Poland Suspends Privatization of the Group of Eight Electricity Distribution Companies

According to the Polish press, the Minister of the State Treasury (Zbigniew Kaniewski) has suspended the privatization of the Group of Eight Electricity Distribution Companies. The Group of Eight ("G8") was originally advertised for privatization in December 2000. The companies include the electricity ditribution companies in Elblag, Gdansk, Kalisz, Koszalin, Olsztyn, Plock, Slupsk, and Torun. (See map of Polish distribution companies.)

According to CA IB Financial Advisors in Poland: The G8 Companies are located in central and northern Poland and cover an area of 74,627 square kilometres, which constitutes 23.9% of Poland’s territory. In 2002, the total volume of electricity sold by the eight electricity distribution companies amounted to 16,021 GWh, which constituted 16% of the share in total sales of the electricity supply and distribution companies in Poland. The G8 companies sell electricity to over 2 million customers.

Although there has been a parade of investors looking at the G8 since the announcement, there has been no success. The main suitor for the G8 has been El-Distrybucji, a Polish company affiliated with Kulczyk Holding. The privatization effort with El-Distrybucji finally failed due to the bid not "meeting the expectations of the State Treasury."

What is next? According to the Ministry, it is unlikely but not precluded that the privatization process will be resumed. More likely, the eight companies will be put into the presently on-going process of consolidation in the power sector.

There are presently two companies in the consolidation process. One is PKE, the "Southern Consortium" and the other is "BOT," a new company to be built around the gigantic Belchatów mine-mouth power complex, plus the Opole generating plant and the lignite minemouth generating complex at Turów. In general, the consolidation program looks to create regional energy companies including coal mines, power generation, electricity distribution and retail sales. The plan has been strongly supported by some members of the present government, but is generally opposed by the Anti-Monopoly Office. It has gotten a mixed reception from the Polish parliament (Sejm).

The cancellation of the G8 privatization leaves over 70% of Poland's electricity distribution in the hands of the State. Only GZE and STOEN have been privatized thus far. The rest now seem unlikely to reach private hands in the foreseeable future.

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Prepared March 22, 2004