POLAND - The Polish treasury has told IPE that the state-held stake in the country's largest insurer, PZU, will not be reduced until the ongoing conflict with Dutch shareholder Eureko is resolved.

"The state treasury does not foresee a further reduction of its stake in PZU. Any steps…must be preceded by a solution for the conflict initiated by the minority shareholder Eureko BV," a spokesperson told IPE.

In turn, Eureko sees the promised full privatisation of the company as the central part of the conflict and will not back down from demanding an IPO of the insurer, which covers around 60% of the Polish market. "Essentially enshrined in law is that the previous government had committed to taking PZU to an IPO and at that IPO we would acquire a further 21%," a spokeswoman told IPE.

In January another lawsuit filed by Eureko was added to a long list of court proceedings accompanying the conflict over the privatisation of PZU since it broke out in 1999. The Polish insurer also owns the third largest Polish second pillar pension fund with PLN11.6bn (€3bn).

The latest lawsuit concerns the dismissal of two board members at the pension fund by the Polish state. The two had been appointed by Eureko under an amendment of the privatisation agreement.

In 1999 Eureko had acquired 30% in the insurer PZU from the Polish State Treasury. According to Eureko the initial investment was based on the state's promise to float the company on the Warsaw Stock Exchange in 2000.

But instead of reducing its stake in PZU to 5%, the treasury has held on to a 55% controlling stake, preventing Eureko from acquiring another 21% of the company as agreed in 2001. Together with the 33% Eureko currently holds, this would give the consortium - which includes Dutch Achmea insurance group and UK asset manager F&C - a majority in PZU.

Eureko said that it is committed to the Polish market and that it will not back out of PZU. "Our aim is not to bankrupt Poland in any way. That is not in anyone's interest. Our aim is simply to have the privatisation agreement performed and to introduce more transparent and good corporate governance in the company. It is a great company but it could be even better," the spokeswoman said.

Since the conflict began, Eureko won a case at an arbitration tribunal in Brussels in August 2005. The tribunal ruled that 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.

The Dutch consortium is not the only foreign shareholder in Poland to sue the state for money over unfulfilled privatisation promises. The German sugar company Nordzucker wants €200m, according to Polish newspaper Rzeczpospolita, because five Polish sugar factories were not privatised as promised.

At the end of the 1990s Nordzucker signed an agreement to buy eleven factories but only six were actually sold in the end. The German company will consult the Arbitration Court in Brussels after its suits were rejected by Polish courts.

In the case of Eureko, a Warsaw court ruled in December that the trreasury must apologise to Eureko over statements made by the minister. He had accused Eureko of promoting negative PR against the treasury. The Dutch consortium also won other cases in Polish courts.

Over the years, the ministry had also accused Eureko of making "unjustified claims", of allegedly keeping silent about PricewaterhouseCoopers (PWC) being both actuary to Eureko and PZU. Eureko pointed out that this fact was known to the state treasury and that PwC kept its Polish and Dutch operations completely separate.

Last year, Eureko negotiated an agreement with the previous minister of state treasury. Under the compromise Eureko would not have taken control over PZU at the IPO and would have been prevented to increase its holdings for another five years. "But it was rejected," the spokeswoman said. Asked what might possibly end the stalemate she answered: "We hope that common sense will prevail."