given Poland's economic difficulties. But the downgrade emphasises the challenge facing the largest of the 10 European Union accession countries, and several of its east European neighbours, in aligning their economies with that of the eurozone.
S& P cut its rating of Poland's long-term local currency sovereign credit and senior unsecured debt from A to A minus. The short-term local currency sovereign credit and commercial paper ratings were also cut from A1 to A2.
But it maintained its long-term foreign currency sovereign credit rating, a more important indicator for foreign investors, at BBB plus, though with a "negative" outlook.
The government expects its budget deficit to amount to 6.3 per cent of gross domestic product in 2004, falling to 3.7 per cent by 2006. But S&P expects the deficit to reach 8.3 per cent of GDP next year and about 7 per cent in 2005/06.
The government also faces a lacklustre privatisation programme and the need to reform the agricultural sector and restructure public companies that are a burden on the state, S&P said.

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ENERGY

Goods news for FX Energy both sides of the Atlantic

FX Energy, the Nasdaq-listed exploration company with major concessions in Poland, has made a presentation to the New York society of Security Analysts, further raising the profile of the firm which, recently, made the news with its association with billionaire investor Warren Buffet and veteran North Sea gas hunter, Richard Hardman, the Warsaw Business Journal reported.
One analyst's recent assessment has shown that Cal Energy, the Warren Buffett company working closely with FX Energy in Western Poland, paid considerably more for its share of FX Energy prospecting areas that the stock trading price. Focus is currently on a smaller part of FX's prospecting area where it collaborates with Cal Energy, but there are still massive areas available to FX that have not been farmed out. The analyst goes on to assert that, "I, as an investor, can buy into Buffett's play for about a third of the price and have all the upside he does via his holding."
According to FX Energy, "our goal is to bring industry partners into these projects to provide the capital for early-stage exploration drilling. We are seeking one or two industry partners for out Fences II project area and later this year, following our initial evaluation for the Fences III area, we plan to seek other industry partners to join us there. We are also looking at additional opportunities in Poland, particularly with the Polish Oil and Gas Company, to add to our current land holdings."
Thanks to the ever-increasing awareness in the US of FX Energy's potential in Poland, everything points to a greater number of major foreign exploration firms investing in Poland, boosting the revenue of the Polish Oil and Gas Company (PGNiG), which often keeps a 51% stake of its prospect areas. Recently PGNiG announced its three-year marketing strategy. This has been brought on by the fact that in July 2004, two months after Poland joins the European Union, there will be a major liberalisation of the gas trading market, inviting competition for the first time, and its corollary of a drive for new technology and supplies.
Analysts have predicted that PGNiG could lose up to one third of the domestic gas market, but in the words of PGNiG president, Marek Kossowski, "we are not attempting to defend the entire market but we intend to concentrate on its most attractive segments and cooperate with the strongest foreign partners." A very basic analysis of the Polish gas industry shows that FX Energy, at least in terms of exploration concessions, is the only major foreign partner.
Of great interest to believers in Poland's untapped domestic gas supply, Kossowski added, "we will take special care of our customers from the power sector. We are interested in the expansion of small and medium power plants. We are willing to invest in them by using the financial resources from (European Union) structural funds as well as the National Fund for Environmental Protection (NFOS)." According to experts, the new gas supplies that FX Energy hopes to find - with Cal Energy and Richard Hardman - are ideal for the plants that Kossowski refers to.

Polish gas firm PGNiG will soon secure credit facility to cover possible 700m Euro bond 

Polish natural gas monopolist, PGNiG, hopes to sign a deal with banks within two or three weeks to secure a credit facility needed to protect the company from the potential exercising of a put option on nearly 700m Euro in bonds, PGNiG president Marek Kossowski told reporters, Interfax-Europe News Agency has reported. 
"Talks with banks are always very complicated and require time, but I think that it is possible that we will be able to sign the deal within 10-20 days," Kossowski said. 
A deal would go a long way to calming rating agencies and bondholders and should allow the firm to function within safe liquidity margins. PGNiG was put on review for a credit downgrade by both the Moody's and Standard & Poor's rating agencies in late August after the company's bondholders rejected an indenture amendment proposal to remove a rating trigger that would enable bondholders to seek an early redemption. 
The financial instruments being sought will not require major guarantees from Poland's State Treasury, which fully owns the company, Kossowski has noted. 
PGNiG has held talks with the rating agencies regarding different methods of solving the rating trigger issue. Both Moody's and S&P tie a possible rating cut to PGNiG's ability to work out a deal regarding the bond put. 
PGNiG recently repurchased 21.3m Euro of the bonds, cutting its outstanding load to 678.7m Euro. The company issued 800m Euro of eurobonds in October 2001. 

Polish, Ukrainian firms sign agreement on gas supplies

Polskie Gornictwo Naftowe i Gazownictwo [Polish Oil and Gas Company- PGNiG] has signed an agreement with NAK Naftogaz Ukraine on the delivery of 2bn cubic metres of gas, PGNiG said in a communiqué, PAP News Agency has reported.
"The base amount is 2bn cubic metres, scheduled for delivery by July 2004," the communiqué read.
PGNiG has looked for a supplier since September 2003 when it terminated an agreement with Sinclair, the company which had won a contract on the delivery of up to 2bn cubic metres of gas.
It turned out that Sinclair is unable to meet the obligations.
Poland's annual demand in gas has recently remained unchanged at 11bn cubic metres.

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FOOD & DRINK

Cadbury plans to streamline operations in Poland

As a consequence of active acquisition and disposal over the last few years, crowned by the buy-up of the chewing-gum producer Adams in March 2003, its organisational structure is now too complex and their cost base disproportionate for a company of its size, says Cadbury-Schweppes, the Warsaw Business Journal reported. The company is currently the world's number one in sugar and functional confectionery, number two in chewing gum and the world's third largest soft drinks company - hence the inauguration of a restructuring and cost-reduction program dubbed 'Fuel for Growth.'
The program, announced recently, plans to close around 29% of the company's 133 factories worldwide and lay off ten per cent of its 55,000 employees. Half of the £900m (zl6.15bn) to be invested in the program will go on restructuring; the remainder is for capital spending on top of ongoing capital spend requirements, which constitute about three per cent of sales.
According to the PR head at Cadbury-Schweppes headquarters in Britain, Dora McCabe, says they can't rule out the possibility of factory closures and job losses in Poland, where profits of zl23.5m last year were down on 2001's figures by more than zl10m. Cadbury's which has been in Poland since 1993, currently has two factories, in Bielany Wroclawskie and Warsaw.
Up to one third of the savings expected to follow the 'Fuel for Growth' program will be reinvested in a parallel program 'Smart Variety', which aims to leverage the combination of the company's broad category participation, as well as accelerating sales growth through increased spending on marketing and innovation. Dora McCabe says that, "In Poland we'll be launching the 'Wedel Flake', which is basically a Polish version of the 'Cadbury Flake', a brand well-known in Britain."
Peter Knauer, president of Cadbury-Wedel, whose spending on advertising grew from seven per cent to 19 per cent of sales income between 1999 and 2002, told the press that the company, already the market leader, has plans to further strengthen its position.
Some analysts have suggested that the 'Smart Variety' program initiated in 1999. But McCabe denies any similarities: "We are very different from Unilever because we have a lot of very powerful local brands," says McCabe, "Wedel being a very good example. And this is exactly what we want to build on."
It's a statement that clearly echoes CEO, Todd Sitzer's, comments to investors at a seminar on October 27th. "Nobody else has our combination of portfolio reach, range and route to market."

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FOREIGN ECONOMIC RELATIONS

Poland to hold talks with Russia on terminating trade agreements

Talks on terminating bilateral agreements with Russia will be held during the third meeting of the Polish-Russian committee for strategy and cooperation in late November, Foreign Minister Wlodzimierz Cimoszewicz said, adding that talks would be attended by his Russian counterpart, Igor Ivanov, PAP News Agency has reported.
"We must terminate some agreements, including a trade treaty, as this is a natural consequence of Poland's joining the European Union," Cimoszewicz stressed.
According to the Polish foreign minister, from the legal point of view "this should not result in any problems" as Russia and the EU have an agreement on partnership and cooperation which regulates also trade issues.
But in fact there is a certain problem as the Russian side is not convinced as Poland and the EU are, that the countries joining the union are automatically covered by this agreement, Cimoszewicz said.
Poland must terminate bilateral trade agreements with Russia because joining the EU it will be covered by the existing agreement on partnership between the EU and Russia. Moscow wants to maintain its bilateral agreements with the countries joining the EU on 1 May 2004. The treaty on partnership and cooperation signed by the EU and Russia in 1997 defines EU relations with Russia, including political dialogue, trade, and economic, legislation and financial cooperation.

FOREIGN INVESTMENT

Italian Merloni to invest 50m Euro in Polish plant

Italian consumer durables maker, Merloni Indesit, plans to invest 50m Euro in Poland over the next three years, Merloni Indesit Polska Director, Guiseppe Parma, said recently. Some 40m Euro will be spent on a new refrigerator factory in Lodz, central Poland, while 10m Euro is to be invested in expanding annual production of kitchen stoves from 600,000 to one million in another existing Lodz facility, New Europe reported. 
The new refrigerator factory is scheduled to open in the last quarter of 2004. Merloni exports 80% of the kitchen stoves currently produced at its Lodz plant. Plans call for the high-level of exports to continue after expansion. The stove factory which opened in 1999 employs 700 workers. 

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MINERALS & METALS

Poland authorises LNM to buy out PHS steel

The Polish government recently approved plans for global steel behemoth, LNM, to go ahead with the purchase of Poland's heavily indebted state-run PHS steel conglomerate, grouping the largest steel mills in the country. The sale will be finalised shortly, Poland's Treasury Minister, Piotr Czyzewski said in Warsaw, New Europe reported.
Pointing out that the final agreement had not yet been signed as of yet, Czyewski declined to release details on the terms of what is certain to be one of the largest privatisation deals in Poland this year. The PHS steel conglomerate groups four Polish steel mills accounting for 70% of the country's total steel production. The company directly employs some 16,000 workers with another 16,000 estimated to work in partner companies. With an annual output of some 35m tonnes of steel and over US$10bn in projected revenue this year, the Dutch-British LNM ranks as the world's number two steel concern. 

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PHARMACEUTICALS

Polfa Holding - to stay state-owned or go private?

Of the eleven Polfa companies which once made up Poland's state-owned pharmaceutical industry, most were privatised long ago, and are doing well. But government plans for the last three state-owned pharmaceutical companies have gained little support from most in the business.
The government will control 100 per cent of shares in the proposed holding, which will hold an 80 per cent share in Polfa Warzawa, Polfa Pabianice and Polfa Tarchomin. Up to 30 per cent of shares in the holding may be floated on the Warsaw Stock Exchange next year. Their sale is intended to enable the government to follow it strategy regarding medicines.
According to the government, which paid out zl.5bn last year in medicine refunds, a significant aim is to reduce this kind of budget expenditure. However, doubts remain as to the feasibility of the planned holding.

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TELECOMMUNICATIONS

Next fixed line contestant

Raiffeisen Investment's (RI) planned purchase of alternative telecom El-Net could pave the way for at least one element of the ongoing preparations to drum up competition for Telekomunikacja Polska SA (TSPA), the Warsaw Business Journal reported.
Austria's RI, in a consortium with private equity houses, expects to buy 100% stake and liabilities of El-Net from Elektrim Telekomunikacja and banks in November. Should the deal go through as planned, RI also sees a role for itself as an industry consolidator, which could eventually merge El-Net with Telefonia Dialog, which has been on the blocks for some time.
"Raiffeisen sees a good opportunity," says Radoslaw Solon, analyst at BDM PKO BP. He explains that in its present state, the country's telecom industry has no possibility of creating a viable competitor who could wrest some of the control TSPA as over the country's fixed-line market.
"We are interested in organic growth, but one should not forget about the unavoidable market consolidation process," says Martin Schwedler, an RI board member. "With strong financial backing EI-Net should be active in this field."
Analysts say the RI's is a positive move for the industry as a whole, especially because El-Net would be wholly owned by financial investors, instead of strategic investors or the state: both groups have stalled progress from being made for some time. In that, El-Net would mirror Netia. Financial investors Montpelier Asset management (6.14%), SISU Capital (6.89%) and Griffin Capital Management (5.94%) own Netia. At the same time, 81.02% was floated on the Warsaw Stock Exchange. "The only possibility is to merge the assets," says Solon.
And with Netia's stated interest in buying Tel-Energo, despite conflicting news that the sale was cancelled, there seems to be a chance in the very near future for two companies to take advantage. The RI consortium would buy El-Net, and then buy Telefonia Dialog. And Netia would buy Tel-Energo, plus whatever other assets it plans to chase.
But much of this has been debated before, and Michal Marczak, analyst at BRE Bank, wonders whether the RI-consortium would be able to pay for Dialog. "I am not sure if Raiffeisen has the money to buy the other asset," Marczak says. He cautions that for its stake, KGHM would look to raise as much as zl700m.

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