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Legal Eye: Progress, at a snail's pace

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If you’re one of those people who think it takes an inordinate amount of time to travel by train in Poland, the only consolation I can offer is to say that you are not alone. Unfortunately, not only are travel times slow, but so is progress.

The restructuring and privatization process of Polish railways is creeping along at a snail’s pace. The fact is, however, that a special law on commercialization, restructuring and privatization of the Polish State Railways (PKP) has been in existence now for over 10 years.

Component parts

The special law set out parameters designed to reorganize and strengthen the clay-footed behemoth that was (and still is) PKP. Now, 10 years later, the continuing problems with PKP indicate that the purpose behind the law’s introduction are still, unfortunately, relevant.

One of the goals of the law was to rationalize PKP. Instead of having all operations grouped in one large entity, the law permitted various subsidiaries to be created, including a passenger service, a cargo transportation and a railway administration.

Only this last subsidiary, PKP Polskie Linie Kolejowe S.A. (“PLK”), must remain a state-controlled company. The law also attempted to deal with the financial woes of PKP. It anticipated various means of handling overdue taxes and other debts, including debt restructuring, write-offs and sales of assets. While much of the law addressed debt that was incurred before 2003, it still remains an issue. For example, the law allows PKP to pay its corporate taxes for 2011-2015 by transferring shares in PLK to the state treasury.

Employee matters

As is the case with the Law on Commercialization and Privatization (“Privatization Law”), which dates back to 1996 and is the general law on privatization, this special law contains a large section on employee entitlements. The sum of all these statutory entitlements is such that it could be disadvantageous for a long-term employee to leave the relative job security of PKP and its subsidiaries even if offered higher wages elsewhere.

Additionally, the law has created a special ownership fund for PKP employees from which 15 percent of the proceeds raised from various asset sales, real estate sales and privatization proceeds are supposed to be distributed to employees. To be fair, the Privatization Law also sets up an employee fund to collect up to 15 percent of the proceeds of privatizations for further distribution to employees who worked at those privatized entities. For example, PKP employees who worked for the company at the time of the commercialization of PKP (when a state-owned enterprise becomes a corporation with shares held by the State Treasury) and those employees who have worked in the company for over 10 years are entitled to benefit from this fund.

As a benchmark of the slowness of this whole process, the law specifies that the PKP employee fund’s charter may not expire before the end of 2010. Obviously 10 years ago, someone must have thought this was a safe time line for the privatization of PKP.

Privatization basics

Even if political will, PKP’s internal financial situation and overall investor confidence were to be combined in a happy confluence that would allow the privatization of PKP to move forward, it will still be a slow process. The Privatization Law contains specific procedures for preparing and conducting privatization. In any case, before any official decisions are made to privatize, a full legal and financial analysis of PKP would need to be made.

Other reports, such as environmental compliance reports, may also be requested. The sale process itself must be conducted according to a closed list of options. The possible forms of a sale of shares of a PKP subsidiary would include a publicly announced offering, public procurement, negotiations following a public invitation, auction and sale on the stock market.

Source: Judith Gliniecki, From Warsaw Business Journal, 25th July 2011

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