Octopus Orders Power $157 Billion Polish Building Boom: Freight
Italian engineers from Saipem SpA (SPM), which is helping build an $858 million liquefied-gas terminal on Poland’s Baltic Sea, weren’t happy with the local fish, so they arranged for a shop to import fresh clams and octopus from home.
“They seem to be quite attached to national tastes,” Damian Trott, who owns the nearby “Big Fish” store, said in a phone interview. “We offer them fresh seafood shipped directly from Italy. We get orders regularly.”
Poland is harnessing foreign expertise as it embarks on a $157 billion revamp of its communist-era roads, railways and ports to help jolt the European Union’s largest eastern economy out of its worst slowdown since 2002. After an EU-driven infrastructure boom ended last year, sparking financial woes for local builders, Italian companies are winning projects.
“The new wave of infrastructure spending could add as much as 1 percentage point to economic expansion,” Marcin Mrowiec, Warsaw-based chief economist at Bank Pekao SA, said by phone. “It may start showing up in late 2014, when these projects are in full bloom.”
Poland’s economic growth sank to 0.5 percent from a year earlier in the first quarter, the worst performance in four years, as the euro-area’s record recession damps demand for exports to the country’s biggest trading partners. Gross domestic product will advance 1.1 percent this year, the least since at least 1997, the central bank predicted this month.
Polish freight as a share of GDP has grown by more than a third since 2000 to 2011, the fourth-largest increase in Europe after Slovenia, Bulgaria and Lithuania, Eurostat data show. At 1,070 kilometers (669 miles) in 2011, Polish highways were 8 percent the size of Germany’s network.
As a fresh round of EU funding becomes available, with 72.9 billion euros ($96 billion) allocated to Poland in the bloc’s 2014-2020 budget, the government is embarking on a 500 billion-zloty ($157 billion) infrastructure drive over seven years. Prime Minister Donald Tusk presented plans July 16 to widen the budget deficit and suspend rules limiting fiscal stimulus.
The country, the biggest recipient of EU funds, boosted growth in 2007-2011 by investing in roads and stadiums for the European soccer championships. While continuing the focus on roads with 43 billion zloty of investment by 2015, Tusk is also targeting airports, energy terminals and railway lines, with 30 billion zloty to be spent on the latter in the next two years.
The cabinet will “mobilize funds and speed up tenders, allowing projects to start immediately,” Tusk said in October. Details on how the latest round of EU funds will be allocated are due next month, with the focus to be on transport infrastructure, according the Regional Development Ministry.
As Poland’s previous construction boom fizzled out with the end of the EU’s last seven-year budget and the economy lost steam, local builders including PBG SA and DSS SA filed for bankruptcy. That’s created room for Italian companies such as Saipem, Astaldi SpA (AST) and Salini Costruttori SpA.
Rome-based Astaldi, which is building second subway line in Warsaw for $1.3 billion, this year won $189 million of orders to upgrade Krakow’s Balice airport and its rail links. It sees Polish projects growing to 10 percent of revenue by 2017 from 8 percent last year.
“We want to expand in Poland,” Francesco Paolo Scaglione, Astaldi’s head for central and eastern Europe, said when signing the Balice contract on April 11. “We are very interested in railway investments. We plan also other activities such as waste incinerators and hospitals but transport-network projects remain our primary interest.”
Salini Costruttori will finish construction of Poland’s A1 north-south highway, taking over contracts abandoned by Ireland’s SRB Civil Engineering Ltd., which quit after a dispute over technical specifications. Salini’s $326 million bid beat off competition from a consortium of Spain’s Ferrovial SA (FER)’s local unit and Portugal’s Mota Engil SGPS SA.
The FTSE Italia All-Share Construction & Materials Index has risen 16.3 percent this year, outpacing a 7.9 percent gain for the Warsaw Stock Exchange’s WIG Construction Index. The gauge for Polish builders has plunged 80 percent in the last five years as investors fled amid bankruptcies.
“Poland appears on track to becoming an important direction for Italian construction firms if the stable pipeline of projects remains,” Alessandro Tortora, a Milan-based analyst at Mediobanca SpA (MB), said June 14. “While the weaker economy may impact local financing sources, it shouldn’t be a huge disincentive providing European funds continue to flow.”
The projects aren’t all going smoothly.
The ambassadors of Austria, France, Germany, Ireland, Portugal and the Netherlands complained to Polish Economy Minister Janusz Piechocinski last month of mounting legal disputes between foreign builders and the roads and highways department.
The number and value of claims pending in Polish courts “indicate some fundamental and systemic challenges” connected with the execution of infrastructure projects, they wrote in a letter. In response, Tusk said June 18 that the government faces “continuous pressure from foreign officials to win better prices and conditions of contracts.”
While Italy’s ambassador didn’t sign the letter, Transport Minister Maurizio Lupi discussed Polish projects, including possible delays for Salini, at a June 26 meeting in Rome with Slawomir Nowak, his Polish counterpart, according to a program of the visit on the ministry’s website.
Poland’s desire to boost the role investment as consumer demand ebbs should help maintain the flow of projects, according to Wojciech Malusi, head of the Polish Chamber of Road Builders. Investment reached 22.3 percent of GDP in 2008, when the economy grew 6.8 percent, before falling to 19.4 percent of GDP last year, when growth was 1.9 percent, official data show.
“Poland is an attractive country because of its investment needs and plans,” Malusi said June 26 in an interview. “But unless they invest in local capacities and show their commitment, we’ll still be seeing different builders entering and exiting the Polish market.”
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