Collapse of railway investments ?

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According to industry organizations, the lack of a systematic solution for financing projects resulted in the collapse of the market for infrastructure investments in the railway sector, which might be highly harmful for this sector of the economy. The shortage of EU money from the National Reconstruction Plan is steadily turning into a drama for railway construction enterprises. A group of business organizations has made a formal request to the Prime Minister on the subject. Infrastructure Minister Adam Adamczyk has stated that there would be assurances in place to enable for the expansion of railroad investments.

The Polish railroads are suffering the consequences of the disagreement between the Polish government and the European Union over the rule of law and the Supreme Court’s Disciplinary Chamber. The European Commission did not accept the National Reconstruction Plan and did not approve new operational programs for the financial perspective 2021-2027 as a result of the debate.

The railway infrastructure manager’s (PKP PLK) goals were ambitious. Several hundred bids with a total value of PLN 17bn were scheduled over a year ago. Last year, it received tenders for a little more than PLN 3bn. Specifically, the company reported in September 2021 that it had already issued tenders under the National Railway Program for PLN 1.7bn, with another PLN 1.4bn planned for the end of the year. E.G. PKP PLK issued tenders in the autumn for the building of a road tunnel in Kobylka, as well as work on the sections Kozmin Wlkp.-Jarocin, Brzeg Dolny-Wolow, and the Belchow station.

Several industrial groups have sent a unified open letter to Prime Minister Mateusz Morawiecki in response to the sharp decline in the value of railway bids. These organizations include the Business Center Club, the Federation of Polish Entrepreneurs, the Railway Forum – Railway Business Forum, the Pro Kolej Foundation, the Land Transport Chamber of Commerce, and the Polish Association of Construction Employers.

The main investor – PKP PLK SA, although it has prepared documentation for a large number of investment tasks, cannot announce tenders for their implementation due to the uncertainty as to their financing. Contractors currently ready to implement investment tasks will be forced to reduce their resources, and in the future, when there is financing for these tasks, it will not be possible to perform them. Without quick decisions of the Government, the program of modernization and expansion of the Polish railway network, including the STH rail component, will become unrealistic, and at best delayed, not to mention serious economic and social consequences, the letter reads.

Intensifying price competitiveness?

The value of order books of Budimex, Strabag and PORR – the largest construction companies in the country, reaches almost PLN 30bn. The news proceedings, however, may be hampered, by the low profitability, stemming, among other things, from a market investment disparity in particular segments. Unfreezing EU funding would be of great aid, particularly in the railroad sector, but there are concerns that the existing scarcity of tenders in this sector will intensify the country’s already strong price competitiveness.

“The situation is quite challenging, and there are few tenders available. The ones that have been announced have received a lot of attention. Tenders are insufficient, particularly in the public procurement sector. As a result, we’re keeping our distance because there’s no sign that material prices will fall next year“, according to Piotr Kledzik, CEO of PORR, cited by bp.pl.

In turn, Wojciech Trojanowski, Member of the Management Board of Strabag, commented that producers of materials used in railroad line construction, for example, are in a much more difficult position than contractors, as they are primarily affected by a lack of tenders. He also believes that the increased investment in other European countries will make it more difficult for Polish construction enterprises to obtain supplies on the domestic market.

The building sector as a whole, as well as public procurers and local governments, are all waiting for cash from the National Reconstruction Plan. This source has already provided funds to a number of countries. They are experiencing an investment boom, which will have an impact on the Polish market, particularly in terms of material availability. Poland shares a border with Germany, Europe’s largest construction market – there are numerous public bids held there, as well as significant private investment.

“Because of Poland’s and the eurozone’s relatively strong inflation and cheap borrowing rates, investments are intensifying, and we will be vying for the same resources“, concluded Trojanowski.

PKP PLK indicated at the beginning of December last year that they aim to issue bids of PLN 11-12bn in 2022. In addition, as part of the National Railway Program, it is expect to spend approximately PLN 14bn in 2022, according to Ireneusz Merchel, president of PKP PLK.