NIK about management and supervision of ELEWARR

What is the future of ELEWARR?

The management of ELEWARR and the owner supervision exercised by the National Support Centre for Agriculture (KOWR) were inadequate and ineffective according to NIK. The ELEWAR property management did not improve. As a result of efforts taken by the Company management board, mainly the sale of fixed assets, the company’s economic and financial standing did not get any better and even deteriorated. The position of ELEWARR in the market of grain purchase and storage is now marginal. The core function for which the company was founded - to stabilise the grain and rapeseed market and to secure storage space in intervention centres for the purchase of grains - has been exhausted.

ELEWARR was established by the President of the Agricultural Market Agency in 1992 to manage grain silos acquired by the Agency. The Company was to stabilise the grain and rapeseed market and to secure storage space in intervention centres for the purchase of grains. For years ELEWARR was the market leader in the purchase and wholesale of grains, seeds and fodders as well as warehousing and storage of grains and rapeseed.

When Poland accessed the EU, a lot of new, competitive players appeared in the market. For that reason but also because of poor management and owner supervision the company lost its market position. Its standing deteriorated year by year.  Neither the Company owner, nor its management took proper measures which led to the marginalisation of ELEWARR in the market. In 2010 and 2014, NIK conducted audits and found that the Company lost its key role in stabilising the grain and rapeseed markets and that the owner supervision exercised by the Agricultural Market Agency over ELEWARR was ineffective. The results of those audits, the irregularities identified by NIK as well as the need to verify the post-audit recommendations made NIK carry out its third audit of the management and owner supervision over ELEWARR in 2017-2020. The Agricultural Market Agency was liquidated and in September 2017 the National Support Centre for Agriculture (replacing the Agricultural Market Agency) became the Company owner.

According to NIK the management of ELEWARR and the owner supervision exercised by the National Support Centre for Agriculture (KOWR) over the Company were neither adequate, nor effective. The measures taken by the Company management did not improve its economic and financial standing. Also the management of ELEWARR’s property did not get any better.

Strategy for 2017-2020

ELEWARR’s Strategy for 2017-2020 assumed boosting the Company’s commercial activity among others by developing cooperation with the Material Reserves Agency by providing storage services for grains to be used as state strategic reserves. The Strategy also provided for improved property yield, development investments, organisational and property restructuring. In the turnover year 2017/2018, ELEWARR signed contracts with the Material Reserves Agency for the storage of state strategic reserves. The Company also made the property restructuring. It sold some of its warehouses and acquired Elewator company, which increased ELEWARR’s storage capacity by 50 thousand tonnes. As regards development investments, a corn drying facility was raised in Bielsk Podlaski and the expansion works of the Company’s warehouse in Rzeszów began. NIK criticised ELEWARR for selling its shares in a related company (Elewator Sieradz), without analysing consequences of that activity. It resulted in decreasing ELEWARR’s impact on the stabilisation of grain and rapeseed storage the market in Łódzkie Province.

NIK has underlined that despite the actions taken, ELEWARR did not achieve the assumed economic and financial results in the audited period. What is worse, the Company’s situation deteriorated even more.

Financial results

The Company’s losses were so huge that even if it generated profit it was earmarked to cover the losses. In the turnover year 2016/2017, the Company made net profit of PLN 3.5 million which was used to cover part of the losses incurred in turnover years 2013, 2014 and 2015/2016 totalling PLN 19.8. In the turnover year 2017/2018, there was also a net loss of PLN 17.2 million which resulted mainly from unprofitable sale of grains and rapeseed, which was caused e.g. by the drop in prices in global markets. In the turnover year 2018/2019, the Company declared net profit of PLN 0.9 million which covered only a small part of net losses incurred in previous years. The net profit in the turnover year 2018/2019 was influenced by the settlement of the sale made in the previous turnover year and the sale of fixed assets.

Net financial result of ELEWARR in the following turnover years: 1 Jan 2013 - 31 Dec 2013: - PLN 12951 thousand; 1 Jan 2014 - 31 Dec 2014: - PLN 6382.5 thousand; 1 Jan 2015 - 30 June 2016: - PLN 412.1 thousand; 1 Jul 2016 - 30 Jun 2017: PLN 3468 thousand; 1 Jul 2017 - 30 Jun 2018: - PLN 17222 thousand; 1 Jul 2018 - 30 Jun 2019: PLN 928.2 thousand. Source: NIK’s analysis based on audit results

The Company’s financial standing was also impacted by the financial results of Capital Group ELEWARR which were even worse. The Group’s net loss in turnover years 2016/2017 and 2017/2018 totalled PLN 65.1 million. It resulted from liabilities of TDM ARRTRANS S.A. (ELEWARR had 100% shares in that company) towards the State Treasury due to the decisions of tax authorities, related to the cases of undue VAT deduction in 2013-2014.

Net financial result of ELEWARR Capital Group in the following turnover years: 1 Jan 2015 - 30 Jun 2016: PLN -91.2 thousand;  1 Jul 2016 - 30 Jun 2017: PLN -25895.8 thousand; 1 Jul 2017 - 30 Jun 2018: PLN -39175.8 thousand; 1 Jul 2018 - 30 Jun 2019: PLN 2476.1 thousand. Source: NIK’s analysis based on audit results

NIK stands in a position that the Company’s financial results clearly show that it is not well managed or supervised by the National Support Centre for Agriculture. No corrective actions were taken in view of the Company’s aggravating results. The measures taken by the owner were limited to approving financial statements and reports on the Company management activity, giving consent to the sale of fixed assets and transferring net profit to cover the losses. The owner of ELEWARR, aiming to improve the Company’s financial standing, focused on dismissing the management board members. Assuming that the Company will continue to operate in the same manner, including the level of profit in the last turnover year, the net loss for 2017/2018 would be covered only after 17 years of the Company operations.

NIK has noted that in 2018 the acting Director General of the National Support Centre for Agriculture appointed three new management board members against the law, without holding any competition proceedings by ELEWARR Supervisory Board.

Moreover, it was found that the Director General of the National Support Centre for Agriculture as a company body - the General Shareholders Meeting did not pass the resolution on the vote of approval for the former President of the Company management board in the turnover year 2017/2018, which is against the Commercial Companies Code. The Supreme Audit Office informed the Minister of Agriculture and Rural Development about that irregularity.

The irregularities in selling goods by ELEWARR have confirmed that the supervision of the Company management board was ineffective. For instance the ELEWARR Branch in Gądki signed two contracts for the sale of wheat with deferred payment which was never made.

Marginal position of ELEWARR in the market

Also activities related to the purchase and storage of grains and rapeseed were inefficient and ineffective. According to NIK the average yearly use of storage space by ELEWARR in the audited years increased as compare with the previous years. It was caused above all by the provision of services for large processing companies and for the Material Reserves Agency. However, it did not significantly improve the Company’s position in the market of grain and rapeseed purchase, which was the main reason why ELEWARR was established. The Company’s share in the storage of grains and rapeseed is now marginal and totals about 4.5 percent nationwide. ELEWARR’s share in grain trade ranged from 1 to 1.5 percent and in rapeseed trade from 2.5 to 3 percent of the domestic market.

Storage area of ELEWARR Sp. z o.o.: 2013: 623.4 thousand tonnes; 2014: 632.2 thousand tonnes; 2015: 632.2 thousand tonnes; 2016: 632.2 thousand tonnes; 2017: 632.2 thousand tonnes; 2018: 682.2 thousand tonnes; 2019: 682.2 thousand tonnes. Source: NIK’s analysis based on audit results

Average yearly use of warehouses owned by ELEWARR Sp. z o.o.: 2013: 37.7%; 2014: 41.5%; 2015: 45.9%; 2016: 49%; 2017: 42.8%; 2018: 63%; 2019: 59.4%. Source: NIK’s analysis based on audit results. Source: NIK’s analysis based on audit results

The Supreme Audit Office has noted that the concept behind establishing ELEWARR and its function to stabilise the grain and rapeseed market as well as to secure storage space in intervention centres for the purchase of grains - have been exhausted. The market environment in the 90’s when the company was founded based on state-owned property was totally different from the present one. At that time, ELEWARR was the market leader in grain and rapeseed purchase and storage. In the past years, the market has been dominated by commercial companies and ELEWARR has to struggle with strong competition in the agricultural market. Currently the scale of the Company’s operations does not allow significant impact on other entrepreneurs to level off the prices of grains and rapeseed. The key issue, then, is to establish what role ELEWARR is to play in the market and how, in the long-term perspective, its activity could be used for the needs of agriculture and food industry.

Recommendations

To the Minister of Agriculture and Rural Development in consultation with the Minister of State Assets to analyse the functioning of ELEWARR in the context of the new role it is to play in the grain and rapeseed market, and also to specify how to effectively use the Company’s potential for the needs of agriculture and food industry and the country's food safety.

To the Minister of Agriculture and Rural Development to strengthen supervision over the National Support Centre for Agriculture in terms of performing owner’s obligations and rights, in particular relating to the adequacy of proceedings connected with the appointment of ELEWARR management board members.  

To the Director General of the National Support Centre for Agriculture to monitor the Company management process on an ongoing basis.

NIK has filed a crime report to the Prosecutor’s Office on breaching obligations and inflicting substantial property damage of PLN 0.9 million following the sale of goods without paying for them. Besides, since the District Prosecutor’s Office Warszawa Praga started proceedings due to the filed crime report on the transfer of shares in Elewator Sieradz Sp. z o.o., the Supreme Audit Office submitted relevant documents to the Prosecutor’s Office.

Article informations

Date of creation:
29 November 2020 00:01
Date of publication:
29 November 2020 00:01
Published by:
Marta Połczyńska
Date of last change:
29 November 2020 00:03
Last modified by:
Marta Połczyńska
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