Poland Is Putting Up A Big `For Sale' SignKaren Lowry Miller
In a room at Warsaw's Victoria Intercontinental Hotel, on July 17, Polish policymakers nudged their country one step closer to a true market economy. There, Privatization Ministry officials kicked off a procedure that divvies up control of 413 state-owned companies among 15 investment funds, which are run jointly by Polish firms and such outsiders as PaineWebber Inc. of the U.S. and Britain's Kleinwort Benson Group PLC. At the end of the process, the funds will control 60% of each company. Then the real work begins, as fund executives descend on their new charges to determine their fate. Theoretically, they have a free hand: to expand the companies, line up venture capital, lay off workers, and even shut down operations.
By 1997, Polish investors are supposed to be the main shareholders in the remade companies by buying publicly traded stock in the funds themselves. But getting to that point will not be smooth going. Many Polish politicians and voters still oppose the privatization process, which has been wracked by lengthy delays and stormy public debate. But reformers see this as a necessary move to stop the state support of companies, which is fueling the deficit and hampering the economy. Polish and Western investors, meanwhile, see a potential gold mine. "There are shining stars if you know where to look," says Jacek Siwicki, an executive at the Polish American Enterprise Fund, which wants to invest in several of the companies.
Employees from some of the top firms in U.S. and European finance have already been combing through these communist-era leftovers, visiting hundreds of them to find the moneymakers. The list, however, contains some true dogs--about 40% of the enterprises are in the red. But promising ventures exist too, such as bearings maker Prema Milmet, detergent marketer Pollena Lechia, and Mera Pnefal, a manufacturer of control systems. These companies have controlled costs and boosted marketing enough to look like winners.
Each fund will end up with a mix of disappointments and stars to manage. The strategy then will be to send in teams of management consultants, accountants, and financiers to pore over the books, visit the factories, interview the current managers and review the marketing to figure out the best way to increase the value of these assets.
REACHING OUT. A glance at motormaker Tamel, one of the companies on the list, illustrates the problems--and opportunities--awaiting the funds. The 1,600 workers at Tamel, based in the southeastern industrial town of Tarnow, assemble motors for everything from elevators to ships. Production plunged in 1991 as Poland's Soviet markets collapsed. Later, a bureaucrat placed in charge knew so little that he suggested turning the company into a furniture maker.
Then Stanislaw Ciaston, a company veteran blocked from the top during the old regime because he would not join the Communist Party, took over. Marketing director Jan Kurkiewicz, 41, a fluent English speaker who has worked abroad, started reaching out to new foreign customers. Technical director Wladyslaw Drozd increased quality so much that the factory now supplies components to Siemens and design-to-order engines for other European and Asian customers. The company is exporting 65% of its motors to the West and ekes out a profit. Unlike other companies whose managers just idly waited for privatization, Ciaston even lined up a strategic investor and tried unsuccessfully to get off the list of 413.
Whichever fund controls Tamel will find a company that still desperately needs more investment. Striding through the grimy factory, Drozd points out workers pouring molten iron into outmoded, 30-year casting machines. Mass-production equipment lies idle: It cannot be adapted to make the specialized motors that customers want. In place of expensive automated equipment, swift-fingered women are braiding the wires to be used in the motors. "We've climbed out of the coffin," says Drozd. "All I need are more modern machines."
"POLITICAL INTERFERENCE." Tamel's executives are hoping the investment fund that wins their shares can line up a big capital boost. It's been a long, debilitating wait to be privatized, as legislators debated the plan for over four years. The program got the green light only after the more pragmatic wing of the ruling communist coalition, the Democratic Left Alliance, replaced conservative hard-liner Prime Minister Waldemar Pawlak with Jozef Oleksy in February. Now, says Aleksander Kwasniewski, party chief, "We are committed to privatization."
Yet some questionable compromises are still being made. The ex-communists controlling Parliament just passed a bill spelling out changes in the corporate structure of the remaining 5,000 state-owned enterprises. Yet the bill leaves the state owning the companies. An interim step, says Kwasniewski, but there's no legislated plan to privatize these companies, which include the state phone monopoly. Opponents, led by President Lech Walesa, who vetoed the bill, say that it neglects the need to restructure these companies and make them more competitive. "Political interference will slow everything down," argues Henryka Bochniarz, president of Nicom Consulting and a former industry minister. A new vote on the bill will be held soon.
Reformers inside and outside the government hope the current privatization scheme will be so successful it will appease the critics. To counter fears at the grassroots level, the plan will also give workers 15% of the shares in the company where they work. To entice other Poles to buy shares in the funds, the Privatization Ministry is planning a $6 million marketing blitz.
The mass privatization plan is a breakthrough for Poland. It brings in foreign expertise and gives companies a chance to restructure effectively and find needed capital. If it works, companies such as Tamel have a shot at standing out in the new economy. Policymakers from China to Ukraine will be closely watching this latest experiment in the shift to capitalism.
MOVING TO A MARKET ECONOMY
413 state-owned companies will go private, including such successes as Mera Pnefal, a maker of process controls, and household detergent marketer Pollena Lechia.
Fifteen National Investment Funds, run by Polish finance groups and such foreign firms as PaineWebber and Kleinwort Benson, restructure the companies.
The National Investment Funds divvy up control in each company. Company workers will later get up to 15% of the remaining shares, and other Poles will get shares in the funds.