November 19, 2013 / 9:53 AM / in 4 years

UPDATE 2-Polish utility boss quits after losing fight with government

* CEO fought government over coal-fired power investment

* Shares fall on fears of “more compliant” new managers

* PM says it’s right for state-owned firms to work with gov’t

By Pawel Sobczak and Pawel Bernat

WARSAW, Nov 19 (Reuters) - The boss of Poland’s biggest power producer resigned after losing a tug-of-war with the government over the right to decide how the company invests its capital.

Shares in state-controlled PGE fell 4 percent at one point on Tuesday on fears that Krzysztof Kilian’s departure would allow the government more influence over strategy, hurting the company’s profitability.

Brokerage Wood & Company said it expected new management would be more compliant with the state treasury, and that this “could mean a worsening outlook for dividends”.

A PGE statement said Kilian quit as chief executive over the departure of two of his deputies last month.

But his resignation followed an angry dispute with the state, PGE’s biggest shareholder, which is forcing the company to build a 11.6 billion zloty ($3.76 billion) coal-fired power plant in Opole that executives did not see as profitable.

Kilian’s departure also lays bare a broader issue in Poland: Although it portrays itself as a beacon of free market economics, the state still intervenes in some parts of the economy where it believes national interests are at stake.

Asked about Kilian, Polish Prime Minister Donald Tusk acknowledged there had been differences over strategy, though he said he had no personal knowledge about the reasons for the resignation.

“I do not see anything wrong; on the contrary I think it is right that the (state-controlled) companies function in a structure with the state as a shareholder as this is necessary for Poland’s energy security,” Tusk told a news conference.

A source close to the Polish government said the Opole power plant created tension between Kilian and the treasury ministry, which oversees the state’s stake in the firm.

“It was a clash of two different types of logic, and there was a lot of emotion,” the source said.

“Kilian was guided by economic calculations for PGE, while for the treasury minister the most important thing was the country’s energy security,” said the source, who spoke on condition of anonymity.

The Polish government has made building the power plant, 300 km (186 miles) south of the capital, a priority.

Officials believe the plant will ensure Poland can keep generating electricity from coal, which it mines itself, reducing its reliance on gas imported from Russia, a historic enemy which Warsaw still views with suspicion.

The project will also create jobs in an area with high unemployment, and will give contracts to Polish construction firms that are mired in debt. Tusk’s party draws lots of votes from the region around Opole.

PGE executives have questioned whether it was commercially viable because electricity prices are low. The company’s management recommended not going ahead. But the company reversed its position under government pressure.


Some players in the Polish stock exchange, the biggest in central Europe, have accused the government of using a heavy hand in other areas of the market.

The government, struggling with a budget shortfall, has demanded extra dividend payments from several state-controlled companies and it has transferred millions of zlotys from private pension funds into a state vehicle.

In a statement issued late on Monday, PGE said Kilian’s resignation was “in particular related to changes in the management board on Oct. 25, 2013, and their consequences”.

His close associate and board member Boguslawa Matuszewska, in charge of strategy and development, was fired on that date along with finance chief Wojciech Ostrowski. The company has not explained why they were dismissed.

PGE deputy head Piotr Szymanek will take over as acting chief executive, the company said. Asked by Reuters if Kilian’s resignation was linked to Opole, a company spokeswoman said it had nothing to add to its statement.

The treasury ministry also declined to comment on any link to Opole. “Questions about potential motives should be directed to Krzysztof Kilian,” the ministry said in a statement.

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