Extract from International Monetary Fund (IMF) report prepared in collaboration with EBRD (IMF International Department no. 19/11, box. 8 page 68-69) “Reassessing the Role of State-Owned Enterprises in Central, Eastern , and Southeastern Europe” published June 17, 2019:
In 2012, the government appointed a new management team with a mandate to improve PKP’s performance along a number of dimensions and reinvigorate delayed privatization efforts. The new team carried out several governance reforms including the introduction of the management by objectives (MBO) framework across subsidiaries to improve supervision, use of the strengthened and centralized internal audit function and wider use of external experts in strategic projects and operations.
Privatization efforts were revitalized as well, including the sale of PKP’s cable car and funicular services subsidiary, listing of PKP Cargo on the Warsaw Stock Exchange and the sale of PKP’s telecommunication and energy subsidiaries between 2013 and 2015. In addition, the company continued the sale of its redundant real estate assets and established a property development company to develop more attractive ones. Total employment was further reduced to about 70,000 in 2017. As a result of these efforts, the company managed to significantly reduce its indebtedness, and productivity improved.
The restructuring experience of PKP provides a number of important lessons for governments embarking on reforming underperforming SOEs:
- Problems may be so widespread and deep-seated that they may require several reform waves to be brought under control.
- The functional separation of distinct business and service lines is a prerequisite for restructuring, but it is not in itself sufficient to improve the financial and operational performance of an enterprise.
- Actions to reduce indebtedness, including through privatizations and a focus on core assets, helped stabilize the company’s performance.
- Labor restructuring, although socially difficult, is unavoidable in companies where excess labor is an obvious financial liability.
The introduction of a professional management team, deployment of enhanced monitoring frameworks, strengthened internal audit and improved corporate governance practices appear to have significantly contributed to the success of reform efforts.