Gryglas: We have prepared a plan for “sanation” in the Polish defence industry. PGZ in Seven Domains [INTERVIEW]

Jędrzej Graf: Right after you have taken over the supervision over the PGZ Group, you were saying that restructuring would be needed within the framework of the Group. Do we know it already, as to what assumptions of that restructuring would be, what shape these actions would take?

Zbigniew Gryglas, Undersecretary of State at the Ministry of State Assets: We have based the future of the PGZ Group on two pillars: long term modernization programmes pursued by the Polish military, and the exports. We have prepared a plan for “sanation” in the Polish defence industry. The plan assumes that the PGZ Group structure would be simplified, being based around the strongest entities in seven domains: command systems and radars, missiles and munitions, artillery, armour, equipment and weapons, aviation, and, finally, naval domain.

The programme would also translate into a major reduction of the “non-core” activities, with the focus being shifted to defence production. Relevant changes would also influence the “mother-company” - the PGZ S.A. It would act as a financial centre for the Group as a whole, and as a coordinating body for the defence and export projects. It would also support the R&D, and “offset” activities. Furthermore, the entity would also protect within the domain of cyber-security. The employment structure would also be subjected to changes, aligning it with the changed tasking.

Are you planning to implement changes in the Group’s structure as well? If so, what are the changes expected?

As I have mentioned already, seven domains would be established, gathered around businesses that play a key role in the given area: PIT-Radwar, MESKO, HSW, Bumar-Łabędy, Fabryka Broni “Łucznik-Radom”, WZL. and PGZ-SW.

Are employment cuts planned at PGZ, or its businesses, in search of savings?

Yes, changes to the employment structure would be necessary. We will start at the PGZ S.A. business itself, where adjustment of the HR structure would accompany the redefinition of tasks and determination of the services and coordination role concerning the Group’s companies.

The Polish Armaments Group originally was to take over the role of a coordinating body, supervising the work undertaken at the companies. But the know-how and expertise still remain at those companies. Are any changes planned, when it comes to the division of liability between the Group, and the companies?

Yes. As I said, we would be looking at the role that PGZ S.A. assumes in a different, market-driven manner. The PGZ’s companies need to know that they are paying the “mother company” for specific services, rendered at a top-level, quality-wise.

Since some time now, it has been a common view that focusing on key areas where most of the expertise is available would be an important element of the Group’s activities. Would you be taking steps in that direction? In what areas the PGZ’s know-how is most impressive, and where the Group should be open towards collaboration with external partners, including the Polish privately owned industrial entities?

These areas are the domains indicated already. The group is not sufficiently strong in all of the areas. Here, reinforcement would be needed. We want to use foreign procurement to the fullest for that purpose so that these procurements are accompanied by a transfer of manufacturing technology to Poland. We must create this condition decisively, in case of any procurement. Domestic manufacturing is the only way to ensure the safety of deliveries in crises.

I am going to fundamentally change the approach towards the domestic, privately-owned defence companies. The offer of those businesses can and should act as a complement to the offer of the state-owned enterprises. Consensual and mutually-beneficial cooperation shall be viewed as a kind of a rule here.

You were suggesting that the PGZ Group shall focus on its core activities - arms and military equipment manufacturing. Does this mean that some elements could be separated from the Group? If so, which elements does the above refer to?

Yes, the MARS Fund is a part of the group today. The Group is also working in development, real property management, or manufactures buses. These activities are not fundamental, from the point of view of national defence.

The concept assuming that the so-called Armament Agency would be brought to life assumes that the PGZ Group could be supervised either by the Ministry of the State Assets, as it happens today or by the Ministry of Defence. Is the restructuring plan that you are proposing ready for both variants? What are the pros and cons here, in your opinion?

I am deeply convinced that the “Sanation Programme” is needed to be implemented, regardless of the supervision model. On one hand, assigning this role to the Polish Ministry of Defence creates a closer relationship with the customer. On the other hand, the supervision by the Ministry of State Assets leads to improvement of the assets management, and thus the Group would be offering more modern armament to Poland, at a competitive price.

How are you willing to streamline the cooperation between the Ordering Party, and the PGZ Group, within the framework of the restructuring process? What shall be done on the PGZ side, and what actions should be taken by the Polish Ministry of Defence?

There is a lot to be done in this area. I have started from regular meetings with the leadership at the MoD. The activities of the whole Group are to be closely correlated with the Technical Modernization Plan adopted by the Polish Armed Forces. We would do everything in our capacity to deliver modern equipment to the Polish military, which would also ensure the continuous growth of defence capabilities that our country has.

The shipbuilding sector plays an important role in the PGZ Group. To what extent would it undergo restructuring? What role shall be played by the cooperation with the external partners: privately owned Polish entities, and foreign partners?

Implementation of the Miecznik programme would be the key matter, for the future of this domain. Being implemented jointly with foreign partners, not only should Miecznik create a workload, as it would also see the manufacturing effort being transferred to our shipyard.

Foreign sales are the last thing I would like to ask about. You have already announced that a group for export promotion would be brought to life. Have any steps been made already in that direction? In what way the PGZ restructuring would create a reinforcement of the export potential?

I will ask the PM to create a small, yet agile government group that would be tasked with coordinating the activities between the administration and the industry, in the export domain. The key factor conditioning the success of our actions is the continuous improvement of domestic product quality, among other means, we want to use the “offset” mechanisms for that purpose.

Thank you for the conversation.