POLAND -The Polish government today withdrew its agreement to float the state-controlled insurance giant PZU on the stock market.

The state treasury said in a statement the arrangement made in 1999 had been broken by Dutch insurer Eureko when it took its complaint on the, as yet unfulfilled, privatisation promise to the international arbitration tribunal in Brussels.

Under the initial agreement, Eureko was promised a flotation of the insurer and a subsequent reduction of the state holding in PZU from its current 55% to 5%. A provision was included stating all arbitration procedures regarding this agreement should be settled in Polish courts.

Eureko bought 30% in PZU in 1999 and increased it to 33% since then. It then agreed a deal in 2001 with the government to up its stake eventually by an additional 21% .

The Polish government noted it had given Eureko two deadlines, one in February and one on October 15, to withdraw its arbitration case.

As this has not happened the government, which is only in power for another week following recent elections, renounced its promise to float PZU.

However, Eureko defends its case arguing the complaint was not about the unfulfilled privatisation promise.

The case filed with the international arbitration court was a breach of a long-standing bilateral agreement between the Netherlands and Poland against discrimination of companies from either country.

"Of course, the still outstanding privatisation of PZU is one example of discrimination," a spokeswoman for the consortium - which includes Dutch Achmea insurance group and UK asset manager F&C - explained to IPE. "However, it is not the subject of the complaint."

She noted the arbitration will continue unless the new government formed by the current opposition party 'Civic Platform' (PO) comes to an agreement with PZU.

"So far they have not made an official statement regarding the issue," she added.

She confirmed Eureko will be arranging a meeting with the new government as soon as possible. 

The tribunal in Brussels ruled in August 2005 Poland had violated the bi-lateral Polish-Dutch investment treaty by failing to privatize PZU. In a second phase of arbitration, the court will determine the amount of money to be paid by Poland in damage payments to Eureko.

See earlier IPE coverage:
Scandal-hit PZU gets new CEO
IMF tells Poles to go through with privatisation
Polish treasury stays tough in Eureko dispute