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Poland - Foreign Direct Investment [FDI]

Foreign Direct Investment [FDI] inflow comprises capital for the purchase of shares in direct investment enterprises, reinvested earnings and a positive balance of inter-company loans. Generally, fluctuations in FDI are caused by the condition of the Polish economy. When the Polish economy is growing strongly, foreign investment increases as investors attempt to benefit from the growth. In addition, Polish companies are more likely to generate higher profits in a strongly growing economy, which results in increased reinvested earnings. The reverse applies when growth reduces. Foreign investment decreases as investors look for alternative investments and Polish companies generate lower profits, resulting in decreases in reinvested earnings. In addition, transactions with respect to "capital in transit" may inflate FDI inflow figures for certain years.

Poland is open to foreign investment and allows foreign investors access to the privatization of state property on the same basis as domestic investors, based on transparent procedures. Disputes occasionally arise due to the complicated and long-term nature of agreements in a privatization process. The main disputes between the State Treasury and investors concern the failure to fulfill payment obligations or investment and social obligations. To prevent such disputes arising, the Ministry of the Treasury monitors the performance by investors of their respective obligations. In cases where the obligations are not performed, relevant legal remedies may be sought, including the imposition of contractual penalties. However, disputes involving foreign investors are relatively few when compared to the total number of concluded privatization agreements.

The most significant dispute arising from the privatization program concerns the privatization of Powszechny Zaklad Ubezpieczen S.A., or PZU, Poland's largest insurance company, 30 percent of which was acquired in 1999 by a consortium comprising Eureko B.V. and BIG Bank Gdanski S.A. (later renamed Bank Millenium S.A.). In October 2002, Eureko B.V. initiated arbitration proceedings before an international tribunal against Poland claiming that the Government had repeatedly delayed the implementation of various agreements and had also refused to allow a public offering of the 55 percent of PZU's shares still owned by the State. Eureko alleges that it was entitled to purchase a further 21 percent of PZU's shares as a part of the envisaged public offering, giving it majority control. Poland has put forward a defense against Eureko's claims for damages before the arbitration tribunal, but the tribunal has made a preliminary finding of fact in favor of Eureko. Further proceedings have currently been suspended as a result of the Negotiation Memorandum entered into by Eureko and the Ministry of the Treasury on April 15, 2009. This memorandum is similar to the negotiation memorandum previously entered into in February 2008 and is an agreement between Eureko and Poland to conduct settlement negotiations with respect to this dispute.

As part of Poland's previous strategy with respect to privatization, extensive privatization has taken place in the following sectors: trade and services, steel-making, automotive industry, household appliances, construction, electrical engineering, cement, timber and furniture, food processing and tobacco. The Privatization Plan sets forth privatization targets for the following sectors: the financial institutions sector, the electricity and energy sector, the oil and gas sector, the chemical and plastics sector, the coal and coke sector, the iron and steel industry, the nonferrous-metal industry, the shipyard sector, the defense sector, the machine industry, the metal sector, the electronic and electro-technical sector, the transport industry, the transport and carriage sector, the building materials sector, the food, sugar, meat and spirit industry, the agricultural support sector, the animal breeding sector, the crop cultivation sector, the wood, paper and furniture sector, the clothing sector, the publishing and printing sector, the spa sector, the pharmaceutical sector and the tourist industry.

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Page last modified: 11-07-2011 03:04:19 ZULU