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Non-cash aid granted in privatisation processes

Non-cash aid granted by the Minister of the Treasury in privatisation processes

From the date of EU accession, implementation of all activities undertaken by the Treasury with respect to supervised enterprises, including activities involving their privatisation, is subject to restrictions arising from Community regulations on state aid.

The core criterion enabling assessment of the state’s behaviour as regards public assets, in the context of its compliance with the above-mentioned Community regulations, is the so-called principle of a private investor test. The principle consists in comparison of activities undertaken by the state with behaviour which might be expected from a market investor.

The European Commission also applies the private investor principle to privatisation processes, arguing that those processes could be associated with granting aid either to the entrepreneur undergoing privatisation (aid preceding privatisation, most commonly of restructuring nature), or to the buyer (privatisation aid in the strict sense of that phrase). In the latter case aid could be granted through:

  1. establishing preferential payment conditions as regards the price of the enterprise or shares,
  2. transfer of the enterprise at a value lower than its real market value.

The differentiation of privatisation aid into the categories presented above is important, as in principle it is deemed admissible only when it comprises the first group of cases indicated above, i.e. establishing preferential conditions as regards payment of the dues for the transfer of Treasury assets.

Taking into account the attitude of Community bodies towards the issue of state aid accompanying privatisation processes, the Ministry of the Treasury embarked on a number of legislative activities, reflected inter alia in:

  1. secondary provisions for the Act on Commercialisation and Privatisation, issued in December 2004 by the Council of Ministers (Journal of Laws No. 269, item 2667 and No. 277, item 2744), adjusting privatisation procedures within the scope of direct privatisation to the requirements arising from the Community law (transparent, open and unconditional privatisation),
  2. the ordinance of the Council of Ministers on state aid granted in privatisation processes (Journal of Laws No. 214, item 1792)

As regards the ordinance of the Council of Ministers on state aid granted in privatisation processes, which remains in force, it should be explained that it introduces to the Polish legal system the solutions of the Regional Aid Program for new investment granted in privatisation processes (N 18/2005), which was approved by the decision of the European Commission of September 14, 2005.

The consequence of the aforementioned decision made by the European Commission has been far reaching simplification of procedures associated with state aid granted by the Minister of the Treasury and the founding bodies of state enterprises in processes involving transfer of state assets. At the same time, it should be noted that the core objective of the program developed by the Ministry of the Treasury was to elaborate a system of investment incentives for entities participating in privatisation processes. The investor, in return for preferences concerning payment of the dues arising from the privatisation agreement, should demonstrate that he implemented investment in the privatised entity which will result in its improved competitiveness and, consequently, economic growth of specific regions (regional aid).

As a result, the forms of aid envisaged in the program could constitute a significant argument for participation in privatisation processes, simultaneously linking it with achievement of pro-growth objectives. Moreover, taking into consideration the fact that the forms of aid envisaged by the program concern allowing the payment for the acquired enterprise or Treasury shares to be made over a period of time, their application may additionally contribute to increased revenues from implemented privatisation projects (higher price because of its payment in instalments).

Entrepreneurs participating in privatisation processes, who do not qualify to receive aid for new investment due to the fact that they hold the status of an endangered entity (i.e. entity in a difficult economic situation) will be able to take advantage of aid instruments granted under the framework of restructuring aid granted in privatisation processes. The relevant aid program of the Minister of the Treasury within that scope was approved by way of the decision of the European Commission of December 21, 2005 (program N 61/05). Currently, legislative work is under way aimed at implementation of solutions comprised in the above-mentioned program into the Polish legal system through relevant modification of the Ordinance of the Council of Ministers of October 25, 2005 on state aid granted in privatisation processes.

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Published by: Rafał Kałęcki
Author: State Aid Office
Last change: 17.03.2006
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