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The Warsaw Voice » Business » July 30, 2012
Business & Economy
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Construction Industry: Problems After Euro 2012
July 30, 2012   
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Thanks to hosting the Euro 2012 European soccer championship, Poland has hundreds of kilometers of new roads, many new airport terminals and railway stations. On the flip side, working on so many infrastructure projects has turned out to be bad business for construction companies.

Just before Euro 2012 kicked off, the whole country followed the efforts of road builders to open the A2 freeway stretch from ŁódĽ to Warsaw in time for the opening game. The efforts were “successful” and the road, though not completely finished, was opened to traffic in time. Although many other projects were not completed, commentators praised Poland’s efforts to step up a gear and its success in readying itself for the championships.

More than zl.70.5 billion was spent on building freeways and expressways in Poland. This was enough to build 1,097.3 km of roads. The original plan was to complete 421.8 km of the A1 freeway by the start of Euro 2012, but only a third got done; 315 km was not built.

In the case of the A2, 196.9 km was completed. As for the A4, it should now be 297.4 km long but only 74 km has been built. The only completed freeway project was a planned 35.5-km section of the A8. Of the expressways envisaged for Euro 2012, the planned 20 km of the S2 was not built, just half of the planned S8 (11.75 km) was completed and just 29.3 km of the S5 out of a planned 70.3 km. Completed projects include 27 km of the S11 and 18 km of the S7.

Hundreds of kilometers of new roads should be cause for joy, but at the same time the projects carried out in connection with Euro 2012 had a negative impact on Poland’s construction market. “The accumulation of a huge number of projects for Euro 2012 all at the same time caused a sudden increase in demand for everything: machinery, aggregate, tarmac,” said Marek Michałowski, president of the Polish Association of Construction Employers (PZPB).

“This led to a surge in prices and as a result delivering on previously signed contracts became unprofitable and ultimately caused the problems that the sector is struggling with today. Even so, the fact that these jobs were finished—often in a race against time—is a huge success for the Polish construction industry.”

On the other hand, insiders have warned that the industry could collapse after Euro 2012. In a statement issued in July, the PZPB highlighted a number of dangers, including businesses going bankrupt and workers being laid off en masse. According to PZPB members, the sector’s biggest problem is the growing losses suffered by construction firms as a result of working on infrastructure contracts. They add that these are chiefly the result of rising prices for materials, including tarmac and aggregate. “The situation of contractors is exacerbated by the lack of provisions for indexation of the contract price as well as frequent refusals to settle accounts for extra or alternative work. A major factor dramatically worsening the sector’s condition are constantly growing liabilities causing a huge payment backlog, which often leads to the bankruptcy of general contractors and subcontractors,” said the statement.

The most spectacular example of the industry’s troubles was when PBG and its two subsidiaries, Hydrobudowa Polska and Aprivia, filed for bankruptcy in June. The company had suggested earlier that due to rising prices of materials there could be a problem with liquidity. Poland’s leading construction company was brought to its knees by contracts to build two freeway sections and the National Stadium in Warsaw. The company said that growing prices of materials caused the projects to become unprofitable. Being simultaneously involved in projects worth close to zl.5 billion in total, PBG was unable to find enough working capital for its current operations and lost liquidity.

More than 700,000 people work in construction and road building in Poland, and the whole sector accounts for 6-7 percent of Poland’s GDP. This could change soon. “This year 110 companies from the sector have already filed for bankruptcy and unfortunately the number is growing,” the Newseria news service has been told by Dariusz Blocher, CEO of the Budimex company.

Tens of thousands of workers including subcontractors are expected to be laid off. That’s why, Blocher said, the greatest challenge now is to solve the problem of construction companies’ financial liquidity and to persuade public investors to pay out compensation for the losses companies have suffered on unprofitable contracts.

According to Deputy Prime Minister and Economy Minister Waldemar Pawlak, construction companies that have financial problems should not be left to their own devices and should receive help based on improving their financial liquidity through a bond issue, for example. Leaving the sector without assistance could cause serious problems in other areas of the Polish economy, including banking, experts say.
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