1. CORPORATE GOVERNANCE IN TREASURY COMPANIES Paris, 26th June 2003

2. Starting point - 12 years of Polish privatisation Year 1990 n approx. 8,500 state enterprises n 31% of GDP generated by the private sector n 40% employed in the private sector n Foreign Direct Investment - USD 105 m Year 2002 n 1,800 Treasury companies and state enterprises n 72% of GDP generated by the private sector n 70% employed in the private sector n Foreign Direct Investment - USD 56, 834 million USD

3. Mission Completion, by 2006, of the Polish economy’s core transformation processes, resulting in the ownership structure similar to that of EU Member States, where the share of state assets remains at the level of between 10% and 20%.

4. State owned assets in numbers 606 State owned enterprises (SMEs) 606 State owned enterprises (SMEs) (in 113 privatisation advanced) 1704 State Treasury corporations1704 State Treasury corporations 0%-25%715 0%-25%715 25%-50%438 50%-75%61 75%-99%38 100%452

5. Largest state-owned companies CompanyEmployment Proceeds Profitability (in mln PLN) n PKO BP376679,05 15,9 n PGNiG263519,36 4,7 n Katowicki Coal246332,7 2,6 Holding n Jastrzębska Coal 204872,3 0,1 Company n KWB Bełchatów 97581,3 4,8

6. Largest state-owned companies Company ProceedsEmployment Profitability (in mln PLN) n PSE15,12517 0,3 n PGNiG 9,36 26351 4,7 n PKO BP 9,05 37667 15,9 n Węglokoks 3,95 24932 0,9 n RUCH 3,82 7254 0,5

7. State owned enterprises and companies covered by privatisation process by financial performance in 2002

8. Economic indicators of state owned enterprises and companies covered by privatisation process in 2002

9. State in the economy The volume of state assets and their significance for the national economy define the weight of responsibility imposed on persons who are entrusted with management of those assets, as well as responsibility of the government administration representatives who appoint those persons.

10. Corporate Governance Model The issues discussed in this presentation constitute contributing elements of the target corporate governance model for companies in which the Treasury holds shares. The presented solutions : - have already been implemented; - their implementation is at the preliminary stage; - will be implemented in the near future.

11. Corporate governance objectives n Increase of operational effectiveness, management efficiency and the value of Treasury companies; n Rational application of state assets in order to ensure proper functioning of the national economy; n Effective use of Treasury ownership rights to pursue economic policies of the state; n Conducting effective privatization in order to facilitate fast and efficient transition to the desirable ownership structure; n Achievement of transparency by Treasury companies comparable with that of listed companies (strict disclosure standards]

12. Corporate governance objectives – continued Implementation of the above-mentioned objectives should be assisted by: n strengthening of the supervisory board’s position through more comprehensive application of its rights, in accordance with the Polish commercial companies code; n ensuring professionalism of supervisory boards’ members; n adoption of new financial monitoring standards by companies; n intensification of co-operation with the auditor by companies’ bodies (General Assembly/General Meeting, Supervisory Board, Management Board); n strengthening of the Ministry of the Treasury’ position and control effectiveness over companies.

13. Supervisory Board as an ownership control body n Appoints members of the Management Board in the company and defines their remuneration proportionally to their performance; n Analyzes and issues opinions concerning company development plans; n Monitors and controls MB decisions important for the company, evaluates the economic and financial situation of the company along with MB performance; n Enforces timely implementation of disclosure obligations towards the Ministry of the Treasury; n Promptly reacts to any discovered irregularities; n Grants the Management Board permission to make decisions of key importance for the company; n Co-operates with the auditor and monitors the auditing process;

14. Financial monitoring of companies n The monitoring system for companies in which the Treasury holds shares must allow not only assessment of its statutory bodies’ performance but also the ability to react promptly to any negative developments, as well as the ability to launch recovery activities; n The monitoring system is to be based on questionnaires submitted by companies. The scope of disclosure will depend on the company’s status (sole shareholder companies of the Treasury, companies with strategic investors, companies with Treasury majority stakes, companies in which the Treasury holds residual interest); n The Ministry will elaborate detailed guidelines for each of those groups indicating main supervisory tasks;

15. Financial monitoring of companies – continued n The monitoring system is to enable fast elaboration of synthetic analyses and establishment of an „early warning” system protecting against potential irregularities; n Collective information concerning performance of public sector entities will be made available to the general public; n Uniform economic & financial situation monitoring standards and mechanisms elaborated by the Ministry of the Treasury will be model solutions for all public sector entities, irrespectively of which state authority supervises a given entity.

16. The auditor’s role in the supervision system of Treasury companies n The auditor should be independent and impartial. Audit and advisory services must be kept apart; n The whole auditor selection procedure will be conducted by the Supervisory Board; n The Supervisory Board submits its comments concerning issues important for the functioning of the company to the auditor and actively co-operates with him at all stages of the audit;

17. The auditor’s role in the supervision system of Treasury companies - continued n The Supervisory Board abides by the principle of compulsory auditor rotation; n The chartered accountant who audits the financial accounts of the company should be obliged to attend the General Assembly / General Meeting, providing the remaining attendees with relevant explanations and information; n Under the framework of the „early warning system”, the Supervisory Board should have the ability to take advantage of advisory services provided by an independent chartered accountant in the course of the accounting year.

18. T he role of the Ministry of the Treasury in the supervisory system n The key role is played by corporate supervision departments. They perform a number of organisation, administrative and, above all, supervisory tasks as regards Supervisory Boards in companies. n The main task of the Ministry of the Treasury is thorough control and comprehensive evaluation of Supervisory Boards’ performance. n An important issue is ensuring an optimum composition of Supervisory Boards. Selection of appropriate persons, knowledgeable and experienced, guarantees proper fulfilment of tasks by the boards.