Transformations after 1989 

 

Because of the local nature of district heating there are as many district heating systems as there are cities and towns in which a district heating network operates. The networks are operated by local companies with different structures, depending on their type of economic activity. In large cities, generation and transmission of heat were two separate tasks assigned to different entities, whereas, in smaller cities and towns heat supply companies take care of both.

 

Municipalisation

 

Until the political transformation in Poland heat supply companies were mostly state-owned enterprises established by the authorities of the gmina (commune) or the State Treasury. On the other hand, some of them were budgetary entities.

 

The Act on Local Government of 8 March 1990 stipulated that procurement for the collective needs of the community was one of the tasks of the gmina. In particular, this referred to procurement of heat. In turn, the municipalisation act of 10 May 1990 provided material grounds for the fulfilment of these obligations, putting relevant state-owned assets under the control of local governments. This act imposed an obligation on government administration authorities in charge of controlling such assets on behalf of the State Treasury (founding bodies) to hand over immovable and movable property to gminas to ensure they could fulfil their own tasks. In this way part of the national (state) assets was transferred to local government units. In other words, it was municipalised.

 

However, this process was not nationwide. Most frequently municipalisation was not carried out due to unsettled legal and ownership issues in the case of many enterprises. In addition, initially the managements of Regional Heat Supplies Companies were predominantly negative about and unwilling to implement changes. The range of Regional Heat Supplies Companies extended across voivodeships; municipalisation, on the other hand, would split tchem into smaller, autonomous units with their own management and assets.

 

Two models of municipalisation were characteristic with regards to heating companies:

 

• municipalisation of both heat generating companies and heat distribution companies (network operators);

• municipalisation of network operators only, leaving sources of heat as the property of the State Treasury.

 

The first of these models was used in most heating companies in small towns and medium-size cities, whereas the heating assets were distributed between the gmina and the State Treasury primarily in most voivodeship capitals. An exception among large district heating systems was the city of Łódź, where both combined heat and power plants and the district heating network remained the property of the State Treasury.

 

 

Commercialisation

 

Gminas to which heating assets were transferred had a number of further restructuring scenarios to choose from:

 

• establish a budgetary entity in charge of district heating affairs (and not only) in the gmina;

• commercialisation, that is, transforming the acquired heating works into a company (most frequently a limited liability company) or commercial partnership, and becoming the sole shareholder (stockholder) of such a company;

• establish a district heating company or an inter-gmina holding incorporating district heating assets;

• direct privatisation, that is, selling the company or transferring it as a contribution to another company;

• lending the district heating assets for use (lease).

 

All the above-mentioned types of ownership transformations took place in the Polish heating industry, but some gminas did not undertake any restructuring measures and were content with municipalisation only.

 

A legislative measure to accelerate legal and ownership restructuring in the heating industry was the Act on Municipal Economy of 1996. This act imposed an obligation on the gminas to adopt resolutions transforming municipal companies dealing with district heating into budgetary entities or companies or commercial partnerships. The act, which in Art. 14 stipulated that municipal enterprises for which the gmina council, by 30 June 1997, failed to choose the organisational and legal form or failed to decide whether or not they should be privatized, as of 1 July 1997 would be transformed into a company wholly owned by the gmina by operation of law, caused many municipal enterprises that had not been transformed previously to assume one of the forms mentioned in the legislative act. The limited liability company was the predominant form. However, due to a “miskick” of the legislator (the obligation to pass a resolution concerning the transformation and not to actually transform) some gminas fulfilled their legal obligation and passed a relevant resolution by the appointed date, but did nothing else and postponed the transformation for an unspecified period. For example, in Warsaw the resolution to transform the Capital Heat Supply Company into a commercial law company was made as early as 1997 but the company was established on 1 January 2003. It must be emphasized that after the above-quoted act became effective the provisions of the act on commercialisation and privatisation of state-owned enterprises were not applied in matters concerning transformation of municipal enterprises into companies.

 

As a result of legal intricacies and the “insubordination” referred to above, some gminas failed to meet the deadline for the municipalisation of district heating assets. Therefore, part of district heating enterprises still remained under the control of voivodes as the property of the State. Later they were transformed into State Treasury companies and sold.

 

Commercialisation, that is, establishment of a company wholly owned by the Gmina or the State Treasury to replace the existing state-owned heat supply enterprise, was assumedly a transitory stage preceding privatisation. Such a course of affairs was suggested by the term “indirect privatisation”. Unfortunately, many enterprises commercialised long ago stopped at this stage of transformation. There was a multitude of reasons. Most often the next step (i.e. privatisation) was abandoned upon the assumption that the loss of ownership by the hitherto owner – the gmina – would deprive it of control over the enterprise and create problems in fulfilling its statutory obligation, i.e. providing heat supplies to citizens. The fears were unjustified since there were ways, other than owner's representation, of ensuring equally effective control over a district heating company. Such ways were mostly adequate provisions of memorandums and articles of association of companies and privatisation contracts regulating the scope of decision-making powers in fulfilling the gmina's own tasks.

 

 

Privatisation and present ownership structure

 

The legal grounds for the privatisation of state-owned enterprises and municipal enterprises controlled by local government units were: the act on commercialisation and privatisation of state-owned enterprises, the aforementioned act on municipal economy and the Code of Commercial Partnerships and Companies.

 

The act on commercialisation and privatisation of enterprises provided for two options:

• direct privatisation – by liquidation;

• indirect privatisation – in terms of capital.

 

Direct privatisation by liquidation involved a change in the form of ownership of the state-owned enterprise without previous commercialisation, and was carried out by the founding body. Most often the procedure was as follows:

• the whole enterprise or organised parts of it were sold;

• all or organised portions of assets of the enterprise were contributed to the company as a result of parley relating to a public invitation.

 

Indirect (capital) privatisation was composed of two stages: commercialisation, followed by the sale of stocks or shares in the newly formed company, with the first stage being a prerequisite to the second. Commercialisation involves a transformation of the legal form of a state-owned enterprise into a commercial partnership or company with the majority (generally 100 %) share of the gmina. It was followed by the second stage of indirect privatisation involving the sale of shares or stocks of the commercialised companies by the owner to investors who could be either corporate bodies (also international investors) or individuals.

 

At present in the heating sector the following forms of privatisation measures can be identified:

 

• privatisation of assets – feeding the enterprise with private capital by:

– selling stocks or shares of the partnership or company – the size of blocks sold is varied. The gmina, in order to retain the right to perform tasks set forth in the act on the local governments of gminas, takes care to ensure that the privatisation contract and the memorandum or articles of association contain relevant provisions (if it retains part of the stocks or shares of the minority owner);

– selling the assets of a non-commercialised enterprise;

– increasing the capital by means of subsequent issues of stocks in a joint stock company or introducing a strategic investor to a limited liability company;

• converting the claims of the heat producer towards a heat distributor owned by the gmina into stocks or shares of such a distributor – the producer of heat becomes the owner of the distributor;

• lease of the municipal assets, also known as a trust, involving the privatisation of operations (contract of lease of the district heating system and district heating services agreement). Municipal assets are leased by a company established by employees and involving third party capital (e.g. trade, foreign) if any;

• privatisation of assets management where the gmina orders the administration of specific district heating assets of the gmina to a private entity.

 

 

District heating companies in Poland were privatized in the early 1990s as a result of municipalisation of Regional Heat Supply Companies. Municipalisation caused each of those large state-owned enterprises to split into several or a dozen or so smaller companies with the gminas as their founding bodies. Upper Silesia is a particular exception where some district heating companies formed in the above-mentioned manner, operating in the area of several gminas, could not be municipalised. The basic reason was the lack of a uniform attitude of both the gmina authorities and the voivode.

 

In the early 1990s employee-owned companies were formed and leased district heating assets from gminas for the purpose of operating such assets (e.g. DZT Wałbrzych S.A. established in 1992, PEC Kalisz Sp. z o.o. established in 1994, Ciepłownia Rydułtowy Sp. z o.o. established in 1993). Each of these companies adopted slightly different operating principles following from the agreement with the owner of the district heating infrastructure. What they had in common was the fact that they operated assets they did not own. 

 

The privatisation of the assets of other district heating companies started several years later. The first companies to obtain private capital were: Ostrowski Zakład Ciepłowniczy S.A. (OZC S.A.) in Ostrów Wielkopolski and Miejskie Przedsiębiorstwo Energetyki Cieplnej Wrocław S.A. (MPEC Wrocław). The first obtained capital by its entry to the Central Table of Offers (CeTO) in 1997, and the latter – by issuing bonds convertible into stocks (1998) and entering the Warsaw Stock Exchange (2000). In subsequent years the stocks of these companies were bought either in part (OZC) or in full (MPEC Wrocław) by private investors. Nearly all large CHP plants were sold by the State Treasury to foreign investors from the heating industry. Interestingly, Elektrociepłownie Warszawskie in 2000 was sold by the State Treasury to a power concern Vattenfall. After 11 years these CHP plants were repurchased by PGNiG S.A. – a company with the majority share of the State Treasury.

 

However, the assets of most district heating companies, both operating the network and generating heat, were privatised by the direct sale of shares or stocks held by the gmina or the State Treasury.