September 12, 2017 / 4:22 PM / a year ago

EBRD urges Poland to revive privatizations

WARSAW (Reuters) - Poland should lower its “surprising” level of state control over the economy, particularly in the banking and energy sectors, and speed up privatizations, the European Bank for Reconstruction and Development’s president said on Tuesday.

EBRD President Suma Chakrabarti attends a basketball event organised by EBRD with Greek and Turkish Cypriots young players called PeacePlayers Cyprus inside the UN-controlled buffer zone in Nicosia, Cyprus May 9, 2017. REUTERS/Yiannis Kourtoglou

The ruling Law and Justice (PiS) party, which won the 2015 parliamentary election, has called a halt to privatizations and questioned the rationale and pricing of the previous centrist government’s sales.

Instead, state-run financial firms and utilities have taken over some smaller rivals from foreign investors, helping the government increase the share of domestic capital in the banking and energy sectors.

“It’s quite surprising, given Poland’s leadership in the whole transition race, that so much of the economy is still in state hands,” Suma Chakrabarti told Reuters during a visit to Warsaw.

Since Poland overthrew communism in 1989 and started its transition to a market economy, the number of companies controlled by the state has shrunk to several hundred from more than 8,000.

But Chakrabarti said the PiS government, which argues the state can better serve Poland’s economic interests than foreign corporations, should do more.

“Poland has pockets of poverty and it’s important for the state to act,” he said. “But, what I’m not in general a supporter (of) ... is when states become ... the prime economic actor in major sectors.

“There is at least one state-owned enterprise in 39 out of 43 sectors in Poland, and 12 of the 20 biggest listed companies are controlled by the state, representing 77 percent of (blue chip index) WIG20. That’s quite high,” he said.

Since PiS came to power, Polish insurer PZU and a state-fund PFR bought a 33-percent stake in bank Pekao from Italy’s UniCredit, while Poland’s biggest power firm PGE has offered to buy power assets owned by France’s EDF.

“The process of transition toward a more market economy is actually not as fast as it was in early days, in the 90s. That has slowed down. We would love to see more privatizations in Poland,” Chakrabarti said.

The EBRD has invested 8.6 billion euro ($10.28 billion) in Poland, mostly in the private sector, since the early 1990s.

The EBRD head also warned that Poland’s overhaul of the judiciary and the rule of law, which raised concerns in the European Commission, are an issue for investors. [nL5N1KK08Q] [nL8N1LH28P]

“Every time one talks about the EU, Brexit is one thing people always mention but the other is obviously the issues about Poland,” Chakrabarti said.

“Poland is still not achieving its ... potential. And policies matter ... I think Poland could achieve a higher level of private sector investment and foreign direct investment with the right policies”, he said.

The EBRD sees its investment in Poland falling to about 600-650 million euros this year from 776 million in 2016.

The bank will likely invest similar amounts in the coming years as the economy is growing, Chakrabarti said, but will narrow the financing to fewer areas.

Rather than invest in renewable sources of energy, which are subject to a number of unexpected legal changes, it would help private companies tap foreign markets, the president said.

“For many investors the more boring a country, the better. Poland is not boring and that is the problem,” Chakrabarti said.

Writing by Agnieszka Barteczko; Editing by Janet Lawrence

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