Talk of partner payoffs and lawsuits related to the sale of state-held petrochemical giant Unipetrol — one of the biggest privatizations in the country's history — won't undo the sale, but does cast doubt on the fairness of privatization proceedings here, both past and future.

Suspicions of a fishy deal in the Unipetrol privatization occurred after PKN Orlen's new management, appointed in June, filed a criminal complaint with the prosecutor's office in Kraków, Poland, citing the lucrative Agrofert contracts signed by the company's management. It charged that the contracts were payoffs for Agrofert's garnering Czech political support to win the Unipetrol deal.

PKN Orlen bought Unipetrol in May for 13 billion Kc ($543.3 million). Based on the contracts signed last year and the year before, PKN is required to sell controlling stakes in Unipetrol's subsidiaries including Chemopetrol, Kaucuk, Paramo, Agrobohemie and Aliachem to Agrofert for 103 million euros ($126.7 million/3 billion Kc). However, an independent assessment of those contracts by Credit Suisse First Boston indicates that the total value of the five subsidiaries is considerably higher. It placed the value of those shares at around 180 million euros.

As a result, PKN Orlen is balking at honoring the contracts — even at the cost of paying a 75-million-euro penalty.

"We're considering all options," said PKN Orlen supervisory board member Jacek Bartkiewicz. "[The] decisive factor will be to select a solution that will be most advantageous to our shareholders."

Early on, PKN Orlen indicated it was ready to negotiate a modification of the contracts, according to company spokeswoman Daria Kuliwska. But Agrofert rejected the overtures.

"It's true that the overall rise of the chemical industry has made the conditions more favorable for us, but it could've gone the other way, too," said Agrofert's strategy director, Jan Kadaník.

Political cronyism

Earlier this month, Rzeczpospolita, Poland's leading newspaper, wrote that PKN Orlen's partnership with Andrej Babiš — head of Agrofert and a close friend to former Czech Prime Minister Stanislav Gross — was used to help PKN Orlen win the privatization tender.

Should this fact be confirmed, it would cast major doubts on the fairness of the Czech government's proceedings in the entire privatization process, said shadow Industry and Trade Minister Martin Říman of the Civic Democrats Party. "This would be a big blow to the entire privatization," he insisted.

Both Gross and Babiš have rejected accusations that their relations manipulated the Unipetrol tender.

Industry and Trade Minister Milan Urban said the accusations of manipulation were "overly audacious."

"There were no shortcomings in this privatization — contracts were signed, the price was paid, and shares were transferred. The decisive criterion in the tender was the price," Urban said. "The contracts signed between PKN Orlen and Agrofert are unrelated to the privatization and cannot be used to raise questions about the sale."

Troubled past

Agrofert and PKN Orlen formed an alliance in 2003. Kadaník said the alliance was advantageous for both parties and helped the alliance succeed in the Unipetrol tender.

"It was the only alliance that we could reach. Relationships with all other participants [in the Unipetrol tender, Hungarian company MOL and British firm Shell] were too complicated from the past," Kadaník explained.

The first tender for the advisory position was postponed in March after a legal expert examining the Unipetrol sale said the process had failed to meet government procedural standards.

Chemicals conglomerate Agrofert won a tender to buy Unipetrol in December 2001. But by September 2002, Agrofert had backed out of the deal because of damage caused by the floods in August 2002 and other unforeseen losses at Unipetrol, according to Babiš.

In 2001, the government selected Agrofert's bid of 361 million euros in spite of Britain's Rotch Energy bid of 441 million euros. The British were even recommended as the most suitable buyers by government adviser HSBC.