News round-up

13 - 19 October 1997


Bulgaria: Bulgaria has guaranteed its gas supply from Russia by signing a ten to 15 year agreement on gas deliveries, stated Bulgarian deputy prime minister, Alexander Bozhkov. The agreement was signed in Moscow, between Gazexport, the foreign trade arm of Russian gas giant, Gazprom and Bulgargas, the Bulgarian state gas company. The details of the agreement have been finalised and will be announced later this month. Bulgaria is dependent on Russian gas and previously had a ten year agreement since 1986 for the delivery of 6.5 billion cu metres of natural gas. However, this agreement was signed between two states and the present agreement is signed on a commercial basis between two companies. Under the agreement, Bulgaria will build two new compressor stations and also enlarge the last 10 km section of the existing pipeline to Turkey. Bulgargas is planning to build a second pipeline which will carry up to 16bn cu metres a year.

Hungary: Gyorgy Suranyi, president of the Hungarian National Bank, declared during his visit to London on 14 October that the country is undergoing a period of "very positive economic outlook, achieving a high four per cent economic growth accompanied by an improvement in the foreign trade account and falling inflation". Inflation has fallen from 23 per cent in 1996 to 18 per cent this year and is forecast to fall by another five per cent to 12 per cent in 1998. This trend of falling inflation combined with the fast running privatisation programme and growing foreign investment has lowered the net foreign currency debt from US$18.9bn in 1994 to $10.5bn in July this year. The public sector deficit has fallen during the same period from 9.6 per cent of GDP to an expected 4.3 per cent by the end of this year. Hungary attracted $16bn in foreign direct investment and expects to continue this healthy growth.

Poland: According to the Ministry of Labour, unemployment dropped to 10.6 per cent in September, with the number of registered unemployed at 1,853,000. The average inflation for the nine months of 1997 has fallen to 13.9 per cent.

Polish Economy Minister Wieslaw Kaczmarek signed on 13 October an agreement with the government of Israel on a controversial delivery of the anti-tank weaponry for the Huzar military helicopter. According to Mr Kaczmarek, the agreement is purely of a political nature, as the US$600-800m contract must still be signed by the Israeli manufacturer Elbit/Rafeel and Polish companies Mielec and Swidnik in order to ratify it.

The Polish government approved during the final meeting on 14 October the creation of two Special Economic Zones in Krakow, southern Poland (Technological Park) and Modlin (Technopark Modlin), central Poland, bringing the total number of Special Economic Zones to 17. According to the plan, the Krakow zone will be designed to attract biotechnology, computer and electronic companies and Modlin zone will focus on aircraft, chemical and car industries. Both zones will offer six-year income tax exemption and another six years of 50 per cent tax reduction, provided a firm invests at least 2m ECU.

Russia: Russia is expected to rejoin the diamond cartel organised by De Beers of South Africa and is awaiting a US$500m loan from Western banks for Almazy-Rossi-Sakha, Russia's biggest diamond producer, to refurbish and modernise its mines.

The government of Yakutia signed an agreement with Deutsche Morgan Grenfell bank of Germany and Samyang Merchant Bank of South Korea for a release of a syndicated credit worth US$75m. According to the deputy chairman of the government of Yakutia Sergei Yarygin, the term of the credit is one year and the interest rate is 10.5 per cent a year. Part of the credit will be used to develop Yakutia's oil processing industry.

The Russian Prime Minister Viktor Chernomyrdin declared on 13 October at the session of the Consultative Council on Foreign Investment that the volume of foreign investment into the Russian economy grew 3.4 times compared to 1996 and will exceed US$20bn by the end of 1997. Mr Chernomyrdin stated that half of the foreign investment was allocated into the Moscow region and stressed that more of the investment should be directed to the other 89 Russian regions. Moscow alone received in the first half of this year investment worth $5bn. He also pointed out that the government should put more attention towards investor and protection within the financial markets which are supported by better economic performance, positive economic growth and an increase in industrial production. Mr Chernomyrdin confirmed that by the end of the century about ten free economic zones will be created, some located nearby to the Baltic Sea, Black Sea, the Sea of Azov and along the coast of the Pacific Ocean.

The Russian telecommunication sector expects to attract $30bn in investment over the next four years, said Alexander Krupnov, chairman of the State Committee for Communications and Information Technologies at a press conference in Moscow on 15 October. The committee plans to establish in 1997-1998 a new state owned investment and financial holding company, incorporating 115 communication companies and other companies from the media sector.


Central Europe general: Polish, Hungarian and Czech defence ministers met in Prague on 11 October for further talks in connection with NATO accession. The talks concerned the third stage of Polish-NATO talks and the Defence Planning Questionnaire (DPQ) to be submitted by NATO candidates. Last July the three countries signed a co-operation agreement in order to prepare the accession process.

Lithuania: President Algirdas Brazauskas announced that he will not run for a second term. Brazauskas became leader of the Lithuanian Communist LKP Party during the national rebirth and helped to transform LKP into the social democratic party, the Lithuanian Democratic Labour Party (LDDP), which became a parliamentarian party breaking from the Communist Party of the former Soviet Union. He recently declared that Lithuania would like to be a member of NATO. With his withdrawal the main candidates for the presidency are Arturas Paulauskas, a lawyer, and Vytautas Landsbergis, leader of the Conservative Party.

Poland: Solidarity Electoral Action (AWS) chose Jerzy Buzek, a former Solidarity activist, as the new Prime Minister. Mr Buzek, an academic specialising in chemical engineering, was nominated by president Aleksander Kwasniewski on 17 October. He will form a new administration within the next couple of weeks and this will open the way for a centre-right coalition with the pro-business Freedom Union (UW). UW wants its leader, Leszek Balcerowicz, a designer of the 'shock reform programme' that opened a road to a market economy in Poland, to be the sole deputy premier in charge of economic policy.

Poland's new Constitution, including Constitutional Tribunal regulations establishing a new legal framework in the country, took effect on 17 October. The new Constitution will design among other issues, a body to handle civil complaints and regulations regarding pension reform which until now were not in line with the old Constitution.

President Aleksander Kwasniewski invited the President of Russia, Boris Yeltsin, to visit Poland for further talks on a European Security Plan, proposed during the second European Council Summit which ended in Strasbourg, France last weekend (11 October). The other important issue discussed during the summit concerned the human rights convention and acceptance of the Tribunal in Strasbourg as its guardian.


Poland: Bank Inicjatyw Gosodarczych (BIG) confirmed the merger with the Bank Gdanski. The new body will operate under the name of BIG BG SA.

Czech investment fund Expandia placed Marek Kaminski, the president of its Polish subsidiary, on the supervisory board of National Investment Fund no. 2. Mr Kaminski confirmed his appointment on 10 October and added also that Expandia holds 2.4m shares or 7.8 per cent of the voting rights in the Polish fund and is a second shareholder in size after the Treasury. He also stated that the company is planing to bid for the tender to become the managing firm of the NIF no 2.

PEKAO banking group SA reported a net profit of 500m zloty (US$14.5m) for the nine months compared with 514m zloty for the whole of 1996. The bank also announced that it will bid for the stake in Powszechny Zaklad Ubezpieczen SA, the largest Polish insurer, along with the US investment bank, Merrill Lynch.

Bank PEKAO SA promised to grant the Gdansk Shipyard a US$ 27.5m loan for the construction of a vessel for Scholler Holding Ltd of Germany. The bank's spokeswoman Ewa Wojcik stated that the bank would consider the loan as a "good investment". The vessel is going to be the second ship built by the Polish shipyard for the German company.


Poland: Three companies, two banks, Powszechny Bank Kredytowy, Deutsche Bank and a major Korean concern were confirmed by the National Bank of Poland (NBP) as the main candidates to purchase a 99.9 per cent stake in Pierwszy Komercyjny Bank of Lublin. It is expected that the bidders will pay about 350m zloty (US$ 10.1m) for the stake.

The Treasury Ministry sold 60 per cent of Polfa Krakow to the Croatian pharmaceutical company Pliva, and a further ten per cent to Bank Handlowy SA. The two investors paid a total of US$99.9m for the stake and intend to invest another $70m in Polfa Krakow and pledged to raise its capital by $38m by investing in fixed assets. The Treasury also sold 80 per cent of Polfa Rzeszow SA to US pharmaceutical company ICN Pharmaceutical Inc. for $33.75m. ICN will invest another $20m within the next two years.

The Ministry of Treasury opened on 14 October a tender for another pharmaceutical company, Polfa Tarchomin, the largest producer of antibiotics, insulin and psychotropic drugs. Three international insulin producers, Novo Nordisk, Eli Lilly and Hoechst Marion Rousell and two major producers of antibiotics, Bristol Myers Squibb and SmithKline Beecham are interested in buying a stake in the company. According to the Polish daily Rzeczpospolita, a future strategic investor will be able to buy between ten and 80 per cent of the company's shares with a nominal value of ten zloty per share ($ 2.9).

The last major state owned cable producer in Poland, Fabryka Kabli Ozarow SA, sold 80 per cent of the company to a consortium of Elektrim, Polski Fundusz Przedsiebiorczosci LP ( PFP LP) and the Ozarow Employee Partnership , which bought respectively 56.9 per cent, 13.1 per cent and ten per cent for a total of 183.9m zloty (US$53.3m), raising the company capital by 10m zloty in the first year. Mr Andrzej Skowronski, Elektrim's president, confirmed that Ozarow's shares should be listed on the Warsaw Stock Exchange within two years. Elektrim will invest 40m zloty in the company within four years.

The new amended plan to privatise the Polish oil sector has been adopted on 14 0ctober by the outgoing Polish government. According to the plan, the Gdansk Refinery, the second largest refinery will be sold, together with a predetermined part of the state owned fuel distribution network, Centrala Produktow Naftowych (CPN). Minister of Economy, Wieslaw Kaczmarek said that the plan left open three options for Poland's largest refinery Petrochemia Plock privatisation, separate from the remainder of the CPN network. The final decision will be made by the new coming cabinet.

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