WARSAW - - Poland tells power plants to scale down demands

WARSAW - Poland's economy ministry recently urged investors in the country's power plants to scale down their demands for compensation under the planned termination of long-term energy supply contracts (PPAs).

Deputy Economy Minister Jacek Piechota made a veiled threat that the government might annul privatisation agreements with investors in the plant, mainly foreign firms, which seek excessively high compensation.

"I would tell this to investors formalising their expectations three times higher than the compensation envisaged for terminating privatisation agreements: if we break the agreement, at least the plant will be ours," Piechota told reporters at a business seminar.

Officials have met with foreign investors over the past two months to establish initial expectations for compensation and expect to complete work on an initial draft of the legislation winding up the agreements by the end of October.

Poland is half way through privatising its power plants, with several facilities sold to investors such as Sweden's Vattenfall or Electricite de France.

Piechota said last month that power producers were demanding 28 billion zlotys ($7 billion) in return for dissolving the supply deals, which served as bank guarantees for much-needed restructuring in the 1990s but now block further liberalisation.

Poland must allow foreign firms greater access to its energy market after it joins the European Union in May 2004. But unless the LTAs are dissolved, the 60 percent of Poland's energy output they cover will not be tradeable on the open market.

The ministry's initial proposals envisage raising cash for the compensation through a bond issue by the National Power Grid, which would be paid off by a surcharge on electricity bills.