VOLUME 17, NUMBER 38 SEP 26 OCT 2, 2011 . z.12.50 (VAT 8% included) . ISSN 1233 7889 INDEX-RUCH-332-127

OOccttoobbeerrssuurrpprriissee??As the October elections approach,Law and Justice appears to begaining momentum over CivicPlatform 3, 11

Since 1994 . Polands only business weekly in English

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PPoollaanndd ssttiillllsseexxyyPoland is still a top investmentdestination, said experts at thelaunch of WBJs Investing inPoland 2012 14-15

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The European Unions broken promise to Bulgaria and Romania

Polish shale gas could becommercially exploitablefrom 2014

Several foreign lendersare vying for control ofPolands Bank Millennium

News . . . . . . . . . . . . . . . . . . . . . . .2-4

Industry News . . . . . . . . . . . . . . . . .5

Energy in Focus . . . . . . . . . . . . . .6-7

Interview . . . . . . . . . . . . . . . . . . . . .8

Listed Firms . . . . . . . . . . . . . . . . . . .9

Finance & Economics . . . . . . . . . .10

Opinion & Analysis . . . . . . . . . . . .11

Cover Story . . . . . . . . . . . . . . .12-13Investing in Poland 2012 . . . .14-15

Lokale Immobilia . . . . . . . . . .16-18

Markets . . . . . . . . . . . . . . . . . . . . .20

The List . . . . . . . . . . . . . . . . . . . . . .21

Arts & Culture . . . . . . . . . . . . . . . .22

Last Word . . . . . . . . . . . . . . . . . . . .23

In this issue

REAL ESTATELokale Immobilia

Park Postpu sale Hanza cornerstone Hotel Bristol sold

16-18

Left turn? SLDs KatarzynaPiekarska says the windsof change are blowing infavor of Europes left 8

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A guide to Polish business and industry Przewodnik po polskim biznesie i gospodarce

Business organizations21

Moment of truth

The future of Polandsvaunted Eastern Partnershipprogram will hinge on thefate of Yulia Tymoshenko

2, 12-13

The future of Polandsvaunted Eastern Partnershipprogram will hinge on thefate of Yulia Tymoshenko

2, 12-13

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SEPTEMBER 26 OCTOBER 2, 2011NNEEWWSS2 www.wbj.pl

Komorowskiaddresses UN AssemblyPolish PresidentBronisaw Komorowski,speaking at the generaldebate at the 66th GeneralAssembly of the UnitedNations in New York onSeptember 22, saidsolidarity betweennations was the key todefending human rightsand avoiding conflict. Animportant point ofPolands foreign policyremains solidarity withnations that strive for lifein freedom, in democraticconditions and the respectfor human rights, MrKomorowski said.

WSE suffersblack Thursday The Warsaw StockExchange marked itsworst session of the yearlast Thursday, as a sell-off hit marketsworldwide. Investorsopted out of emergingmarket currencies infavor of the US dollar.Prices of oil, gold andcopper sank, as didmarket indices. Polandsmain WIG index lost over6%, while the blue-chipWIG20 lost more than 7%.

Kabanosobtains EUcertification The European Union hasagreed to grant thecertificate of TraditionalSpecialty Guaranteed tothe Polish kabanos, athin, dried specialtysausage. The decision togrant the special status tothe kabanos was finalizedafter Germany, a leadingproducer of sausages inEurope, withdrew itsobjection.

Palestines UN bidPalestinian leaderMahmoud Abbassubmitted his bid forrecognition of Palestineas a state to the UN lastFriday. The Palestinianpresident handed over aletter asking for thecountry to be allowed tojoin the UN as a statebefore giving an addressto the General Assemblyto put forward the casefor admission.

Accor ..........................................17

Al Shaya Group ..........................18

Alior Bank ..................................5

Alpine ........................................17

Banca Intesa ................................9

Banco Comercial Portugues ......9

Bank Gospodarstwa Krajowego ....10

Bank Ochrony rodowiska ..........4

Bank of America Merrill Lynch ..9

Bank Pekao................................18

Bank Zachodni WBK..................18

BGK ............................................20

Blumerang Investors ................15

BNP Paribas ................................9

Bogdanka ....................................6

BRE Bank ....................................9

Bulanda, Mucha - Architekci ....16

BZ WBK ......................................10

C&A ............................................18

Carlo Tassara ..............................5

Citigroup ....................................10

Colliers International ................18

Credit Suisse................................9

Cushman & Wakefield ..............16

Echo Investment ........................17

Enea ............................................6

Energa ..........................................6

Energy ..........................................7

Goldman Sachs............................9

gowebtrade.com ........................20

Grupa Capital Park ....................16

Helios ........................................18

IBM Polska ................................14

Immofinanz Group ....................17

Imtech Polska ............................16

Inditex Group..............................18

InterHealth Canada ..................18

ITI Group ......................................9

ITI Holdings ..................................9

J.W. Construction Holding ........18

JEMS Architekci ........................17

KGHM ........................................20

KSC ..............................................5

Kulczyk Investments ..................5

Lewiatan Business Angels ........15

LHI ..............................................16

Lubawa ........................................8

Marriott International ................17

Mayland Real Estate..................18

Microsoft ....................................23

Millennium Bank ........................9

Miller, Canfield, W. Babicki, A.

Chelchowski & Partners ..........13

MONTI ........................................16

Multikino ......................................9

NBP ............................................10

Nordea Bank ..............................10

NUS Consulting Group ................6

Onet.pl ..........................................9

Orbis Hotel Group ......................17

Pekao............................................9

Peter Nielsen & Partners ..........5

PGE ..............................................6

PGNiG ..........................................6

PKN Orlen ......................7, 15, 20

PKO Bank Polski........................17

PKO BP ........................................9

PSE Operator ..............................6

PTB Nickel ................................16

PwC ............................................14

Real ............................................18

Rosmarinum Investments ........17

Royal Starman Bristol ..............17

Sberbank..................................5, 9

Sidemka ..................................18

Skanska Property Poland..........16

Studio MTS ................................16

Tauron ..........................................6

Time Warner ................................9

TNS OBOP....................................3

TVN ..............................................9

UniCredit ......................................9

Valad ..........................................18

Vivendi ..........................................9

Wood & Company ........................5

WSE ..........................................2, 5

X-Trade Brokers

Dom Maklerski SA ....................20

All eyes will be on UkrainianPresident Viktor Yanukovychahead of this weeks EasternPartnership summit in Warsaw,particularly with regard to hishandling of the political uproarsurrounding the arrest anddetention of former PrimeMinister Yulia Tymoshenko.

The trial of Ms Tymoshenko,viewed in the West as politicallymotivated, has cast a cloud overUkraines negotiations with the

EU on a free-trade agreementthat the Polish governmenthopes will be signed before itsrotating EU presidency expiresthis December.

The experts WBJ spoke to inthis weeks cover story (see pp.12-13) all agree that theUkrainian president simply didnot expect such a fuss would bemade over the arrest.

Polish Foreign MinisterRadosaw Sikorski tried to

open the Ukrainian leaderseyes at a conference in Yalta,Ukraine, on September 15-18. We will not compareyour standards to the stan-dards of the Belarusianregime, but to our stan-dards, Mr Sikorski said,adding that Ukraine shouldaim to meet Western stan-dards of democracy, humanrights and the rule of law.

Mr Yanukovych may begetting the message. He hasraised the prospect of an over-haul of the Soviet-era criminalcode, which experts say couldlead to Ms Tymoshenko beingreleased and allowed to takepart in next years presidentialelections.

Another possibility is thatthe judge presiding over MsTymoshenkos trial could bereplaced with a more experi-enced colleague, who wouldfind that his predecessor hadmade procedural errors andrelease Ms Tymoshenko on atechnicality.

The former PMs trial isscheduled to resume this week,two days before the Warsawsummit begins. How MrYanukovych decides to play itout will be crucial to the futureof EU-Ukraine relations.

RReemmii AAddeekkooyyaa

z.4.52 was the exchange rate of the euro at the end of trading

last Thursday.

4% is how much the Polish economy will grow in 2012,

according to Credit Suisse.

53 is Polands position in the Fraser Institutes annual

ranking of economic freedom in 141 economies. It wasranked 65th last year.

z.3,591 was the average wage in Polands corporate sector inAugust. Thats 5.4% more than in the corresponding

period of 2010

The question we hear most often from ourclients is which emerging market will

bounce back from current levels. Our answer is: Poland.

Bank of America Merrill Lynch on Polands chances of recovery.

Quote of the Week

Looking for talentWBJ.pl sits down with Joel Perrenoud,president of talent acquisition companyFuturestep, which recently set up an officein Warsaw. Log on to find out what the firmis looking for in Poland and how it views thePolish market.

On WBJ.pl

Numbers in the News

Company index

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SEPTEMBER26 PROPERTY FORUMEvent: This event will provide an opportunity to dis-

cuss experiences with real estate develop-ment companies, financial institutions,administrators and occupiers of commercialspace.Location: Sheraton hotel, Warsawpropertynews.pl

27-28 GAS SUMMIT Event: The event will cover the communication and

public perception issues currently facing theindustry over three days of networking anddiscussion. Location: Krakwtheenergyexchange.co.uk

29 THE EASTERN PARTNERSHIP CONFERENCEEvent: The Eastern Partnership Civil Society Forum,

the Center for Eastern Studies and the PolishInstitute of International Affairs invite you toan international conference which is an offi-cial event of the Polish Presidency and anaccompanying event of the Eastern Partner-ship Summit, held on September 29-30 Location: Primates Palace Conference and Exhibition Center, Warsaweap.pism.pl

OCTOBER3 EXPO REALEvent: At this years annual real estate expo con-

sultants, banks, investors, expansion man-agers, towns and economic regions meet tomake new contacts and do deals.Location: Munichexporeal.net

4 CORPORATE BOND MARKET CONFERENCEEvent: This event bills itself as the largest seminar

on the bond market in Poland. Location: Warsaw Stock Exchange, Warsaw.gab.com.pl

12 PRCH RETAIL AWARDSEvent: At this event the Polish Council of Shopping

Centres will announce the winners of thePRCH Retail Awards 2011.Location: Warsawprch.org.pl

13-15 XVII POLISH YOUR MONEY FINANCIAL FORUM 2011

Event: The event hosts debates, conferences andseminars on international financial markets.Location: Palace of Culture and Science,Warsawtwojepieniadze.com.pl

September/OctoberDATELINE

Viktor YanukovychIN THE SPOTLIGHT

Figures in focusWhat a wasteTotal non-mineral waste generation, 2008, in kg per capita,selected EU countries

Source: Eurostat

SEPTEMBER 26 OCTOBER 2, 2011 NNEEWWSS www.wbj.pl 3

POs campaign

PPMM TTuusskk ttaakkeess ccaammppaaiiggnn oonn bbuuss ttoouurrOpposition leaderJarosaw Kaczyskihas renamed the Tuskbus the I cant doanything busAhead of the upcoming parlia-mentary election on October9, Prime Minister Donald Tuskhas taken to traveling aroundPoland on a specially designedbus to promote his Civic Plat-form (PO) party. The coach,dubbed the Tuskobus by thePolish media, will visit differ-ent cities on each day of itstour. So far, the PM has madestops in the Kujawsko-Pomorskie, Mazowieckie,

Wielkopolskie and Zachod-nio-Pomorskie voivodships.

On Tuesday, the primeminister said that both PO andopposition party Law and Jus-tice (PiS) could win the elec-tion, and during a visit toRzecin Mr Tusk rallied hisaudience by saying, thosewith reason in their brain willvote for PO.

But as has been the casethroughout his trip, Mr Tuskhad to deal with angry residentsdemanding answers to theirquestions about Polands lowwages and the perception thatthe government isnt doing any-thing to make things better.

Mr Tusk, who is filming thejourney for his blog, said invideo footage on his site thatPoland is a great place, it maybe difficult for some, but it istruly great.

Other PO party membersincluding Foreign MinisterRadosaw Sikorski and SejmSpeaker Grzegorz Schetynaare accompanying Mr Tusk onhis tour.

Meanwhile, PiS leaderJarosaw Kaczyski has criti-cized the tour, saying that it wasclear to him the prime ministerintended to go on a world-wide election campaign andthat he himself was not going to

go on a Kaczobus.At a press conference in

Bydgoszcz Mr Kaczyski calledthe prime ministers vehicle theI cant do anything bus.

Four years ago Tuskpromised that life would getbetter for everyone. Now hetravels around the country andhas to answer questions onhow to make ends meet, MrKaczyski added.

On Tuesday, Tadeusz Iwis-ki from the Democratic LeftAlliance party also criticizedthe prime minister, asking howit was possible to lead Polandor the European Union from abus. EEllllaa PPaakkaa

Parliamentary elections

PPiiSS ggaaiinnss oonn PPOO aass eelleeccttiioonn ddaayy aapppprrooaacchheessThe opposition ispicking up speed, butit remains to be seen ifit can catch up to theruling party

Three weeks before parlia-mentary elections, a Septem-ber TNS OBOP poll had theruling Civic Platform (PO)party supported by 33 percentof the electorate, with theirmain rivals Law and Justice(PiS) close behind at 26 per-cent. The Democratic LeftAlliance (SLD) was backed by8 percent of Poles, the PolishPeoples Party (PSL) by 6 per-cent and Palikots Movement(RPP) by 4 percent.

The figures reflect a recenttrend of PiS gains (+4 per-centage points from the previ-ous survey) and PO losses (-2)among voters.

According to Sergiusz Trze-ciak, a political analyst at Col-legium Civitas, PiSs strategyof wooing citizens who are

normally apolitical is provingto be the right one.

PiS doesnt have to mobi-lize its [already motivated]

electorate, they are trying toappeal to those who are tradi-tionally not interested in poli-tics. This, as well as doing

everything to demobilize POselectorate, is the only way forthem to win, said Mr Trzeciak.

But PiSs recent advance inthe polls could ultimately ben-efit the current government, asthe prospect of the oppositionactually regaining power couldenergize PO voters, he added.

Presidential choiceMeanwhile, in an interview forthe Polish Press Agency(PAP), President BronisawKomorowski said that inchoosing the politician whowill form the next government,he would decide based notonly on the election result butalso on the winners ability toform a coalition.

I would like to remind youthat in order to create aneffective government inPoland, you need to have amajority in parliament. And so

while making that decision, Iwill take into considerationboth the election result and arealistic coalition ability, saidMr Komorowski.

This was widely interpretedas an allusion to the fact thateven if PiS were to win theelections, Mr Komorowskimight designate someoneother than the PiS leaderJarosaw Kaczyski to form agovernment.

Current Prime MinisterDonald Tusk has much moreroom to maneuver when itcomes to forming a coalition.Of the five parties likely tomake it to parliament, MrKaczyski has ruled out a coali-tion with SLD or RPP, whilePSL has made it clear they areunlikely to form a coalitionwith PiS. A PO-PiS coalition isalso very difficult to imagine.

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SEPTEMBER 26 OCTOBER 2, 2011NNEEWWSS4 www.wbj.pl

Marek S. allegedlyperpetrated creditfraud involving almostz.2 million

A court in the city of dordered the arrest of Polishbanker Marek S. on charges offraud last Wednesday. Theaccused tendered his resignationas vice president of PolandsBank Ochrony rodowiska(BO) the same day.

Marek S. (Polish law pre-cludes the publication of thelast name of those accused of acrime) will now be detained forthree months. The reason givenfor the decision was the suspi-cion that he could attempt toimpede the investigation if notheld in custody, Rzeczpospolitareported.

The man is accused of com-mitting credit fraud involvingnearly z.2 million, the paperwrote, adding that he willremain in custody while thecourt hears the case against him.

The allegations do not relateto fraud detrimental to BO,the bank wrote in a statement.

The management board ofBank Ochrony rodowiska

hereby declare, in reference tomedia reports about the prose-cutors order to detain a vicepresident of the banks manage-ment board, that they have noknowledge of this case beinglinked in any way to the activityof BO.

Marek S. is facing a total of15 charges, 14 of them connect-ed to credit-card fraud and oneto impeding the course of jus-tice. The charges reportedlyrelate to actions deemed to bedetrimental to two banks, nei-ther of which have been named.According to the prosecutor,the charges concern actionstaken over the period of July2007 February 2009.

BO announced in an Eng-lish-language statement thatMr Marek Kazimierz Serafis-ki, vice president of the bankmanagement board, has tendedhis resignation from his func-tion in the bank managementboard 21 September 2011.

The banker was vice presi-dent of BO from December2008. Prior to that he had beenassociated with PKO Bank Pol-ski for 13 years.

GGaarreetthh PPrriiccee

Banking

VP of Polish bankdetained in connectionwith fraud charges

Interior Minister JerzyMiller said he wassad the countrieswere rejected entry intothe Schengen zoneHalfway into the Polish presi-dency of the EU council, eco-nomic hardship continues toput the idea of free movementwithin the EU, and Polish callsfor solidarity and openness, tothe test.

Both Finland and theNetherlands have blocked entryof the EUs newest members,Bulgaria and Romania, to theborder-free Schengen area.The outcome of the voteamong interior ministers waswidely expected, but Poland hasnevertheless expressed its dis-appointment.

This evokes in me above allrather sad conclusions on mutu-al trust between EU memberstates, Polish Interior MinisterJerzy Miller, who presided overthe meeting, told journalistsafter the vote.

The Polish presidency of theEU council had presented aproposal for the full entry ofBulgaria and Romania into

Schengen. Finland and theNetherlands vetoed the draft,arguing Romania and Bulgariastill had some work to do intackling corruption and organ-ized crime.

At a time when we areasked for financial solidarity, weneed the trust of our citizens. Infact, Romania and Bulgaria gotin the EU too early, thats whywe have the commission moni-toring [corruption and organ-

ized crime] and thats why weare taking Schengen enlarge-ment so seriously, DutchImmigration Minister GerdLeers told reporters.

Mr Miller said that Bulgariaand Romania have maderemarkable progress in thefight against corruption andorganized crime and are prac-tically guarding EU externalborders without formal obliga-tion to do so, and fulfill all the

necessary conditions in theirEU accession treaties tobecome members of the Schen-gen area. Today, promises havebeen broken, Mr Miller said.

We live in hard times, [but]such moments require that wesupport each other, he added,echoing the words of the speech-es made by Polands presidentand prime minister in the Euro-pean Parliament earlier inSeptember. AAlliiccee TTrruuddeellllee

Schengen zone

EEUU bbrreeaakkss pprroommiisseess ttooRRoommaanniiaa aanndd BBuullggaarriiaa

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Mr Miller saw the vetoes as evidence of a lack of trust among EU members

Pick up the latest edition of Warsaw Business Journal Groups popularseries of busines guides.

The publication features Trendbook Poland, a comprehensive view of the business trends shaping Polands market.

To order, e-mail kwilinski@wbj.plor call (+48) 22 639-8567 ext. 255

The firms shares willbe made available toits employees andcontractors

A public offering of shares inPolands state-owned Nation-al Sugar Company (KSC) hasbeen launched, with the Trea-sury selling 79 percent ofKSCs share capital. Theprice per share is set atz.1.60, with the value of thestake amounting to z.1.2 bil-lion.

Shares will be available toemployees of the firm andsugar beet cultivation compa-nies that have contracts withKSC. In total around 18,000

people will be entitled to buyshares.

Now the workers andgrowers of the National SugarCompany, which is directing apublic offering, will be able tohave a real impact on thefuture of the company and itsvalue, said Treasury Minister,Alexander Grad.

The president of KSC,Marcin Kulicki, said the firmsemployees will now have anopportunity to become co-owners.

By taking part in privatiza-tion, they will gain the oppor-tunity to decide how it willlook tomorrow whileachieving the benefits of the

profits earned by the compa-ny, he said.

KSC is one of the largestsugar producers in Europe,with the company valued atz.1.6 billion. Last year itsKruszwica plant, the largest ofits seven plants, processed795,000 metric tons of sugarbeet and produced 119,000tons of sugar.

In a statement on its web-site the Treasury Ministry saida list of those entitled toacquire shares would be pub-lished on October 4, with theprocess leading to the conclu-sion of sales expected to takeone year.

DDaavviidd IInngghhaamm

Privatization

PPoollaannddss llaarrggeesstt ssuuggaarrpprroodduucceerr uupp ffoorr ssaallee

Kulczyk Investments, thecompany owned by Polishbusiness mogul Jan Kulczyk,has made a large investmentin an enterprise currentlysearching for gold in Af-ghanistan, company spokes-person Justyna Kobos toldWBJ.

The Polish entrepreneur isnow one of the main share-holders in the exploration and

mining company Centar,which has bought a conces-sion to search for gold inAfghanistan.

Exploration work in theconcession area has alreadystarted, with more than 200employees, including geolo-gists and engineers, workingon the site.

Kulczyk Investments hasreportedly invested tens of

millions of zoty in the com-pany, Dziennik Gazeta Prawnawrote. Ms Kobos declined togive further information.

Afghanistan has become aprime spot for companiessearching for raw materials inrecent years. The mountain-ous country holds largedeposits of iron ore, copper,cobalt, lithium and gold.

GGaarreetthh PPrriiccee

Jan Kulczyk invests inAfghanistan gold search

SEPTEMBER 26 OCTOBER 2, 2011 IINNDDUUSSTTRRYY NNEEWWSS www.wbj.pl 5

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KSCs employees and partners have a sweet opportunity to become co-owners

Contact: Mirosaw Stefanik

ms@pnplaw.pl

Legal News

BROUGHT TO YOU BY PETER NIELSEN & PARTNERS LAW OFFICE

Minimum wage in 2012On September 13, the government decid-ed that the minimum monthly wage forwork in 2012 in Poland will amount toz.1,500, an increase of 8.2 percent. Thisyear the minimum wage for work isz.1,386.

New tax treaty with the Czech RepublicPolands Ministry of Finance announcedon September 13, 2011, that it had signeda new agreement with the Czech Republicrelated to income tax. The deal is aimed atavoiding double taxation and at counter-acting tax evasion. The new agreementwill replace an agreement signed in 1993.The new provisions will enable increasedexchange of tax information between thetwo countries. The treaty will come intoforce after it is accepted by parliamentand ratified by the Polish president.

Tax on undisclosed incomeThe Supreme Administrative Court has

decided that those who are found to havenot declared income tax will have to pay75 percent tax on the amount that was notdeclared. This only applies to Polish resi-dents and to money earned in Poland.There are no legal measures which wouldallow for taxing undisclosed incomeobtained by a non-resident outside of Pol-ish territory (sygn. II FSK 1192/09).

Working pensioners will beallowed to recalculate theirpensions President Bronisaw Komorowski hassigned an amendment to an act con-cerning pensions and disability pay-ments that are paid from the SocialInsurance Fund. Insured persons willnow be able to recalculate the value oftheir pensions if they suspend collectionof these pensions after September 30for at least 18 months. They must alsocontinue working for the same employ-er without terminating their employ-ment contract.

Speculation is rife that the Polish bankcould be sold toRussias largest lender

Polands Alior Bank could goup for sale as early as nextyear, according to Italian busi-ness daily Il Sole 24 Ore. Alongwith several unidentified pri-vate equity funds, the reportcited Russias largest bank,Sberbank, as one of the inter-ested parties.

If Alior is up for sale,Sberbank would be one ofthe candidates, but in ourview Sberbank will not pay apremium price for a bank,Micha Konarski, a bankinganalyst from Wood & Com-pany, told WBJ.

Because Alior Bank is notlisted, it is difficult to assessthe quality of the bank, expertssaid, but it is in a good liquidi-ty position and it is also prof-itable.

Alior Bank is due to be list-ed on the Warsaw StockExchange in 2013.

Carlo Tassara, a holdingcompany owned by French fin-ancier of Polish descentRomain Zaleski, is the princi-pal owner of Alior Bank.

According to the Italianreport, the firm, which con-ducted its business mainly inthe metallurgy sector untilthe mid-1990s, is looking toextend financing from itslenders.

As a condition for the

extended funding, the bankshave requested that Carlo Tas-sara rid itself of non-coreassets, including its financialones, the newspaper said.

The president of AliorBank, Wojciech Sobieraj, hadpreviously denied reports thatthe Italian holding companywas having problems.

But he also said that he didnot exclude the possibility ofentering into a joint-ventureagreement with another bank-ing player in the future, Gaze-ta Wyborcza reported.

When contacted by WBJ,press representatives fromAlior Bank said they wereunwilling to comment on thereports.

EEllllaa PPaakkaa

Banks

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SEPTEMBER 26 OCTOBER 2, 2011EENNEERRGGYY IINN FFOOCCUUSS6 www.wbj.pl

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Gas

Poland takes steps toliberalize its gas marketIndustry playersshould start to feel thechange in 2012

Polands Energy RegulatoryOffice (URE) is now consult-ing with current and potentialgas market players to publish aroad map for liberalizing themarket in the beginning of2012. URE head MarekWoszczyk recently said hehoped to start deregulating gasprices for industrial customersnext year.

According to HenrykZysko, manager at NUS Con-sulting Group, an energy man-agement consultancy, thedevelopment comes none toosoon, since commercial usersare now starving for options.

Gas is the second-mostimportant utility in this coun-try after electricity, and liberal-izing it will bring a tremendousbenefit to commercial endusers, just like when the elec-tricity market was liberalizedfour years ago, he said.

Another important step is anewly amended law which,when it comes into force inmid-October, will waive theobligation for gas importers tostore a certain percentage of it

in the country. This obligation strongly

favored the state-owned gasmonopoly PGNiG, which cur-rently controls all storage facil-ities in Poland, as well as 98percent of gas production,import, distribution, andwholesale and retail trade.The amended law also doublesthe amount of gas a companycan sell before it must main-tain gas reserves of 100 millioncubic meters annually.

According to Mr Zysko,major foreign companies,

including Czech, German andScandinavian firms, will lookto enter the Polish market inthe very near future. Localelectricity companies are alsolikely to try to take advantageof the new regulation to diver-sify, he added.

The energy regulator hopesthat potential newcomerscould co-finance the buildingof gas infrastructure in Poland,an important issue both forsecurity of deliveries and forfuture growth of the sector.

AAlliiccee TTrruuddeellllee

Coal power

Energa plans z.6-7 billionpower plant investment The firm has launcheda tender to find acontractor to carry out the work

Polish state-controlled utilityEnerga has announced a ten-der to select the main contrac-tor to build a coal-poweredblock in its already existingpower plant in Ostroka,northeastern Poland. The newfacility will provide between850-1000 MW of power.

The company values theinvestment at z.6-7 billion,which would make it Energaslargest tender to date, thecompany wrote in a statement.Energa will take out loans topay for 70 percent of the valueof the project and use its ownfunds to pay for the remaining30 percent.

Selection of the contractoris slated for the second half of2012, while construction couldbegin later in the same year.The company has alreadysigned a contract with trans-mission system operator PSEOperator which sets atimetable for the enlargementof the distribution network innortheastern Poland. This willenable it to connect the block

to the national grid. The main supplier of coal

to the facility will be Bogdan-ka, with which the power planthas signed a 20-year contract.The investment has also beenregistered with Polands CO2emissions trading system.

Energa CEO MirosawBieliski told Parkiet that con-struction of the new block willtake at least four years.

Three other power groupsalso controlled by the state

PGE, Enea and Tauron areplanning construction of newcoal-powered blocks.

Poland relies on coal foraround 90 percent of its elec-tricity needs but is under pres-sure from the EuropeanUnion to reduce its relianceon the highly polluting fossilfuel. Under the EUs renew-able energy plan Poland isobliged to source 15 percent ofits energy from renewables by2020. GGaarreetthh PPrriiccee

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The new plant will be built at Energas Ostroka site

Export

Transmission system operator (Gaz-System SA)

Distribution system operators

Wholesale customers

End users commerce and services

Households

End users industry

Total: 14.417 bcm

57%28.4%

10.3%

2.2%1.2% 0.6%

0.3%

Who wants gas?Volume and structure of gas sales to final customers (in %), 2010

Source: PGNiG

SEPTEMBER 26 OCTOBER 2, 2011 EENNEERRGGYY IINN FFOOCCUUSS www.wbj.pl 7

Shale gas

PPMM TTuusskk:: ccoommmmeerrcciiaalleexxttrraaccttiioonn ooff sshhaalleeggaass ppoossssiibbllee iinn 22001144

Poland could achievegas independence by2035, said the primeminister. But plenty ofhurdles still lie ahead

According to Prime MinisterDonald Tusk, commercial pro-duction of Polish shale gasmay begin as soon as 2014.

Being moderately opti-mistic, we think that in 2014there will be commercialextraction, so its really justaround the corner, Mr Tusktold reporters while visitingPolish gas monopolist PGNiGsshale gas concession in Luboci-no, in northern Poland.

In the opinion of BartoszWiniewski, an analyst at thePolish Institute of Internation-al Affairs, 2014 will bedemanding, but it is not anentirely unrealistic target. Thestate can speed things up, hesaid, adding that political willwould be best used in stream-lining bureaucratic proce-dures. The key is not to over-regulate.

The prime minister addedthat Poland may be able tofully rely on its own gasresources by 2035. At presentPoland is dependent onimported gas, sourced mainlyfrom Russia. The US Depart-ment of Energy has estimatedPolands shale gas reserves at5.3 trillion cubic meters. Withsuch large amounts, Polandcould even become a netexporter.

After years of dependenceon our large neighbor, todaywe can say that my generationwill see the day when we willbe self-reliant when it comes

to gas, Mr Tusk said.

Environmental concernsAware of the heavy criticismshale gas extraction has comeunder from environmentalists,Mr Tusk said that exploitationof shale gas deposits will notendanger the environment. Headded that the extraction ofshale gas is a strategic chal-lenge for Poland and shouldnot be influenced by the inter-ests of a foreign lobby.

At a conference organizedby WBJ last week, PKN Orlenchief economist AdamCzyewski said his companyhad not observed any evidenceof negative environmentalimpact from drilling. Reportsof environmental threats fromshale gas are exaggerated, headded.

But there are fears thatthe European Union couldcreate regulations that wouldmake it difficult for Poland todevelop its shale gas industry.

The European Commis-sion is not planning to pro-pose any new legislationregarding shale gas, but it iscurrently reviewing whetherEU environmental lawswould cover shale gas, DowJones Newswires reported aspokesperson for EnergyCommissioner Gnther Oet-tinger as saying last week.

Local issuesAnother important roadblockmight come from drilling sitesbeing located on protectedareas, which account for 30percent of Polish territory.Local populations being dis-turbed by the noise, fumes and

traffic near drilling sites, couldalso be challenging.

Exploiting shale gas isvery detrimental for munici-palities, said Mariusz Sagan,director of the department ofstrategy and investors servicesfor the city of Lublin.

The region around Lublinis believed to sit on top ofsome of Polands largestshale gas deposits, and cityauthorities are already intalks with four Americancompanies, as well as study-ing the possibility of creatingservice centers for shale gas,said Mr Sagan.

But according to him, cur-rent legislation would givelocal government too small ashare of profits from shale gasextraction. Unless the lawchanges it will be difficult toprofit from shale gas extrac-tion, he said.

Propping up pensions?In Lubocino, Mr Tusk saidthat his aides, in cooperationwith Norwegian and Canadi-an experts, are preparing therelevant legal provisions toensure Poland can profit fromshale gas extraction. The pro-posed scheme envisions theintroduction of fees forextraction companies thatwould be used to shore upPolands pension system.

Macroeconomic policywill be the key to dealing withshale gas, said Orlens MrCzyewski. Absorbing eventu-al revenues, as Poland doeswith EU funds, will be crucial,and financing pensions wouldbe an interesting option, headded.

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Shale gas extraction in Poland is just around the corner said Prime Minister Tusk

SEPTEMBER 26 OCTOBER 2, 20118 www.wbj.pl IINNTTEERRVVIIEEWW

Poles returnwith few savingsThe dream of leavingPoland for a country inthe West and thenreturning with a largeamount of money is over,according to newresearch by the StrategicAdvisory Centre inKrakw, as cited byRzeczpospolita. Thepaper, called DirectionSilesia, studied 18,000families from PolandsSilesia voivodship. Thehighest percentage (23%)of surveyed migrantsreturned to Poland withsavings of betweenz.5,000 and z.10,000,while one in fourreturned with no savingsat all.

Lubawa closerto NATO contractLubawa, a company thatspecializes in ballisticprotection equipment, isclosing in on a contractworth z.80 million forthe supply of 9,000bulletproof vests for theItalian armed forces. Thecompanys offer hasqualified for the third andfinal phase of a bidorganized by the NATOMaintenance and SupplyAgency, Parkiet reported.

More Polishbabies in the UKPolish women gave birthto almost 20,000 babiesin England and Wales in2010, twice as many asthose conceived by Polishwomen living in Poland,according to UKDepartment of Healthfigures. Poles are givingbirth to more childrenthan any other minority inthe UK, with 2010s totalrepresenting a six-foldincrease from 2005

Politics

TThhee rreettuurrnn ooff tthhee lleefftt??

Ewa Boniecka: SLD is the onlyparty running for election thatis fighting for votes under theleftist banner. How would youview your partys potential inthis respect? Katarzyna Piekarska: Polesare now in a situation wherethey can evaluate all parties notonly on the basis of their words,but also by their performance,as all have been in power atsome point in the last 20 years.So under such circumstances,voters can make a consciousdecision about who they wantto choose.

And if you dispassionatelyevaluate the SLD-led govern-ments that were in power firstfrom 1993 to 1997 and then

from 2001 to 2005, you have toadmit that it was not lost timefor Poland.

In 2004, Leszek Miller, whowas prime minister at the time,achieved Polands entry intothe European Union. The gov-ernment then undertook theenormous legislative task ofpreparing over 1,000 much-needed bills, which were allapproved by parliament.

Nevertheless, SLD later lostconsecutive elections and theparty is now fighting for powerafter years of being in opposi-tion. So how do you assess yourpartys current assets? SLD recently went through theprocess of making generational

changes and it is the only partywhich has opened itself up fornew, young leaders and activistswith fresh energy and ideas.

I believe that one of ourassets is that we are not stand-ing still, with tired politicians atthe top, as is the case in otherparties. Poland needs some newvigor and far more ambitiouspolicies, as well as the will forfurther reforms. I believe thatthe greatest mistake of the gov-ernment of Civic Platform (PO)and the Polish Peoples Party(PSL) is that they did not havethe courage to undertake seri-ous reforms, first in the publicfinance sector, which is what allexperts have been saying shouldhave been undertaken for at

least two years following thefirst signs of an approaching cri-sis.

What are your main proposalsfor economic policy?Our economic program restson five pillars: We want tospeed up economic growth to 5percent, repair public finances,create business-friendly condi-tions, introduce innovation andtechnological progress, andassure fair division of economicbenefits.

All of these proposals areexplained in detail in our pro-gram. And as far as taxes areconcerned, we want to simplifythe system by liquidating taxprivileges for the rich and byintroducing a special tax onfinancial institutions.

This is a realistic programthat will lead to increased levelsof employment, a gradualequalization of the retirementage for both men and womenand the opening of betteraccess to the job market foryoung people.

Your social program makesmany generous promises toincrease social benefits. How doyou expect to achieve thesepromises financially?Governments on the right treatsocial policy only as an eco-nomic burden that must beavoided. Social expenditure inPoland is the lowest in theEuropean Union, while wehave the greatest divisions in

income and the largest povertyzones. Current statistics showthat 16 million Poles live belowthe social minimum [a measureof costs of living based on notonly sustaining life, but alsoraising children and maintain-ing a minimum of social ties]. Itis unacceptable that Poland, anEU member state, has so manychildren who are hungry.

I think that if we can spendmillions of zoty on a war inAfghanistan, then we cannotclaim that there is no money toprovide children with a warmmeal in school. We have areaswhere money is wasted, forexample in paying for the over60,000 new state employeesthat have been hired in the cur-rent term of government.There are other areas wherewe spend too little, like onsocial provisions, educationand on health care.

I ask, why do we continue tospend z.100 million every yearfor the Church Fund, when weknow that church goods takenduring communist rule havealready been compensated forand even the commission deal-ing with this issue has been liq-uidated, yet the repaymentprocess still goes on.

There are many other para-doxes in how public money isallocated by the Tusk govern-ment, which generally lacks along-term vision for economicand social policy.

There was a time when SLDpaid a lot of attention to moralissues. But recently it looks likeSLD is pushing these issuesaway from its campaign. Whyis that? We are not neglecting theseissues, which are very impor-tant to our party, and I fullyrecognize that ethical prob-lems such as [state funding for]in vitro [fertilization], abortionand civil unions are controver-sial for many people, but theyare an important part ofhuman liberty.

I do not think that the pres-ent, restrictive law on abortionwill be changed, but I believethat a law allowing women toreceive [state funding for] invitro fertilization could bepassed during the next parlia-ment. I also hope that a billabout civil unions will bepassed by the next parliament.

In terms of foreign policy, SLDechoes POs pro-EU stance,while it opposes PiSs national-istic vision. Do you feel cooper-ation is possible with PO inforeign policy?Its harmful that foreign policyis the subject of domestic polit-ical conflict between PO andPiS. I remember very well thatwhen [SLD co-founder] Alek-sander Kwaniewski was presi-

dent, foreign policy was exclud-ed from domestic politics.

I value President BronisawKomorowskis performancewhen it comes to foreign poli-cy. He has improved coopera-tion in the Visegrad Group andrevived the Weimar Triangle.We support all efforts thatensure Polands strong role inthe EU by developing goodrelations with our neighborsand by maintaining close tiesbetween the EU and the US.

You are one of only six womenin Poland in a top spot on anelection list. Why do you thinkthis is, when SLD supported alaw mandating that at least 35percent of election lists com-prise women?Well, on my particular list 50percent of the candidates arewomen. And SLDs lists gener-ally boast 40 percent womencandidates. I regret that thereare no more women holdingfirst place on our lists, thatsuch great personalities as pro-fessor Magorzata Winiarczyk-Kossakowska and professorMaria Szyszkowska are inlower spots.

Still, I believe that if awoman has a strong personali-ty, then she can gain support.Today in Poland, there is a pos-itive trend that both men andwomen are voting more forwomen candidates.

Some observers claim that SLDleader Grzegorz Napieralski isso eager to get into governmentthat he would consider forminga coalition with PiS. Do youthink this is possible?Grzegorz Napieralski wouldnot commit political suicide and

only someone intent on politi-cal suicide would agree to acoalition between SLD and PiS.

The scenario is completelyout of the question, because wehave no common goals in ourprograms. SLD and PiS havean entirely different view onthe role of the state and itsrelation to its citizens.

If PO were to win and theyneeded a coalition partner toestablish a government, wouldSLD consider being a potentialpartner?I do not like to speculate onpossible coalitions followingthe election. But if I have togive you my personal opinion, Ithink that if PO wins and theyneed a partner to form a stablecoalition government, then aPO-SLD government would bethe best option for Poland.

The government wouldthen be able to undertakereforms to the financial system,and it would conduct good for-eign policy. But I think that myparty should agree to enterinto a coalition with PO on thecondition that at least someparts of the SLD program,linked to social and moralissues, are implemented.

What outcome would you findsatisfactory for SLD in Octo-bers election?At least 18 percent of the vote.And I want to add that goodresults for SLD would have apositive impact on social dem-ocratic parties throughoutEurope. I think that after thelast few years, when socialdemocratic parties have beenweaker, the wind is now blow-ing in favor of the left.

MP Katarzyna Piekarska, vice chairperson ofthe Democratic Left Alliance (SLD) and leaderof the partys branch in the Mazowieckievoivodship, speaks with WBJ about her partyspolicies, its priorities for the campaign and herpredictions about the outcome of the upcomingparliamentary elections

Only someone intent on politicalsuicide would agree to a coalitionbetween SLD and PiS

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Katarzyna Piekarska says the current Civic Platform-ledgovernment lacks a long-term vision for social policy

espaol de los negocios (2 niveles) espaol jurdico y otros cursos

INSTITUTO CERVANTESc/ Nowogrodzka 22, tel. 22 501 39 00cenvar@cervantes.es www.varsovia.cervantes.es

Matrcula abierta!

SEPTEMBER 26 OCTOBER 2, 2011 LLIISSTTEEDD FFIIRRMMSS www.wbj.pl 9

IMF: GDP togrow 3.8%Polands economy willgrow by 3.8% this year,the InternationalMonetary Fund said in itsWorld Economic Outlookreport. The organizationsaid that the recovery hasalready been establishedin Poland, and the countryshould therefore use thistime to rein in itsgovernment deficit. TheIMF said Poland was amember of a group ofcountries that alsoincluded Germany,Switzerland and Sweden,where the economy isoperating close to pre-crisis levels.

Poland toemerge firstfrom crisis?Economists from CreditSuisse have forecast asurprisingly high 2012economic growth level of4% for Poland, reportedPuls Biznesu. Moreover,according to Bank ofAmerica Merrill Lyncheconomists, after theongoing crisis in the eurozone passes, Poland willbe first of the emergingmarkets to bounce backfrom low currency ratesand low stock valuations.

Banks

Written bids submittedfor Millennium saleFrench giant BNPParibas looks to be thefront-runner to takeover Portuguese BCPsPolish arm

Portuguese bank BancoComercial Portugues receivedthree written offers for its65.51 percent stake in Polishasset Millennium Bank, thebank said in a statement lastweek.

The three written offerscame from French bank BNPParibas, and Polish banksPekao and PKO BP.

The bank said it had alsoreceived verbal offers. Otherbanks that reportedly ex-pressed interest included ItalysBanca Intesa and UniCredit,Polands BRE Bank and Rus-sias largest bank, Sberbank.

The deadline to submitoffers ended on September 19.

Tomasz Bursa, an analystfrom Ipopema Securities, toldWBJ that he believed BNPParibas was very determinedto purchase the bank.

The sale of MillenniumBank comes at a time whenbanks in Portugal are taking

steps to comply with theircountrys central bank require-ments, stipulated in this years78 billion bailout programput forth by the InternationalMonetary Fund, the EuropeanCommission and the Euro-pean Central Bank.

Under the bailout plan,Portuguese banks have to raisetheir capital ratios and cutloan-to-deposit ratios over thenext two years. In exchange forthe changes, they will receive12 billion for recapitalizationefforts and a 35 billion plan

that will allow them to issuegovernment-backed guaran-teed bonds.

The sale of a 65.51 percentstake in Bank Millennium-could net BCP around 850million at the banks currentshare price.

The bank emphasized thatno decisions have been maderegarding the sale of its Polishbanking unit, but analysts sayit is unlikely that BCP will beable to hold off on the sale forlong.

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BCP wants to sell 65.5 percent of Millennium

Media

Time Warner andVivendi lining upfor TVN takeoverThe sale of the Polishbroadcaster couldhappen as early asthis year

Time Warner and Vivendi areemerging as the two companiesmost likely to purchase of Pol-ish television firm TVN. TheFinancial Times and Polish busi-ness daily Puls Biznesu, both cit-ing unnamed sources, reportedthe two global media groupswere interested in TVN lastweek.

ITI Group, which currentlyowns a 55.64 percent stake inthe Polish company, has been indiscussion with the two mediagroups and a deal could be con-cluded by the end of the year,Puls Biznesu reported.

In July, ITI said it wanted tosell its 55.64 percent stake inTVN.

There is no preferredbuyer, and the main determi-nant in selecting one will be theprice, ITI Group CEO Woj-ciech Kostrzewa said last week.

As of Friday, September 23,TVNs market capitalizationwas z.4.6 billion. The FT

reported that TVN could beworth as much as z.6.2 billion,based on a calculation of eighttimes this years earnings beforeinterest, tax, depreciation andamortization.

TVN would fit nicely withTime Warners stated strategyof investing in fast-growingmarkets or media segments.Vivendi, the owner of PolandsCyfra+ satellite TV platform,would likely focus its attentionon TVNs own n satellite TVplatform.

Jean-Bernard Levy, chair-man of Vivendi, was quoted byDow Jones Newswires as sayingthat the company is very atten-tive to what is happening inPoland.

The ITI Group has beenresponsible for the develop-ment of some of Polands mostrecognizable and popularmedia units, including televi-sion stations TVN and TVN24,cinema chain Multikino andinternet portal Onet.pl.

In a report released on Fri-day, Goldman Sachs changedits stance on TVN from neu-tral to sell. EEllllaa PPaakkaa

SEPTEMBER 26 OCTOBER 2, 201110 www.wbj.pl FFIINNAANNCCEE && EECCOONNOOMMIICCSS

Industrial output

High production figuresjust a flash in the pan?August industrialoutput was far aboveexpectations, buteconomists wereunimpressedPolands industrial outputgrew faster than expected inAugust as production of met-als and motor vehicles rosestrongly.

Output grew 8.1 percentyear-on-year last month, upfrom 1.8 percent in July and wellabove the market consensusforecast of 3 percent.

The reading has loweredthe chances of Poland cuttinginterest rates any time soon,analysts say. High growth inproduction and PPI [ProducerPrice Index] calls against ahurry in monetary easing, BZWBK economists wrote in areport.

Nevertheless, the data hasnot been viewed as evidence ofa strong, long-term upswing inthe strength of the manufac-turing sector.

Industrial production sta-tistics show relatively highvolatility and therefore a singlereading could reflect noiserather than trend. All themore so given that the Augustpositive surprise came aftertwo consecutive months ofnegative surprises, Citigroupanalysts wrote in a report.

Economists forecast moresedate output growth for the

rest of the year, due to flaggingdemand in the euro zone.

In subsequent quarters oneshould expect a deceleration inoutput growth, following theweakening of external de-mand, BZ WBK analystswrote.

Citigroup predicts industrialoutput will grow at a rate ofbelow 5 percent y/y in thecoming months. GGaarreetthh PPrriiccee

%

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July 20

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2011

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Januar

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Just a blip?Year-on-year growth in industrial output (in %),August 2010-August 2011

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Macroeconomics

Unemployment falls, retail sales growth quickensEconomists stillharbor worries aboutupcoming months

Two key economic indicatorsfor August suggest Polandseconomy is not being draggeddown by troubles in the eurozone just yet. However, econo-mists have pointed to signsthat indicate positives maysoon start to dry up.

On the back of seasonalemployment opportunitiesand strong economic growth,the countrys jobless rate fell inAugust to 11.6 percent from11.7 percent the month before,matching economists expecta-tions. The unemployment ratehas now fallen for six consecu-tive months.

However, as euro-zoneeconomies continue to losesteam and seasonal job oppor-tunities become scarce, futuremonths will likely see the trendreversed. In our view the posi-tive tendencies on the Polishlabor market are slowing and inthe upcoming months the

unemployment rate will bepicking up gradually, BZWBK analysts wrote in aresearch note.

Some signs indicate thestrength of the labor marketmay already be starting to fade the number of jobs in themanufacturing sector, forexample, dropped by 7,000month-on-month in August.

This sector is highly export-oriented, so these figures show

that the main culprit behind theslowdown ... is waning demandof the main Polish trade part-ners, BZ WBK wrote.

Separately, Polands statis-tics office released retail salesfigures showing above-forecastgrowth of 11.3 percent year-on-year in August.

Analysts believe retail saleswill face considerable pressurelater in the year.

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The joys of summerUnemployment rate (in percentage), August 2010-August 2011

Source: Central Statistical Office

Currency

NNBBPP iinntteerrvveenneess aafftteerr zzoottyy ttaakkeess bbaatttteerriinngg The Polish currencyhad earlier reached itslowest point againstthe euro in over twoyearsIn a bid to firm up the zoty theNational Bank of Poland soldforeign currency last Fridayafter the Polish currency hadfallen to its weakest level innearly 27 months.

The NBP said it sold a cer-tain amount of foreign curren-cies, while state-owned BankGospodarstwa Krajowego soldeuros and dollars for zoty andpurchased government bonds,Bloomberg reported, citingtwo unnamed traders involvedin the transaction.

The zoty rose by as muchas 2.7 percent against the eurofollowing the news.

Earlier in the week the Pol-ish currencys rough ride tookit to a high of z.4.52 againstthe euro.

Policymakers likely chose tostrengthen the local currency tohelp keep the countrys debt-to-GDP ratio below the 55 per-cent level. Once that level isbreached, the government islegally required to implementtough spending cuts.

Before Fridays actions theFinance Ministry had some13-14 billion at its disposalfor currency intervention, 10times more than it had lastyear, when it intervened toshore up the zoty. It gives for-eign currencies to either theNBP or BGK, which interveneon the market on its behalf.

Experts agreed that themain driver of the zotys

recent weakening was riskaversion both in Europe gen-erally and ahead of electionsin Poland specifically, butNordea Bank chief analystAnders Svendsen said in aresearch note that risk aver-sion doesnt fully explain thezotys most recent weakening.

Election risks are frequentlymentioned as the reason for therecent zoty weakening, as the

polls have shown a smaller leadfor the incumbent Civic Plat-form-led government ahead ofthe general elections on Octo-ber 9.

Nevertheless, though MrSvendsen said he does see a riskof an election surprise, he felt itwasnt a justification for thehard hit the zoty was taking.

AAnnddrreeww KKuurreetthh,,GGaarreetthh PPrriiccee

PiS turns up pressure on PO

SEPTEMBER 26 OCTOBER 2, 2011 OOPPIINNIIOONN && AANNAALLYYSSIISS www.wbj.pl 11

Remi Adekoya

Just a few weeks ago it seemed asif the ruling Civic Platform (PO)party was guaranteed a second term in office. The only questions

then concerned how big the marginof victory would be and with whomPO would enter into a coalition.Recent polls, however, indicate thatthe gap between PO and its closestrival, Law and Justice (PiS), is closingahead of the October 9 election.

The dynamics of the election cam-paign have also changed, with POnow on the defensive and PiS gainingin strength. For many months I havebeen telling my party colleagues thatwe are running neck-and-neck [withPiS], Prime Minister Donald Tusktold a press conference, adding thatpeople could be in for a big surprise[on election day].

Mr Tusk has since embarked onhis own nationwide tour of Poland inthe now-famous Tusk bus (seestory, p. 3).

The prime minister is no doubttalking up the possibility of a PiS vic-tory in order to mobilize those whoare not his partys core electorate butwho usually vote PO because theycant stand the thought of PiS leaderJarosaw Kaczyski taking over thereins of power.

The ruling partys recent cam-

paign has also been aimed at convinc-ing Poles that a PO governmentwould be able to negotiate the bestdeal for Poland when it comes to allo-cation of funds from the EuropeanUnions 2014-2020 budget.

This argument, and the prestige(albeit symbolic) of Polands ongoingpresidency of the EU, were supposedto be strong points for the rulingparty during the campaign. But thedaily dose of negative news from theeuro zone has damaged the image ofEurope in the minds of many Poles. Ithas also planted a seed of uncertaintyand anxiety in many people, whichplays to PiSs advantage.

Danger zoneBy joining the EU, Poland hadexpected to be a member of a club ofstable and increasingly wealthy coun-tries. But these days, Europes futuredoesnt look so bright, with someeven suggesting the bloc might beforced to break up. Poles are there-fore not really paying attention toPOs talk of negotiating z.300 billionfor Poland in the next budget.

In times of uncertainty, promisesgoing that far into the future simplydont grab peoples attention.

Mr Kaczyski, meanwhile, hasemployed the same strategy he used

during the presidential campaign,namely, playing the role of the cool-headed, mature statesman. He hastoned down his rhetoric and is avoid-ing using the incendiary language heis so often associated with.

Rock-star supportPiS also recently received an impor-tant image boost from three leg-endary Polish musicians. Punk-rockstar Kazik said he had previouslyallowed himself to be bamboozledand had taken part in the anti-PiShysteria which the media helped cre-ate during the last elections in 2007.

Meanwhile, Muniek Staszczyk,leader of the rock band T-Love, saidthat Mr Kaczyski had been demo-nized by the media in the past.

In addition, Liroy, a musician con-sidered to be the Godfather of Pol-ish rap, said recently that the PO gov-ernment was a joke.

All this must be very worrying forthe PM. Four years ago artists andyoung people played a big role in hispartys victory. Now, it seems theparty has lost its appeal for many inthese two groups.

PiS has its Joe the PlumberRemember Joe the Plumber? He wasthe guy who publicly engaged then

presidential-candidate Barack Obamain a conversation on the campaigntrail, accusing him of having ideasthat would be bad for small business-es. That gentleman quickly becamethe Republican partys average-Joe poster boy and was invited toevents on the campaign trail of Sena-tor John McCain, Mr Obamas mainrival.

Stanisaw Kowalczyk, also knownas Pan Paprykarz(Mr Pepper), hasnow become PiSs own Joe the Plum-ber. Mr Kowalczyk, a grower of pep-pers, spoiled what was meant to be aroutine trip for Mr Tusk in Augustthis year. In front of the assembledmedia, he complained about how heand other farmers in his area had notreceived any help from the govern-ment after gales had ravaged theregion.

How do I live now Mr PrimeMinister, how do I live? asked MrKowalczyk in an emotional voice.

This now-famous scene was quick-ly pounced on by the opposition andMr Kowalczyk was invited to speak atone of PiSs campaign conventionswhere he proved himself to be talent-ed at whipping up populist sentiment.

Artists and professors are constant-ly being honored and given nationalawards. I have never heard of a farmer

receiving such an award and food is abasic need, after all, he thundered tothe applause of the crowd.

They say there are no differencesbetween the city and the country.Well, show me culture centers, tenniscourts and [private] swimming poolsin the country, he continued. They[city dwellers] have good salaries, what

are the rest of us? Cattle, beasts? Mr Pepper will obviously not

decide this election, but he can helpPiS gain rural voters, who will defi-nitely understand the language hespeaks. It is still very unlikely that PiSwill emerge victorious on October 9,but not as unlikely as it was at thebeginning of the campaign. If POisnt able to reverse the current direc-tion of the campaign, then manyPoles may well be in for a big surprisecome election day, just as DonaldTusk has predicted.

Remi Adekoya is WBJs politics editor

The debate over fiscal expansionversus consolidation continuesto divide the developed world.In response to the global recession of2008, the UK embarked on an auster-ity program while the US enacted an$800 billion fiscal stimulus. Despite asoftening economy, British PrimeMinister David Cameron is promis-ing to stay the austerity course. Presi-dent Obama, too, is sticking to hisguns with his recent proposal for an

additional $450 billion of governmentexpenditure and tax cuts to helpboost employment.

Unemployment in the US hasremained above 9 percent for 22 ofthe last 24 months. While some aresupporting additional stimulus, oth-ers are calling for UK-style austerity.But would either of these approaches

reduce unemployment most effec-tively, or would a new round ofquantitative easing work better?

A step in the right directionWith Nobel prize-winning econo-mists on both sides of the debate, thepublic is rightly confused.

The American Recovery andReinvestment Act (ARRA) that MrObama passed barely three weeksafter his inauguration was disappoint-ing. An $800 billion stimulus did nothave the effect for which its propo-nents hoped, largely because it wasaccompanied by a big increase in pri-vate savings. Backers of the stimulusplan now claim that things would havebeen much worse without ARRA. Iam skeptical.

A better approach to reducingunemployment would be a new andexpanded round of quantitative eas-ing. I am heartened by calls for this inthe UK, and that the talk is now turn-ing to the purchase of risky assets,such as corporate bonds or bundles ofloans to the private sector, asopposed to long-term governmentsecurities. This is a step in the right

direction that I have been advocatingfor the past three years.

Accept new solutionsBut I would go even further. My workprovides a new and coherentapproach to macroeconomics thatexplains how a lack of confidence canlead to persistent unemployment. Itsupports the purchase of equities bycentral banks to reduce asset-pricevolatility, restore the value of wealth,and prevent a future market crash.

When businesspeople are afraid,they stop investing in real assets.Lack of confidence is reflected in lowand volatile asset values. The envi-ronment of fear that arises has littleto do with bad government policies,although bad policy may exacerbatethe situation. Businesspeople becomeafraid that stocks, and the values ofthe machines and factories that backthose stocks, may fall further. Fearfeeds on itself, and the predictionthat stocks will lose value becomesself-fulfilling.

The 2008 recession was triggeredby the collapse of a real estate bub-ble. Housing wealth in the US has

fallen by 34 percent since its peak in2006, and is still declining. The stockmarket fell by almost 50 percent fromits 2007 peak and remains down bynearly a third. This enormous loss ofwealth caused a large and persistentdrop in consumption demand, whichhas led to an increase in unemploy-ment. Until we are willing to explorenew solutions, the misery experi-enced by millions of unemployedworkers will continue.

The way aheadA quantitative-easing policy in whicha central bank buys risky assets canprevent price fluctuations and restorethe value of financial wealth. Thesepurchases would need Treasury sup-port, since this tactic is in effect a fis-cal policy, not a monetary policy.And, by involving the Treasury, thepurchase of risky assets could befinanced by issuing debt, rather thanby printing more money, therebyattenuating inflationary fears.

The Great Recession did not turninto Great Depression II because ofcoordinated action by governmentsaround the world. Although fiscal

expansion may have played a role inthis success, central bank interven-tion was the most important compo-nent by far. Quantitative easingworks by increasing the value ofwealth. In both the US and the UK, itreduced the real expected return onlong-term government bonds, whichin turn nurtured a recovery in thestock market.

We need not tolerate 9 percentunemployment as the new normal.Confidence is a self-fulfilling prophe-cy, and we can, and should, manage itby direct intervention in asset mar-kets. The way ahead leads throughscience, not ideology, dogma, orfailed theories.

Roger E. A. Farmer is DistinguishedProfessor of Economics and Depart-ment Chair at UCLA. He is theauthor of two books on the currentglobal economic crisis: How theEconomy Works: Confidence,Crashes, and Self-Fulfilling Prophe-cies and Expectations, Employment,and Prices.Copyright: Project Syndicate,2011.project-syndicate.org

Fear feeds on itself,and the prediction thatstocks will lose valuebecomes self-fulfilling

How do I live nowMr Prime Minister,

how do I live?

TThhee ffeeaarr ffaaccttoorrRoger E.A. Farmer

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SEPTEMBER 26 OCTOBER 2, 2011CCOOVVEERR SSTTOORRYY12 www.wbj.pl

Eastern Partnership

All eyes on the eastWhen Poland took over theEU presidency earlier this yearone of the top priorities on itsagenda was the finalization ofan EU-Ukrainian free tradeagreement. This would achieveseveral important goals forWarsaw: it would establishPoland as the champion foreastward expansion of the EUand as the key EU ally for for-mer Soviet states; it woulddraw Ukraine closer to thebloc, making it that muchharder for Russia to claim it asits exclusive sphere of influ-ence; and, finally, it was hopedthe agreement would at leastgo some way in counteractingthe EU-fatigue brought on bythe sovereign debt crisis andrenew the EUs commitmenttowards eventual expansion.

When WBJ spoke with Pol-ish Foreign Minister RadosawSikorski at the beginning ofJuly, he said the EU-Ukrainenegotiations were on sched-ule and that they were due towrap up in September. Theplan was to announce the suc-cessful conclusion of talks dur-ing this weeks much-toutedEastern Partnership summit.

But it now looks highlyunlikely that the Polish govern-ment will be able to make thatmuch-hoped-for announce-ment. Indeed, the very agree-ment itself, which seemed socertain this summer, nowhangs in the balance.

The reason for this dramat-ic change in circumstances?The arrest and detention offormer Ukrainian Prime Min-ister Yulia Tymoshenko.

Release her, or else Ms Tymoshenko was takeninto custody in August for con-tempt of court during herongoing trial. Ms Tymoshenkois charged with abuse of officewhen in 2009, as prime minis-ter, she signed a natural gasimports contract nowdeemed unfavorable toUkraine with Russia. Regard-less of Ms Tymoshenkos inno-cence or guilt, the manner ofher arrest and detention which smacks of political retri-bution has worsenedUkraines already flawedimage in the eyes of manyEuropean policy makers andhas put its deal with the EU in

jeopardy. Indeed, Ukrainian Presi-

dent Viktor Yanukovych hasbeen warned by Europe that ifthe former prime minister isgiven a jail sentence, the coun-

try can forget about closerintegration with the EuropeanUnion. The warning came aftera meeting between the Ukrain-ian president and a delegationof EU politicians in the BlackSea town of Yalta in mid-September.

I hope we brought to himvery clearly the message thatthe rule of law is of criticalimportance, Swedish ForeignMinister Carl Bildt told thepress after the meeting. MrBildt said Mr Yanukovych hadbeen told that European par-liaments would be unlikely toratify an agreement on closercooperation between Ukraineand the EU if Ms Tymoshenkowere sent to prison.

To outsiders it seems obvi-ous that the arrest would bemet with outrage from EUgovernments. So how andwhy did Ukraine get itselfinto this mess in the first place?

Whats the fuss about?A number of experts say theUkrainian government simplyfailed to consider the potential

consequences for its Europeanambitions when it decided toarrest Ms Tymoshenko.

The Ukrainian govern-ment never expected this kindof reaction and pressure overMs Tymoshenkos arrest.Nobody thought strategicallyabout what the consequencescould be. Mr Yanukovychsrecent comments show he istrying to find a way out of thesituation, said Olga Shumylo-Tapiola, an expert at CarnegieEurope, a think tank.

There is talk of switchingthe judge [in the trial] with onewho is more experienced andwould find that the previousjudge had made some proce-dural errors. The criminal codecould also be changed, doingaway with the law under which

the former prime minister isnow being held, automaticallyleading to her release, sheadded.

The trial has now beenpostponed till September 27 two days before the EasternPartnership summit begins inorder to give the Ukrainianstime to decide on a course ofaction that would resolve theissue and at the same time helpthe government save face,according to Ms Shumylo-Tapi-ola.

Not mentally prepared? ukasz Adamski from the Pol-ish Institute of InternationalAffairs (PISM), a think tank,agrees that the Ukrainian gov-ernment was taken aback byEuropes reaction.

Strengthening the ties between the EU and thecountries on the blocs eastern periphery isproving to be a more difficult project thanPoland had hoped

Nobody thought strategically aboutthe consequences of arresting Ms

Tymoshenko

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Despite mixed signals from authorities, analysts say Kiev is genuinely interested in closer ties with theEuropean Union. But the ongoing trial of Yulia Tymoshenko has put those ambitions in jeopardy

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The Ukrainians are reallyinterested in closer integrationwith the EU and concludingnegotiations for the free tradezone agreement. The problemis that I dont think PresidentYanukovych is mentally capa-ble of understanding what the

process of modernization andcloser integration with the EUrequires, he said.

Furthermore, I am notsure the Ukrainians in generalare mentally ready either, headded.

Ms Szumylo-Tapiola, a

Ukrainian herself, said thegeneral perception amongUkrainian experts, journalistsand the countrys political classwas that the EU needsUkraine very badly, and thatthe EUs goals were all aboutgetting in and grabbing what itcould in the Ukrainian mar-ket.

Ukrainians also trulybelieve that the EU owes themas much as it owed Poland inthe 1990s, she said. This couldexplain the nonchalance withwhich Mr. Yanukovychs campinitially reacted to Westernprotests at Ms Tymoshenkosarrest. The European politi-

cians worried by Tymoshenkosarrest should be asked what acourt in their country wouldhave done if the accusedthreatened the judge and wit-nesses and showed a lack ofrespect for the court, MrYanukovychs Party ofRegions, said in a statement inAugust.

Possible outcomes The consensus amongst all ofthe experts that spoke withWBJ is that a succesful con-clusion of the free-tradeagreement negotiations willnot be achieved during thisweeks meeting in Warsaw.But if not that, then what canit achieve at the summit, pre-

viously billed as the crowningmoment of Polands EU pres-idency?

The negotiations will nothave been concluded by theend of the month. Whatwould be a success is if the EUgave a clear political signalthat it is still committed to theprocess of integration withcountries from the EasternPartnership, said Rafa Sad-owski, an analyst at the Centerfor Eastern Studies (OSW).

PISMs ukasz Adamskisaid more prosaic examples ofprogress in EP-EU coopera-tion would be discussed,including steps taken in ongo-

ing technical assistance pro-grams, border-managementcooperation and energy ties.

I also expect anannouncement that the free-trade agreement negotiationshave been practically conclud-ed but that the official signingof the document will be post-poned until the EU-Ukrainesummit in December, headded. That would meanthere is still a chance forPoland to achieve one of itsmain objectives during itsterm at the helm of the EU.With all eyes on the euro-zone debt crisis during thefirst half of Polands presiden-cy, this would be a welcomeachievement.

SEPTEMBER 26 OCTOBER 2, 2011 CCOOVVEERR SSTTOORRYY www.wbj.pl 13

Paul Fogo is a senior attorney with Miller, Canfield, W. Babicki, A. Chelchowski & Partners.fogo@pl.millercanfield.com

The EasternPartnership

Legal Eye

The time is ripe to open a newchapter in relations with ourEastern neighbors.

Dr Benita Ferrero-Waldner, EU Commissioner

External Relations andEuropean Neighbourhood

Policy.

This week Poland will host ameeting of government minis-ters from the Eastern Partner-ship and EU. Launched in theSpring of 2009, the EasternPartnership is tasked withfacilitating closer ties betweenthe EU and its neighbors tothe east, including Armenia,Azerbaijan, Belarus, Georgia,Moldova and Ukraine.Poland is recognized as thedriving force behind creationof the Eastern Partnership,representing Polands firstmajor political initiative to beembraced by the EU.

GoalsThe Eastern Partnershipbuilds upon the EUs moregeneral Neighbourhood Poli-cy, which encouragesincreased cooperationbetween the EU and itsimmediate neighbors. TheEastern Partnership will focuson the creation free-tradepacts, energy security, elimi-nation of travel restrictionsand overall regional develop-ment. Of particular impor-tance to the EU is assistingeach of the six member coun-tries to improve their respec-tive borders further to theeast. The EU Commissionhas committed nearly 600million to the Eastern Part-nership through 2013. Poland,as both the author of theEastern Partnership and cur-rent holder of the revolvingEU presidency, is taking thelead roll in spearheadingincreased cooperation with itseastern neigbhors. The sum-mit this week will examine thenext steps necessary to furtherimplement the goals of theEastern Partnership.

EU membership?Membership in the EasternPartnership, however, doesnot necessarily represent afirst step toward full EUmembership. While the Polishgovernment openly embracessuch a possibility, other EUmember countries, includingGermany and France, are atbest lukewarm to the idea atleast for the near future. Amore likely outcome follow-ing the implementation of

needed reforms in each coun-try would be the signing ofindividual Association Agree-ments with each country onceit achieves agreed milestones.

Ukraine, while joining theEastern Partnership, has beenkeen to point out that EPmembership should not betreated as a substitute for fullEU membership. WhileGeorgia and Armenia aremembers of the Eastern Part-nership, Turkey is not. TheEU has already opened directaccession talks with Turkey,and therefore membership inthe Eastern Partnershipwould be viewed as a step inthe wrong direction.

HistoryThe Eastern Partnership, atleast with respect to Ukraine,has its roots in the nowdefunct EU-Ukraine ActionPlan signed in 2005 followingthe Orange Revolution, atreaty designed to kick-startthe goals of the Partnershipand Cooperation Agreementsigned earlier between theEU and Ukraine. Poland, along-time proponent ofUkrainian membership in theEU, actively embraced theAction Plan. In the end, how-ever, Ukraine abandoned theAction Plan, disappointed inpart on the lack of supportfrom the EU in its stand-offwith Russia over the supply ofnatural gas in 2008 and 2009.

The Eastern Partnership,in contrast, commits EUfunding to Ukraine and theother five member countriesto implement real projectsand reform, including theconstruction and modern-ization of gas and oilpipelines, as well as to con-nect regional electricitygrids.

Summit in PolandThe two-day Eastern Part-nership Summit will beheld in Poland on Septem-ber 29 and 30. The partici-pants are expected to dis-cuss the initiatives taken todate, as well as to agree onthe next steps needed torealize specific reforms.The six member countrieswill be looking for specificpledges for assistance fromthe EU to realize particularreforms and projects, whilethe EU will be looking forsigns of progress in theareas of human rights, therule of law and politicalreform.

Ukrainians truly believe that theEU owes them as much as it owed

Poland in the 1990s

Of course, Ukraine isnt the only memberof the Eastern Partnership program. Theleaders of five other countries Armenia,Azerbaijan, Belarus, Georgia andMoldova will also be in town this weekto discuss strengthening ties with the EU.

Moldova: the favorite childPrime Minister Donald Tusk recently lav-ished praise on Moldovas government,and its prime minister, Vlad Filat, for itsreforms. In fact, during this years Eco-nomic Forum in Krynica, Mr Filatreceived the Man of the Year awardfrom the hands of none other than thePolish prime minister himself.

Let his determination and couragebe an important signal for all those mal-contents who question the essence of theEuropean Union, Mr Tusk said at thetime.

Moldova has become a favorite childof the Polish elite who want to see somesuccess in the Eastern Partnership, saidPISMs Adamski. It has a very pro-European government which is interest-ed in integration with the EU, but theproblem is that the government has pow-erful opposition from the communistparty, its majority is fragile, corruption ishigh in the country and it is one of thepoorest nations in Europe.

So while the government is full of the

best intentions, I am not sure if it will beable to succeed in its efforts [to speed upintegration with the EU], he added.

Armenia, Azerbaijan andBelarus: a long way to goMr Adamski said Azerbaijan is andwould remain an authoritarian countrybecause of its important oil and gasresources and that it was interested inEurope only as a trading and politicalpartner. He added that Azerbaijan alsoneeded help to neutralize increasingRussian and Chinese pressure coming itsway. Armenia is making some efforts toliberalize its political system but still had along way to go, he said.

As for Belarus, Mr Lukashenkos bla-tant disregard of Western opinion has leftfew believing that he is really interested incloser ties with Europe.

Georgia: unique potentialMr Adamski pointed to Georgia as thecountry with the most potential.

Georgia is quite unique, having thehighest level of rule of law in the EasternPartnership as well as the lowest level ofcorruption. President [Mikheil]Saakashvili has also been successful inmodernizing the countrys administra-tion, said Mr Adamski.

Georgia was ranked 68th (just behind

Italy) in Transparency Internationals2010 Corruption Perception Index (CPI).The next highest scoring country fromthe Eastern Partnership was Moldova,which was ranked 105th out of the 178countries in the index. Belarus, mean-while, was placed 127th and Ukraine134th. Poland ranked 41st.

But despite Georgias successes, it stillhas unresolved territorial disputes withtwo breakaway regions Abkhazia andSouth Ossetia with strong separatistmovements and is geographically remotefrom the EU.

No time for despairThe question remains as to whether theEastern Partnership actually matters.With the major players in the EU nowfighting to keep the euro zone togetherand stave off another recession, theprospects for EU membership for theEastern Partnership countries look bleak.

Nevertheless, the development ofcloser ties with Europe would benefitboth sides. The EU could gain easieraccess to new markets, while the EasternPartnership countries would see an injec-tion of European investment.

The stage for closer ties has been set,thanks to a significant push from Poland.The question now is whether both sideswill rise to the occasion.

The other Eastern Partnership countries: where do they stand?

$

20,000

40,000

60,000

80,000

100,000

Luxembou

rg

Netherlan

dsPoland

Belarus

Romania

Azerbaijan

Ukraine

Armenia

Georgia

Moldova

Poor eastern partners GDP per capita (PPP), selected EU countriesand Eastern Partnership countries (bold)

Source: IMF

Corrupt, too?Transparency International's2010 Corruption PerceptionsIndex (CPI) rankings, selectedEU and Eastern Partnershipcountries (in bold)(1 = least corrupt, 178 = mostcorrupt)

Denmark 1Finland 4Germany 15Poland 41Georgia 68Moldova 105Armenia 123Belarus 124Azerbaijan 134Ukraine 134

Mixed businessfriendliness?World Bank's 2011 Doing Business ranking, selected EUand Eastern Partnership coun-tries (in bold)(1 = easiest to do business,183 = most difficult to dobusiness)

United Kingdom 4Georgia 12Netherlands 30Armenia 48Azerbaijan 54Romania 56Belarus 68Poland 70Moldova 90Ukraine 145

Source: Transparency International Source: World Bank

SEPTEMBER 26 OCTOBER 2, 2011IINNVVEESSTTIINNGG IINN PPOOLLAANNDD 22001122 CCOONNFFEERREENNCCEE14 www.wbj.pl

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