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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: 069 - (28/01/03)

The Polish economy is in the doldrums. It has altogether lost the remarkable zip of the 1990s when GDP grew by five per cent annually for years, as a series of radical governments pushed reform.
GDP grew by 1-2% per year in the 2000s, although it is billed to grow by 3.5% in 2003, according to Economy Minister, Jacek Piechota. Economists are expecting a slow recovery with an acceleration beginning at the middle of the year.

Sluggish investment
A key problem of late has been an untoward slowdown in investment, the key to any economy's performance. The disturbing thing is that there are structural reasons for this that need addressing in a more fundamental way than the ex - communists, back in power since last summer, are likely to do.
Since the beginning of 2001 investment spending in the year's consecutive quarters dropped at a rate of over 10%, while in the third quarter spending on fixed assets fell by 6.3%.
What is especially worrying for the Poles is that their country has lost the reputation for being a good haven for FDI. Foreign investors, who poured over US$40bn in FDI into Poland by last year, are now becoming more wary. Poland failed to attract the huge plant that Peugeot-Citroen was planning for Central Europe, it is going to Slovakia instead. That is a real blow; for Poland seemed the logical place, with a much bigger market and a good location for the huge German market next door, indeed for Central Europe as a whole. The setback over Peugeot is but the last in a string of failures to attract FDI of late.

Stalling reforms
Investors cite several reasons for their caution. Bureaucracy still hamstrings new initiatives, legislation is still opaque, wages are now high by Central European yardsticks and a general lack of welcome is evident. The country needs to find a new 'wind of change,' that is further economic reform.
The great reformer of the 1990s was Leszek Balcerowice, finance minister at the beginning and then at the end of that decade. He left the Solidarity - led coalition government before it foundered badly in last year's elections. He is now the Central Bank chief, where he is keeping monetary policy tight. It is not a position from which a new reform programme is likely to be launched.
The premier, Leszek Miller, is no reformist firebrand himself. A lot will depend on the economy minister, Jacek Piechota, who has the key job. It is still too early to tell how he will shape up.
Bribery scandal rocks Poland and rattles its EU bid
The political scene in Poland is rocked by a bribery scandal that amounts to a huge stumbling block in the road to EU membership.
On a narrow reckoning, it comes down to whether Prime Minister, Leszek Miller, or key figures in his ruling alliance knew about a US$17.5m (16.4m Euro) bribe allegedly solicited from leading media group Agora, publisher of Poland's largest daily Gazeta Wyborcza.
Movie producer, Lew Rywin hinted that Mr Miller was involved when he told Wyborcza's editor in chief, former dissident, Adam Michnik, that a group of ruling party politicians could arrange for parliament to pass a media law allowing Agora to acquire Poland's biggest private television broadcaster, Polsat.
"This is coming from Leszek Miller?" asked Michnik, who was secretly taping the July 22nd conversation.
"But he's not alone," said Rywin in the transcript that Wyborcza finally published on December 27th. The delayed publication detonated a political time bomb that some think could fracture Miller's already unpopular Left Democratic Alliance, or SLD, and potentially endanger the outcome of June's nationwide referendum on EU entry.
That won't spell curtains for Poland's EU membership. A bill is under consideration to allow the combined houses of parliament to approve EU entry if voters fail to turn out in sufficient numbers.
But a failed referendum would likely be the end for Miller and could fracture his ruling SLD, which holds nearly 50% of the seats in parliament and had looked set to dominate Polish politics for the rest of this decade, after demolishing the splintered right in September 2001 general elections.
"The government has no choice - it must do everything to win the referendum. Otherwise, it's all over for Leszek Miller," said one prominent SLD politician who asked not to be named.
Lech Nikolski, government coordinator for the EU referendum, acknowledges the scandal could have an impact but said quick results from the investigation could actually boost pro-EU feeling.
"The most important aspect is how this matter gets cleared up. Fast action from prosecutors and open hearings give grounds to hope for a clear resolution," he said.
The fear is that painful cuts on social spending could alienate voters. But failure to act could prevent government matching funds from being released for EU-backed investment projects in 2004-2005, triggering a "post-accession shock" and sending the economy into a tailspin.
Miller has reshuffled his cabinet twice since Jan 6 in moves that demonstrate less decisiveness than fear that the wheels are coming off.
With Poland's next general election nearly three years away and the SLD's near-majority hold on parliament uncontested, the government coalition is unlikely to be overthrown, but could well lose direction and rot.
Poland has seen this scenario before, as the centre-right government of Prime Minister, Jerzy Buzek, stumbled from scandal to scandal in 1997-2001, before its constituent parties were swept from parliament in a general election wipeout.
Moderate opposition strategists like Mr Arkuszewski and Mr Rokita wouldn't necessarily relish a replay, since they worry the ultimate beneficiary of a left-wing collapse would be radicals such as Mr Giertych's LPR and agrarian populist Andrzej Lepper.

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AUTOMOBILES

Autoliv strengthens Polish presence with new plant

Automotive safety manufacturer, Autoliv, stated recently that it had opened a new plant to make seat belts in Poland, New Europe has reported. According to AP, the plant will serve as a manufacturing hub for central European automakers.
Located in Jelcz-Laskovice in southern Poland, the facility will employ 200 workers with a target of 1,000 in two or three years, Chairman and CEO, Lars Westerberg, told AP in an interview. Westerberg said that the plant would add nearly five per cent to the company's European seat belt production capacity. Seat belts produced there will be mainly for use in cars built by BMW, DaimlerChrysler, Ford, Opel and Volkswagen.
"The new plant meets our needs for additional production capacity as well as our aim of reducing costs by moving labour-intensive production to a low-labour cost country," Westerberg commented. "Over the past three years we have moved more than 5,000 jobs to those countries," he added.
The company announced its plans last November to close two plants in the United States, thus eliminating about 850 jobs, most of which were to be shifted to Mexico.
The Stockholm-based company said that the move would save US$5m in 2003 and more than US$20m in 2004. The company's headquarters are in Auburn Hills, Michigan. 

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AVIATION

Jilting Europe, Poland opts to 'buy American'

Poland announced recently that Lockheed Martin Corp had won a US$3.5bn contract to build 48 war-planes for the Polish Air Force, the largest arms deal ever in Eastern Europe and a major blow to European military aircraft manufacturers, the International Herald Tribune reported on 29th December.
"This is an optimum solution for the military security of the state and it meets our obligation as an ally," Defence Minister, Jerzy Szmajdzinski, said of the deal for US made F-16s.
The award will solidify Lockheed Martin's foothold in Eastern Europe as countries there step up efforts to modernise their weapons systems. Poland is the third of NATO's newest members, after Hungary and the Czech Republic, to choose a contractor for new fighter aircraft, and both the Czech and Hungarian contracts went to European suppliers.
"This decision will greatly enhance Poland's capacity to take part in NATO missions," the US ambassador to Poland, Chris Hill, said. "It represents more than an airplane. It is a fundamental choice about the strategic, political and military relationship."
But European arms makers complained bitterly about the deal.
An obviously furious Serge Dassault, of Dassault Aviation of France, told France Info radio: "It's a great present for joining Europe! I find it scandalous."
The Lockheed bid was supported by a package of loans backed by the US government totalling US$3.8bn. The Bush administration threw its support behind the Lockheed offering, taking advantage of revived strong relations with Warsaw since the collapse of communism in Poland in 1989.

EIB lends 200m Euro for Warsaw airport expansion

The European Investment Bank (EIB) in Luxembourg will lend 200m Euro to Przedsiebiortwo Port Lotnicze (PPL), the state enterprise Polish Airports for co-financing of a new passenger terminal and associated airside and landside work at Warsaw International Airport, New Europe has reported. The new terminal will provide capacity for an additional 6.5 million passengers annually, thus increasing the airport's overall capacity to approximately 10 million passengers in efforts to deal with expected growth up to at least 2010.
With a 50m Euro loan to PPL granted in 1992, EIB helped upgrade Terminal 1 at Warsaw International and associated infrastructure, to increase capacity to 3 million passengers, an EIB press release noted. However, passenger traffic has since grown at rates exceeding forecasts, reaching 4.7 million passengers per year in 1001 and expected to increase to almost 6.3 million by 2005 and 9.4 million by 2010.
Although the airport has so far dealt well with the excess traffic, it is in need of urgent expansion to meet current and forecast traffic levels.
Commenting on the loan, EIB Vice President Roth noted: "The expansion co-financed with the new EIB loan will enable the airport to meet existing and rapidly rising demand for air transport in Poland, as the country's economy develops. In so doing the project will contribute to Poland's integration to the EU and to strengthening transport links between the EU and Poland with the TEN network." Since the beginning of 2002 EIB has lent more than one billion Euro for projects in Poland, of which nearly two thirds have gone to transport schemes. 

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ENERGY

Warsaw energy distributor sold to German company

The Stoen company was finally sold on 23rd December. The German RWE Plus AG concern bought the capital's energy supplier and paid more than 1.5bn zlotys (US$375m) for 85 per cent of shares in the Warsaw electricity distributor, Polish Radio 1 has reported.
An agreement to this effect was signed in Warsaw in the presence of Treasury Minister Wieslaw Kaczmarek.
Kaczmarek said: "It's the biggest transaction this year and we are aware that it was accompanied by a certain, perhaps not electrical, but political tension. We hope that by joining this project the investor will be willing to implement the strategy that has already been implemented on the European energy market. The investor is not only known for being a professional operator in the energy sector but also as a provider of
various municipal services, therefore, I hope that in the near future Stoen's services won't only be limited to the energy sector."
Heinz-Werner Ufer, RWE Plus chairman, added that the purchase of Stoen was an important move for his company to become more active in Central and Eastern Europe.

Polish-Russian gas supply agreement signed

Polish Oil and Gas Mining SA (PGNiG) and Russian Gazexport, part of Gazprom, signed an agreement on gas supplies to Poland at the end of December 2002, thus averting the danger of halting natural gas supplies from Russia to Poland, the company wrote in a statement on 2nd January, PAP News Agency reported.
The annual gas consumption in Poland is estimated at about 11bn cubic
metres, of which 7bn are imported mainly from Russia.

Talks on Ukraine-Poland oil pipeline due in mid-February 2002

Another round of Polish-Ukrainian talks on construction of the Odessa-Brody-Gdansk oil pipeline will be probably held in mid-February, Deputy Economy Minister Marek Kossowski told PAP News Agency on 9th January.
The two delegations held a meeting during which they confirmed their interest in the project, Kossowski said, but added that the Ukrainian side must still work on the business plan. "The tender for drafting the business plan was won by PriceWaterhouseCoopers," Kossowski explained and said the business plan is to be ready within the coming weeks.
Prime Minister Leszek Miller said during a press conference with his Ukrainian counterpart on 8th January that Poland is still interested in the construction of the oil pipeline from Ukraine to Gdansk but the investment should have a commercial character and should be constructed by an international consortium...

Polska seeks more information on RG bid

The state agency responsible for oil sector sell-offs, Nafta Polska, has submitted a request to the Britain-based and privately owned Rotch Energy and PKN Orlen to provide additional details of their joint bid for the Gdansk Refinery (RG), Poland's second biggest refiner. Nafta was due to make its recommendations to the government regarding the long-delayed sale after Rotch and Orlen placed their final offer in early December. Nafta head, Maciej Gierej, who said a response from the Rotch-Orlen consortium was due at the end of 2002, would not say if the privatisation deal could be finalised or what additional information the agency might request from the consortium, Warsaw Business Journal reported. 
The RG acquisition stands to boost Orlen's refining capacity to some 450,000 barrels per day and about 400 stations to its retail network of more than 1,900.

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FOREIGN LOANS

EBRD, Kredyt Bank and Raffeissen approve loan for new telco group

The European Bank for Reconstruction and Development (EBRD), Kredyt Bank and Raiffeisen have agreed to provide financial backing for Tel-Energo and NOM in the process of forming the National Telecommunications Group (KGT). The KGT will be an alternative to TPSA. Tel-Energo has been granted a loan for financial investments totalling more than 400 million zlotys, some 300 million zlotys of which will be spent on the purchase of a 74% stake in Telbank, IT services provider for the banking sector, for which Tel-Energo has been negotiating with the National Bank of Poland (NBP). Tel-Energo and NOM President, Andrzej Arendarski, confirmed that talks with the three banks are proceeding, Puls Biznesu reported.

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INFORMATION TECHNOLOGY

IT in the frame for euro cash

Small- and medium-sized IT companies will get an opportunity for a financial boost from the European Commission in the near future, when initial calls for research project funding proposals are accepted under the body's Sixth Framework Programme (FP6), Reports Warsaw Business Journal.
The EC's Framework Programmes (FP) are the only funding arms of EU research policy, with FP6 having specified research areas as well as seven theme-driven components, including one for IST, or Information Society technologies, for various IT and tech-related projects. The €17.5bn budget for FP6 from 2002-2006 is a 9% increase over the previous FP's almost €15bn. March-June 2003 will be the first deadlines for proposals.
Such external funding programmes are vital for small- and medium-sized IT firms, industry insiders say, to increase their product development and to establish international contacts in order to survive on the market, especially with the industry's consolidation. In a sector dominated by domestic giants Prokom Software, ComputerLand and Optimus and a bevy of multinationals with local offices, scores of lesser-known players need more capital from outside sources to withstand additional competition expected from the country's EU membership.
"The changing conditions on the Polish IT market will simply force many companies to look more intensively for partners to group themselves within specific projects," said Marcin Marszalek, the chief executive of Zigzag, a Warsaw ISP, which plans to participate in the FP6. EU funding would "be a natural process extending the current process of consolidation on the market," he said.
The EC received almost 12,000 project ideas form firms, universities and research centres throughout Europe in response to its invitation to submit expressions of interest for research in the priority themes for FP6, according to Cordis, the programme's research and development information service. Of the themes, the most applications - almost 2,600 - were received for Information Society projects. Poland tied with Italy as the fourth largest contributor of expressions of interest with 8%, following the UK (17%), Germany (15%) and France (9%).
The EC has earmarked at least 15% of the FP6 programme's funds for SMEs. Most SMEs are largely dependent on such funding to generate new products and technologies, create employment and support larger companies as subcontractors.
"If you're a developer for IBM, then the FP6 is not a good idea because you are not dependent on it" unlike companies that produce their own IT products, said Grzegorz Kolodziej, ComArch's strategic business development director.
Under the FPs, companies and research institutes must find partners and build consortia to develop projects and submit applications for funding up to a total of €750,000 with the rest supplied by the consortia partners.
Mainly Polish research institutes and universities applied for funding under the FP5 since it was perceiver as an R&D programme, although it later started attracting Polish SMEs. In the FP5, Central and Eastern European countries represented about 2% of all participants, with Poland accounting for about 22% of that figure, according to Kolodziej.
Some industry professionals said that the participation of Polish IT companies was limited in FP5 due to their lack of knowledge of the programme and because the application and evaluation processes were too rigid. Previously FPs have been criticised for their limited scopes in supporting mainly network-building and research, as well for their complex and bureaucratic implementation policies.
But the few IT companies that participated in FP5 praised the programme as an alternative source of funding and an opportunity to establish ties with other international firms.

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MINERALS & METALS

Groups steeled for Polish dust-up

LNM Group, the world's second-largest steel concern, and US Steel, America's largest are fighting to dominate eastern Europe's market, The Financial Times reported on 3rd January. And Poland, the largest of the region's 12 European Union candidates, promises to be the next battleground. Both groups have expressed interest in investing in Polskie Huty Stali (PHS), a newly created group merging four of Poland's largest mills. Recently Poland's state treasury sent the two groups, along with 10 others, formal invitations for the bids in PHS's privatisation, set for this year.
US Steel and LNM, owned by UK-based entrepreneur, Lakshmi Mittal, have already faced off in the Czech Republic and Slovakia. LNM is now completing the acquisition of Czech Nova Hut, and last year bought Romania's huge Sidex plant.
It's American rival bought control of Slovakia's VSZ Kosice in 2000, and is running Yugoslavia's Sartid mill with a view to a possible purchase. "We're still interested in that facility and we're moving fast ahead," John Goodish, US Steel Kosice's head, said of Sartid.
After Poland, Hungary could be the two companies' next quarry, with the government planning to start privatisation of the Dunaferr mill next year.
For LNM central Europe is just another region in its rapid global expansion. For US Steel, it is a major production hub as the Kosice plant, where it plans to invest US$700m over 10 years, represents 30 per cent of its group production and operating profits.
The region's struggling steelworks seem an unlikely industrial trophy, least of all debt-laden, overstaffed PHS. Its biggest mill, Huta Katowice, specialises in low-value-added long products; its second-largest, Huta Sendzimira, is saddled with a 1950s vintage plant and a sprawling 1,700-hectare site.
But the Polish concern, like others in the region, offers both potential investors an entry to an under-exploited market. With ready buyers in its automotive and other industries, Poland currently imports about half of its steel.
Eastern Europe's mills also give global groups the chance to extract steep productivity gains by boosting efficiently, quashing corruption, and exploiting their own purchasing power and market intelligence.
Once restructured, the steelworks can serve both fast-growing regional economies and the EU, to which PHS and other central European plants will have access when the bloc expands in May 2004.
"They can cut incredible costs out," said Andrew Kotas, director at UK-based management consultants Gorham & Partners.
Continental European companies, facing difficult markets at home, have largely looked on as LNM and US Steel have divided the east European cake. ThyssenKrupp and Arcelor are both understood to be potential bidders for PHS.
But, whoever ends up buying the group the group is likely to first face delicate negotiations, and some sobering cost-benefit calculations.
Poland postponed privatising its steel industry for years, and paid the price as mills like Huta Katowice and Huta Sendzimira lost customers and worked at cross-purposes.
It finally created PHS due to mounting debts and EU pressure to retool the industry before membership. In difficult EU accession negotiations, which ended in December, Poland promised to end state aid to PHS after a final, 3bn zlotys of that group's debts converted to equity.
PHS employs about 16,000 people, with annual sales of 6-7bn zlotys. It currently plans to cut its payroll to 10,000 employees by 2006, mostly through natural attrition, says Jerzy Podsiadlo, PHS's new chairman. "We have a good chance of being a competitive steel concern in the near future."
Finding an investor is essential as PHS continues to haemorrhage cash. Last year the two biggest mills alone reported a combined new loss of 1bn zlotys.
Some analysts warn that brokering a privatisation deal might prove tough. Warsaw is hoping a foreign company will buy some of PHS's converted debt and inject new capital, while agreeing a "social package" with PHS's trade unions governing future employment. But PHS's portfolio is still weighted with non-core units in such areas as power generation and sewage treatment, which employ several thousand people.
Mr Kotas questions the wisdom of the government's consolidation strategy in the first place: "Why start creating a Polish Steel? We are now a globally integrated steel industry. This plan dictates to investors what they will be buying."

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SPECIAL ECONOMIC ZONES

Polish government sets up special economic zone in closed cable factory town

The government on 7th January decided to set up a special economic zone at the site of a cable plant in Ozarow to help new possible investors with the area management, government spokesman Michal Tober said. "It will be a sub-zone of the Tarnobrzeg special economic zone," Tober said after the government meeting, PAP News Agency has reported.
Six hundred workers of the cable plant in Ozarow Mazowiecki have been protesting the plant management plans to shift the production to Bydgoszcz and Szczecin since April, after the company deputy chief executive officer, Jan Kurbiel, had reported that the plant would be liquidated due to a fall in sales of telecommunication and power transmitting cables. In early December, Minister of Labour Jerzy Hausner suggested such a zone should be set up. He also promoted a project of small loans for laid off workers.

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