Sample News Story
Has Polish Gas Privatisation Been Put On Hold?
28/12/2001
On November 15, Poland’s new treasury minister Wieslaw Kaczmarek announced that the privatisation of PGNiG had been put on hold, and should not be expected to begin in 2002. He suggested that the whole company might be privatised in a public offer, although the previous government had accepted a plan to break the company into four distribution companies and a production company, to be sold starting next year. Kaczmarek explained that he needed time to analyse the privatisation plan. The problem is that privatisation is already running late, and any further delay would make it very difficult for Poland to meet the deadline set by the EU; it is due to join in 2004.
Before the political and economic transformations started in 1989, the Polish gas industry was centralised in one single state-owned monopoly enterprise – the Polish Oil and Gas Company (PGNiG), a result of the merger of the Union of Oil Industry and the Union of Gas Industry in 1982. PGNiG was transformed into a stock company in 1996, with 100% of shares held by the State Treasury. In April 1997, the Polish Parliament adopted the Energy Law, the first foundation for the legal and regulatory system.
Since 1996 PGNiG has been restructuring itself, but progress has been painfully slow. Between 1996 and 1999, it managed only to spin off service companies. The previous government therefore decided to speed up the process, and decreed, on May 23, 2000, that PGNiG should be separated into five functional companies within the PGNiG holding company. These would be an exploration-production subsidiary and four distribution subsidiaries. The functional companies were formally established in December last year as limited liability companies.
The previous government also suggested a number of amendments to the Energy Law aimed at harmonising it with the requirements of the European gas directive. Simultaneously the Treasury was working on the company’s privatisation strategy. One of the most important amendments to the Energy Law was transferring the responsibility for setting fuel and energy prices from the finance minister to the Energy Regulatory Authority (ERA).
The current methodology for gas fuels, electrical power and heat is based on recovering justified costs, which include the cost of modernisation, development and environmental protection. The law obliges companies to incorporate improvements in efficiency through an RPI-X formula, with the ERA setting the value of X. Amendments to the law extend the range of competence of ERA’s chairman to the possibility of requiring the company to submit new tariffs for approval, in some circumstances.
The law was intended to create a new model for the Polish gas sector, characterised by increased transparency, stronger competition and greater customer influence, all of which were needed to conform with the European gas directive. It was envisaged by the previous government that market liberalisation would extend to granting third party access to gas transmission and distribution networks, regardless of the origins of gas. Currently such access is guaranteed only for domestically produced gas. At present it is too early to speculate what kind of policy is going to be adopted by the new government and whether these achievements are going to last.