Billionaire Rues Private-Capital Squeeze in Polish Utilities

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  • Zygmunt Solorz-Zak seeks level playing field from government
  • Cabinet promoting Poland-first policy in energy industry

It’s getting increasingly difficult to compete in Poland’s power industry as the government is tilting the playing field to meet its political goals, according to the billionaire owner of the biggest producer outside state control.

Zygmunt Solorz-Zak, who owns 51.55 percent of utility ZE PAK SA, said he is wary of regulatory changes in favor of bigger, state-run rivals such as PGE SA, Tauron Polska Energia SA, Energa SA and Enea SA. Shareholders in Polish utilities have also been hurt, with an index of Warsaw-listed electricity producers dropping 11 percent this year, almost four times more than the stock exchange’s benchmark WIG20 gauge.

“It’s all politics,” Solorz-Zak, who is Poland’s richest person, said this week on the sidelines of an economic conference in Krynica, while pledging to keep his ZE PAK stake. “This is a market where private capital is unnecessary. How can I compete with state companies which can maul us at any time.”

The Energy Ministry has implemented a series of legal and strategic changes this year to help companies finance investments in the loss-making but politically-sensitive coal industry. The government won last year’s election after pledging to increase the state’s role in the economy and maintain jobs in the coal industry. Its stance also put the country on a collision course with European Union plans to curb carbon emissions.

Dividend ‘Understanding’

Energy Minister Krzysztof Tchorzewski, speaking at the same venue in southern Poland, said minority shareholders in Poland’s power companies “need to find understanding” for government-led efforts to curb dividends so that utilities’ excess cash can be poured into “strategic projects.” He also reserved the right for Poland to “veto” sales of local power units owned by foreign companies, if the government doesn’t like a new investor.

“We need to speak in a different way to the co-owners” of utilities, he said. “It won’t be so simple any more with dividends.”

PGE, Energa and state-run gas company PGNiG SA this year poured 1.5 billion zloty ($393 million) into Polska Grupa Gornicza, the European Union’s biggest coal producer, helping it avoid bankruptcy. After the move, the government cut dividends in the industry, sometimes against the proposals of the companies’ management boards.

This week, the government pushed a plan through PGE’s shareholder meeting to raise the nominal price of its shares, a transaction which will increase the tax burden for the company and deplete cash surpluses that could otherwise be paid out as dividend. Tchorzewski said this week that the PGE maneuver was a “pilot” project and the ministry wants to repeat in other state-controlled companies.

Shares in Solorz-Zak’s PAK gained 35 percent this year, giving the company a market cap of 619 million zloty, after the management cut costs and agreed financing with banks. The billionaire’s main business is Cyfrowy Polsat SA, a television and mobile telephony conglomerate worth 16.2 billion zloty.

National Foundation

Highlighting what the government sees as a Poland-first policy via promoting national champions, state-held insurer PZU SA said it’s getting more business from government-controlled utilities, potentially taking business from other insurance providers. “It’s not surprising that private insurers are worried, as we are in a market worth billions,” PZU Chief Executive Officer Michal Krupinski said at the Krynica economic forum.

Often referred to as Poland’s Davos, this year’s economic conference for the first time included an exhibit jointly built by the country’s state-controlled companies. The presentation was part of a project into which companies injected 100 million zloty to endorse Poland and its industry.

"The key task of the Polish National Foundation will be to promote what’s best in Poland,” Treasury Minister Dawid Jackiewicz said. “But we will also react if and when we see that stereotypes that hurt Poland are being spread, and lobby hard for our interests in Europe.”