NIK about Polski Holding Hotelowy Capital Group

Audit no. P/23/015/KGP

The transfer of over PLN 551 million from the Reprivatisation Fund by the State Treasury to capitalise Polski Holding Hotelowy sp. z o.o. was illegal. No strategy or programme was outlined or adopted by the Council of Ministers to justify the purchase of PHH shares. In view of irregularities in transferring those funds, NIK filed a report of possible criminal activity which involved public officers exceeding their powers. In spite of delays, PHH took over the companies which owned hotel facilities, successively repaired and – after modernisation – put into use superior hotels, also the ones being part of the international hotel networks and the facilities under the company’s new brand.

In May 2018, the President of the Council of Ministers approved the concept of consolidating hotel and accommodation assets owned by the State Treasury. The objective was to better use the potential of hotel facilities. Chopin Airport Development sp. z o.o., a company experienced in this sector, became the consolidating entity. Its name was then changed to Polski Holding Hotelowy (PHH or Holding). The consolidated group was supposed to be a strong, modern and professional Polish hotel enterprise, competitive in this sector and efficiently managing the facilities base.

It was assumed that the Holding would be more profitable and gain benefits e.g. due to significant cuts in operating costs by using the scale effect and a stronger bargaining position as part of the capital group. The acquired entities were to be covered by restructuring and modernisation to boost their attractiveness and accounting value.

At the moment, the PHH Group covers over 50 hotels and facilities with nearly 6 thousand rooms, which makes it the second largest hotel group in Poland and the first one with the Polish capital only. The group cooperates - as a franchisee - with leading global hotel chains.

The rationale behind taking up the audit was mainly the need to verify if the capitalisation of Polski Holding Hotelowy by the State Treasury was consistent with the initial objective and properly carried out, and also if it was used in line with its purpose and so if the companies being part of the capital group effectively implemented their development goals.

Key findings

Some activities of the President of the Council of Ministers in terms of capitalisation of  Polski Holding Hotelowy did not comply with the provisions of law and the adopted concept of consolidating hotel assets.

Financial resources from the Reprivatisation Fund were transferred to PHH twice (PLN 351.3 million in 2021 and PLN 200 million in 2022), despite the fact that one of the conditions set out in the provisions of law was not met, i.e. the Council of Ministers did not outline or adopt any strategy or programme that would justify the purchase of PHH shares.

The Minister of State Assets acted unreliably as he ignored this aspect, giving positive opinion on the PHH capitalisation.

In 2019, having completed less than 30% of planned activities (contributing 17 of 63 scheduled hotel facilities), the company suspended implementation of the consolidation concept accepted in May 2018 by the President of the Council of Ministers. PLN 750 million was earmarked for subsequent measures proposed by PHH.

Neither the Chancellery of the Prime Minister nor the Ministry of State Assets considered enabling PHH to temporarily deposit free resources in Treasury securities  (apart from the accepted bank deposits).

Both the President of the Council of Ministers and the Minister of State Assets adequately exercised their fundamental powers of the State Treasury concerning PHH shares (convening the General Assembly, developing the memorandum of association and the share capital, approving statements).

However, the Minister of State Assets improperly supervised the way the PHH Supervisory Board set management objectives for the Management Board Members. Some of the objectives were devoid of the motivational aspect, with remote implementation deadlines which were set even after a given task was completed.

Recommendations and reports

To the Minister of State Assets to carry out adequate and reliable verification of requests for capitalisation from the financial resources of the Reprivatisation Fund  and the Capital Investments Fund.

NIK sustains in full its recommendation for the Minister of Finance included in the Analysis of the execution of the state budget and monetary assumptions in 2023 to stop drafting regulations enabling the assumption or purchase of shares (stock) in companies using the financial resources of the Reprivatisation Fund.

Besides, NIK has filed a report  of possible criminal activity with the District Prosecutor’s Office in Warsaw concerning the transfer of PLN 551.3 million from the Reprivatisation Fund to PHH, in breach of the law.