Business Review+ is your indispensable weekly English-language resource for business in Poland- providing essential news, unique interviews, revealing data and insightful analysis.
No. 061 / 17th November 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter 1 year subscription: EUR 690 (PLN 2760) Newsletter Editor: Lech Kaczanowski [email protected]tel. +48 607 079 547 Sales Contact: James Anderson-Hanney [email protected]tel. +48 881 650 600 MANUFACTURING & PROCESSING Pilkington begins final phase of giant automotive glazing in- vestment in Poland page 3 SERVICES & BPO PE fund Oresa sells Trinity Corporate Services to Vistra page 4 ENERGY & RESOURCES State-owned coal trader to buy mines from troubled giant Kompania Węglowa page 5 Copper firm KGHM completes major energy investments page 5 PROPERTY & CONSTRUCTION Skanska sells Kraków office building to Polish investors page 6 Interview with Radosław Świątkowski, CEO at REINO Partners page 7 Vastint breaks ground on Wrocław office park page 8 S+B Gruppe acquires top site in Warsaw page 8 INTERVIEW Logistics the hottest sub- sector in CEE real estate markets: Interview with Maciej Tuszyński, executive director at Westdeutsche ImmobilienBank page 9 POLITICS & ECONOMY Q3 GDP and PMI data sur- prise on the upside page 10 POLAND TODAY EVENTS Automotive sector market leaders meeting: What is the state of play in Poland’s automotive market? Primetime Wrocław: Poland’s entrepreneurial capital? Dąbrowa Górnicza touts attractiveness for automotive sector pages 12-13 OPINION Silesia: The Money Pit page 14 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17 PiS leader Jarosław Kaczyński is hoping to form a government next year. Photo: PiS Conservative PiS wins local elections Conservative PiS wins local elections Conservative PiS wins local elections Conservative PiS wins local elections Poland's conservative opposition party PiS won Sunday's local election with 31.5% of the seats in regional legislative assem- blies, ahead of the ruling center-right party Civic Platform (PO), with 27.3%, according to exit polls. The local elections are wide- ly regarded as a barometer of political sympathies ahead of the next year's general and presidential vote. page 11 MAN t MAN t MAN t MAN terminates erminates erminates erminates bus assembly in Poznań bus assembly in Poznań bus assembly in Poznań bus assembly in Poznań German truck & bus manufacturer MAN has decided to discon- tinue all production in Poznań and consolidate its Polish bus production in Starachowice. The estimated 900 MAN staff in Poznań can transfer to the Starachowice site or seek work at a new VW commercial vehicle plant in Września. page 2
Pilkington begins final phase of giant automotive glazing in-vestment in Poland page 3
SERVICES & BPO
PE fund Oresa sells Trinity Corporate Services to Vistra page 4
ENERGY & RESOURCES
State-owned coal trader to buy mines from troubled giant Kompania Węglowa page 5 Copper firm KGHM completes major energy investments page 5
PROPERTY & CONSTRUCTION
Skanska sells Kraków office building to Polish investors page 6 Interview with Radosław Świątkowski, CEO at REINO Partners page 7 Vastint breaks ground on Wrocław office park page 8 S+B Gruppe acquires top site in Warsaw page 8
INTERVIEW
Logistics the hottest sub-sector in CEE real estate markets: Interview with Maciej Tuszyński, executive director at Westdeutsche ImmobilienBank page 9
POLITICS & ECONOMY
Q3 GDP and PMI data sur-prise on the upside page 10
POLAND TODAY EVENTS
Automotive sector market leaders meeting: What is the state of play in Poland’s automotive market? Primetime Wrocław: Poland’s entrepreneurial capital? Dąbrowa Górnicza touts attractiveness for automotive sector pages 12-13
OPINION
Silesia: The Money Pit page 14
KEY FIGURES
Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 15-17
PiS leader Jarosław Kaczyński is hoping to form a government next year. Photo: PiS
Conservative PiS wins local electionsConservative PiS wins local electionsConservative PiS wins local electionsConservative PiS wins local elections Poland's conservative opposition party PiS won Sunday's local election with 31.5% of the seats in regional legislative assem-blies, ahead of the ruling center-right party Civic Platform (PO), with 27.3%, according to exit polls. The local elections are wide-ly regarded as a barometer of political sympathies ahead of the next year's general and presidential vote. page 11
MAN tMAN tMAN tMAN terminateserminateserminateserminates bus assembly in Poznańbus assembly in Poznańbus assembly in Poznańbus assembly in PoznańGerman truck & bus manufacturer MAN has decided to discon-tinue all production in Poznań and consolidate its Polish bus production in Starachowice. The estimated 900 MAN staff in Poznań can transfer to the Starachowice site or seek work at a new VW commercial vehicle plant in Września. page 2
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MAN to terminate MAN to terminate MAN to terminate MAN to terminate productionproductionproductionproduction in Poznań, in Poznań, in Poznań, in Poznań, merge bus assembly inmerge bus assembly inmerge bus assembly inmerge bus assembly in StarachowiceStarachowiceStarachowiceStarachowice
The German truck and bus giant MAN has just an-nounced plans to close down its bus assembly plant in Poznań. The site's 900 employees have nothing to worry about, however, according to MAN, as they are all guaranteed a job at MAN's other Polish bus plant in Starachowice, to where all operations from Poznań will be relocated. "By concentrating its city bus production in Starachowice, MAN is responding to weak demand and existing overcapacities. All affected employees can transfer to our Starachowice plant. We will support employees who choose to move by providing attractive mobility bonuses, because we urgently need their ex-pertise," said Anders Nielsen, CEO of MAN Truck & Bus AG. Nielsen stressed that MAN must improve the efficien-cy of the production network to remain competitive and that consequently there is no alternative to this step. Anyone who is unable to move for family-related or other reasons will also have the opportunity to ap-ply for an equivalent job in a Volkswagen production plant in the greater Poznań area, the company said. MAN will also offer severance packages. It seems rather unlikely for many of the 900 MAN workers from Poznań, a city of half a million inhabit-ants in the west of Poland, to choose to move to Starachowice, an industrial town of 55,000 located
some 130km south of Warsaw, in one of Poland's poor-est regions. Therefore, the best option most of them will get is to apply for work at the new Volkswagen Commercial Vehicles plant in Września, 40km east of Poznań, which is to open in 2016 and take on to 3,000 workers in the long term. It looks like MAN's parent, Germany's Volkswagen Group, has thus secured a core group of employees for the Września plant shortly af-ter breaking ground on the project. Asked whether the parallel timing of the Września launch and the Poznań phase-out are coincidental, Michael Damm of MAN's head office in Munich tells Poland Today: "These decisions were made independently. However, the reorganization of the business activities of Volkswagen in the Poznań region enables us to offer our employees secure job alternatives. We are are currently in negotiations to create optimal conditions for the job change of our employees." According to Mr. Damm, MAN expects to create 750 new jobs at the Starachowice site. Combined with 900 redundancies in Poznań, the net job loss will amount to 150 positions. The German company employs 3,700 staff in Poland at the moment.
Polish bus production up 4% in 2013 Leading makers & bus output figures
Maker 2013 2012 2011
Units Share Units Share Units Units
MAN 1,512 40.7% 1,343 37.7% 1,566 33.8%
Solaris 1,229 33.1% 942 26.5% 1,140 24.6%
Volvo 699 18.8% 699 19.6% 922 19.9%
Scania 96 2.6% 341 9.6% 500 10.8%
Other 179 4.8% 235 6.6% 504 10.9%
TOTAL 3,715 100.0% 3,560 100.0% 4,632 100.0%
Source: JMK Analizy Rynku Autobusow
MAN took over the Starachowice plant in 1999 and it has been a competence centre for bus manufacture
since 2007. Currently, the unit manufactures bus bod-ies, which are then sent to Poznań, where bus chassis and complete MAN Lion’s City buses are being made. Following the company's recent decision final assem-bly of buses will be transferred from Poznań to Starachowice over the coming years up until the end of 2016. In future MAN will have its entire city bus production concentrated there and will increase the workforce, the company said. The relocation will re-quire an investment in Poland of around EUR 40m, MAN said. "This will be invested towards new vehicle generation as well as modernization of our competence center for city buses in the coming years, including a new office building, customer center etc," says Michael Damm. MAN will remain in Poznań with a bookkeeping cen-ter that employs 300 staff, which will not be affected by the relocation. The company also has a truck facto-ry in Niepołomice near Kraków. The key shareholder in MAN is the Volkswagen group, which has three production sites in Poland, all concentrated in the Poznań area. One produces some 170,000 small com-mercial vehicles per annum, another makes special vehicles (such as ambulances, police cars and the like) and the third one is a foundry. The company has re-cently broken ground on a PLN 3.3bn greenfield plant in Września, which will produce VW Crafter delivery vans. Overall, MAN and Volkswagen Commercial Ve-hicles employ more than 10,000 workers in Poland. One of Europe's top bus makers With skilled labor at a fraction of the Western Europe-an costs, Poland has emerged as one of Europe's key bus exporters over the past decade, thanks to investors from Germany (MAN) and Sweden (Volvo & Scania), as well as the domestic player Solaris Bus & Coach. In 2001 Polish factories exported merely 373 buses, but in little more than a decade the figure grew nearly
tenfold, making Poland number three in Europe after Germany and Sweden. After reaching its lowest level in more than five years in 2012 (3,560 units), Poland's bust production bot-tomed out last year and topped 3,715 vehicles (+4.3% y/y), of which 3,303 were exported, mainly to Germa-ny, Sweden, and Norway according to market re-searcher JMK Analizy Rynku Transportowego. The two key categories were city buses (3,025 units; +10.6% y/y) and long-distance buses (543; +10.6% y/y). With 1,512 vehicles completed last year Germany's MAN remains the leading bus producer and exporter in Poland, followed by Polish Solaris (1,229), Volvo (699), and Scania (96). In addition to complete buses, Polish factories made 700 chassis and 250 bus bodies as well as 75 trolleybuses.
Shrinking domestic bus sales Buses made in Poland: domestic sales vs. exports
0
1,000
2,000
3,000
4,000
5,000
2007 2008 2009 2010 2011 2012 2013
Exports Domestic sales
Source: JMK Analizy Rynku Autobusow
Domestic carriers purchased 1,389 buses last year, marking an 8.6% improvement over 2012. The number one seller in Poland was Mercedes Benz with 542 vehicles registered in 2013 (including bodies from oth-er manufacturers mounted on Mercedes chassis), marking a 19.6% increase against 2012. Polish Solaris came second with 318 units (+23.7%), followed by MAN (63) and Autosan (62). The latter, one of Po-land's oldest companies, has been in receivership since October last year.
MANUFACTURING & PROCESSING
Pilkington Pilkington Pilkington Pilkington beginsbeginsbeginsbegins final final final final phase of giantphase of giantphase of giantphase of giant automoautomoautomoautomotive glazing tive glazing tive glazing tive glazing investment investment investment investment in Polandin Polandin Polandin Poland
Pilkington Automotive Poland, the Japanese-owned automotive glass producer, has embarked on phase two of its giant investment in Chmielów, in the Tarnobrzeg Special Economic Zone. The project, worth EUR 24m will expand the firm's existing facility by 30,000 sq.m, boosting its production capacity by 50% and creating 300 new jobs. So far Pilkington Automotive's Chmielów unit has onboarded 800 em-ployees and a further 200 have been employed by companies cooperating with the firm.
Pilkington Automotive Poland exports three quarters of its output. Photo: NSG Polska
"As part of the investment, we will acquire a cutting-edge glass toughening line together with a line for in-stalling additional elements on laminated sidelights as
well as sidelights with hydrophobic coating," Ryszard Jania, CEO of Pilkington Automotive Poland, tells Po-land Today. "At the moment, our Chmielów unit can turn out 1.7m windscreens per annum, and following the ongoing expansion its production capacity will in-clude an additional 5m sidelights. As for our Sandomierz plant, it manufactures 2.3m windscreens and 3.5m sidelights annually." The general contractor on the Chmielów expansion project is the US-owned industrial property firm Panattoni, which developed the existing plant. The company has recently broken ground on a new pro-duction hall. The developer is expected to complete the new building while the existing factory is operat-ing at full capacity.
"With phase two of our Chmielów pro-ject we are boosting our automotive glazing output by 50%," says Ryszard Jania, CEO of Pilkington Automotive Polska. Photo: NSG Polska
With total capital expenditures of more than PLN 450m and a combined floor space of 90,000 sq.m (in-cluding production space, offices, and warehouses), Pilkington's Chmielów project, launched three years ago, is one of the largest foreign investments Poland has seen in the past few years. With this project, locat-ed only 30km south of Pilkington's main production site in Sandomierz (180km south of Warsaw), Pilking-ton Automotive will effectively double its Polish out-put. The government supported the investment with a
generous grant of PLN 92.8m, listing the Pilkington plant among projects of "great economic significance," under the EU-sponsored "Innovative Economy" pro-gram. With more than 1,000 jobs already created at the site, the project has been godsend for the Świętokrzyskie region, where, despite its central location and rich in-dustrial traditions, unemployment remains among the highest in the country. According to Mr. Jania, the en-tire investment will be finalized and commissioned by the end of 2015, in line with EU public aid guidelines. Pilkington Automotive Poland produces automotive glazing for some of the world's leading car & truck markers, including GM, Ford, Volkswagen, Fiat, MAN, DAF, Mercedes and Volvo. The Sandomierz and Chmielów plants currently boast a 10% share in Eu-rope's automotive glazing market, and following the ongoing expansion their share will grow to 15%.
NSG's Polish operations in FY 2014
Business unit Turnover
(PLNm)
Employ-
ment
Exports
(% of sales)
Pilkington Automotive Poland 995 1,891 75%
Pilkington IGP 295 732 2.5%
Pilkington Polska 236 340 8%
Source: Pilkington Polska
The company belongs to Japan's NSG Group, which has been operational in Poland since 1993 and current-ly owns 11 facilities in the country, which collectively employ close to 3,000, and produce float glass, as well as glazing for buildings and vehicles (including origi-nal equipment and automotive glass replacement products). The combined turnover of NSG's Polish op-erations exceeds PLN 1.5bn. Globally, NSG's sales rev-enues came close to EUR 4.9bn last year, more than a third of which was generated in Europe.
Poland is a major automotive exporter Passenger & LCV production in Poland and automotive exports
14
15
16
17
18
19
20
2008 2009 2010 2011 2012 2013
400
500
600
700
800
900
1,000
Automotive exports in EURbn, left axis
Vehicle output in '000, right axis
Source: Samar, AutomotiveSuppliers.pl
SERVICES & BPO
PE fund Oresa sells PE fund Oresa sells PE fund Oresa sells PE fund Oresa sells Trinity Corporate Trinity Corporate Trinity Corporate Trinity Corporate Services to VistraServices to VistraServices to VistraServices to Vistra
Nordic private equity fund Oresa Ventures has exit-ed one of its oldest investments, Trinity Corporate Services by selling the CEE-focused outsourcing company to a major global player Vistra. With the completion of the transaction, Vistra Group will be operating in an additional nine offices in six new juris-dictions, taking on board over 300 Trinity employees. Trinity will be rebranded as Vistra during the coming months. "I would like to thank Oresa Ventures for an excellent partnership. They have provided us with strong sup-port over the years and have enabled us to become the market leader in CEE. With Vistra, we are opening a new chapter and will be able to serve the needs of our clients beyond CEE as well as broaden our service of-
fering in the region, said Tom Ravensdale, founder and CEO of Trinity. "Our clients and business partners are now able to access global solutions via our local offic-es," he added. Trinity, founded in 2004, expanded rapidly during the seven years under Oresa's ownership to become a market leader in Poland and the CEE region in the management and accounting outsourced services sec-tor, providing services for over 900 multinational cli-ents. In addition, Trinity's wholly-owned fund services business, OFIZ, administers assets in excess of EUR 12bn, making it the largest service provider in Poland. With offices in Warsaw, Kraków, Wrocław, Poznań, Sofia, Bucharest, Prague, Bratislava and Budapest, Trinity specializes in providing solutions for company formations, accounting, payroll and HR outsourcing services, as well as corporate secretarial and other corporate and trust administration services. Vistra Group provides a broad range of services and solutions, from international incorporations, to trust, fiduciary and fund administration services. Compris-ing of two key brands, Vistra and OIL, the group em-ploys over 1,000 professionals across 22 jurisdictions. "This deal complements our strategy as a ’best in class’ global service provider and contributes to our contin-ued global organic growth. Having Trinity on board strengthens and broadens the range and geographic spread of services we can offer to our existing and po-tential clients and business partners," said Martin Crawford, CEO of Vistra Group. Formally headquartered in the Netherlands Antilles, Oresa is indirectly owned by the Swedish af Jochnick family, who also control the Oriflame cosmetics dis-tributor and Medicover healthcare provider. Over the years, the company has committed more than EUR 150m in private equity investments in Poland and the rest of the CEE. With local offices in Warsaw and Bu-
charest, Oresa focuses on growth and buy-out capital investments of EUR 5-15m per company. Last year, Celox Group, the immediate owner of Oresa ventures, decided to focus on Romania, a market it considers as much less competitive and smaller than Poland, and therefore more befitting the company's investment strategy. Oresa continues to supports its existing Polish investments: Librus, a developer and provider of digital solutions for the education sector, (acquired in 2011) as well as PLOH Vending Ma-chines (acquired in 2009).
ENERGY & RESOURCES
StateStateStateState----owned coal owned coal owned coal owned coal trader to buy mines trader to buy mines trader to buy mines trader to buy mines from troubled giant from troubled giant from troubled giant from troubled giant Kompania Węglowa Kompania Węglowa Kompania Węglowa Kompania Węglowa
Polish state-owned coal trader Węglokoks is to ac-quire four or five mines from Kompania Weglowa (KW), helping the Polish government save the Euro-pean Union’s biggest coal producer from bankruptcy. The transaction may be concluded as early as January 1, 2015, Węglokoks said. The company is currently in talks with banks and the state investment vehicle Polskie Inwestycje Rozwojowe (PIR) regarding fi-nancing. Weglokoks’s "borrowing capacity" allows it to invest as much as PLN 1bn, Deputy Economy Minister To-masz Tomczykiewicz said in June. The company hopes to secure the necessary corporate permits, valu-ations and a business-plan by early December, Węglokoks CEO Jerzy Podsiadło said.
Although the plan to get Węglokoks involved in rescu-ing Poland's ailing coalminer has been talked about since September, PIR's participation in the plan comes as a surprise. Created last year as part of the govern-ment's "Polish Investments" program to stimulate economic recovery by investing future privatization proceeds into projects of strategic importance, PIR mediates in the allocation of low-cost capital for stra-tegic projects that have a hard time raising commercial financing. Whether saving unprofitable coalmines matches PIR's stated goals is a matter of debate. "PIR may engage in the financing of the takeover of KW mines by Węglokoks, on condition of positive re-sults of the private investor tests and business viability of this endeavor," deputy Treasury Minister Wojciech Kowalczyk told reporters last week. In the first half of the year Polish coalmining compa-nies posted a loss of PLN 772m after tax. With a net loss of PLN 329m, KW, the largest one of them, was responsible for the bulk of the sector's woes. Only three of the 14 mines that constitute KW showed prof-it in the first half. The company, which produces about a quarter of the EU’s coal output, has struggled to sur-vive as global coal prices fall amid sluggish economic growth while production costs remain high. At the moment, KW loses approximately PLN 50 for every ton of coal it mines. Its CEO Mirosław Taras said in August KW needs to cut its workforce by more than a third while sustaining 30m-ton output to avoid col-lapse. Its workforce is to fall by 20,000 from 55,000 through retirements, voluntary departures and sales of mines, CEO Taras said. As part of its restructuring plan Kompania plans to sell four out of its 14 mines and reduce coal stockpiles to regain liquidity. Fearing that any more decisive action at KW (such as pit closures or benefit cuts), might trigger strikes and civil unrest, the government has ordered other state-controlled enterprises to give KW a helping hand. Coal
producer JSW in April acquired KW’s Knurów-Szczygłowice mine for PLN 1.49bn (USD 467m), while utility Tauron bought out Kompania’s stake in a min-ing venture for PLN 310m in December. Back in Sep-tember, Weglokoks' CEO Jerzy Podsiadło said his company would buy "two good and two bad" coal mines from KW, financing the "significant" investment with debt. According to most recent reports, Weglokoks, will buy Kompania’s Piekary mine pro-ducing about 1.2m tons of coal a year, as well as the Jankowice, Chwalowice, and Bobrka-Centrum mines and potentially a fifth one, Brzeszcze. See also BR+ Editor Lech Kaczanowski's comment on the situation in Poland's mining sector in the Opinion section on page 13.
ENERGY & RESOURCES
Copper firm KGHM Copper firm KGHM Copper firm KGHM Copper firm KGHM completes major completes major completes major completes major energy investmentsenergy investmentsenergy investmentsenergy investments
Poland’s copper & silver giant KGHM has launched a gas fired power unit at its Głogów heat & power plant in Western Poland, which together with a similar unit commissioned a year earlier in Polkowice, covers some 25% of the company's energy needs. KGHM, whose annual electricity usage totals some 2.5 TWh (approx. 2% of Poland's total power consumption) and is ex-pected to exceed 3 TWh in the coming years, spent PLN 523m on the two projects. The Polkowice block in southern Poland is to produce some 300,000 MWh of electrical energy and some 1 million GJ of heat, while the Głogów block, in western Poland - some 250,000 MWh of electrical energy and some 800,000 GJ of heat, KGHM said in a statement.
The fuel to KGHM's two new units (some 41.5m cb.m per annum until 2033) will be delivered by Poland's state-owned gas monopoly PGNiG, under a PLN 830m contract the two firms signed in 2010 and updated a few months ago.
KGHM is a major consumer of electricity. Image: KGHM
According to KGHM, by developing its own power generation capacities, the company aims to reduce its overall electricity bill as well as ensure stability of supply, which is crucial for the safety of miners work-ing underground as well as the proper functioning of furnaces. The copper miner is also studying ways of extracting gas from lignite deposits that cannot be ex-ploited through open pit mining due to resistance from local communities. The latter project is still at a plan-ning stage, however. One of Poland's largest corporations, KGHM produced 666,000 tons of copper in its Polish and northern American sites last year. The group posted a net profit of PLN 3bn (EUR 721m) on PLN 24.1bn (EUR 5.7bn) turnover in 2013. The respective 2012 figures stood at PLN 4.3bn (EUR1.1bn) and PLN 267.7bn (EUR 6.4bn). The company has recently launched production at its Sierra Gorda copper mine in Chile at the cost of USD 4.16bn. KGHM had initially estimated outlays on the
project at USD 2.9bn, later raised its estimate to USD 3.9bn. After the ramp-up period to be completed in early 2015, Sierra Gorda's annual output should reach 120,000 tons of copper, 50m pounds of molybdenum and 60,000 ounces of gold, the firm said.
PROPERTY & CONSTRUCTION
Skanska sells Kraków Skanska sells Kraków Skanska sells Kraków Skanska sells Kraków office building to office building to office building to office building to Polish investors Polish investors Polish investors Polish investors
Polish real estate fund REINO Dywidenda FIZ has acquired one of two buildings in the Kapelanka 42 of-fice project developed by Skanska Property Po-land. Kapelanka 42, which the Swedish developer completed earlier this year as its first investment in Kraków, consists of two buildings with a combined GLA of more than 30,000 sq.m. The building acquired by REINO for EUR 29m, is almost fully leased to sev-eral companies including Tesco, Apriso and Sygnity. The official opening of Kapelanka 42 is to take place before the end of November. "This sales transaction is again proof that office build-ings in the largest centers outside Warsaw are good investment products. We are glad that the purchaser of the first building in this project is a Polish fund. The interest of domestic capital may be a crucial factor for the development of the transaction market in Polish regional cities," commented Mariusz Krzak, Regional Director at Skanska Property Poland. REINO Dywidenda FIZ is the first Polish dividend re-al estate closed-end investment fund dedicated to Polish high net worth individuals, set up and managed by REINO Partners, an independent and privately held real estate investment management company, for
the clients of mWealth Management (formerly BRE Wealth Management), one of the market leaders in private banking and wealth management services.
Kapelanka 42 is Skanska Property Poland's first of-fice development in Kraków. Image: SwedeCenter
"Buildings that generate stable income are a natural al-ternative for deposits, and when interest rates remain low, they should be a first choice for investors retriev-ing cash from deposits and treasury bonds. At the same time, the best buildings, with a minimal risk lev-el, are unavailable for individual investors. Funds such as REINO Dywidenda FIZ serve here as a solution. Due to its location, basic parameters and developer’s reputation, Skanska’s office building in Krakow was a good choice for the first investment target," said Radosław Świątkowski, President of the Management Board at REINO Partners. Skanska Property Poland was advised on the transac-tion by CBRE international consulting agency. Legal consultancy for the purchaser was provided by Norton Rose, while Dentons provided legal consultancy for the vendor. The loan agreement was concluded with Nordea Bank Polska.
Poland Today talks to: Radosław Świątkowski, CEO at REINO Partners • PT: What resources are at REINO Dywidenda FIZ's disposal and what types of properties are you target-ing with this fund? Radosłąw Świątkowski: As a rule, all of REINO funds are created or increased with a particular objective in mind, which we present to investors prior to a transac-tion. This is one of the things that make us special and set new standards in real estate investment. Conse-quently, we separately raise funding for each individ-ual investment, of course with a certain preset safety margin and loan-to-value ratio, which usually gives us some leeway. In general, we aim to maximize the re-turn on capital and mitigate the risk. Hence, the fund was created to finance the acquisition of one of the Kapelanka buildings in Kraków, while any further investments will require additional issues. REINO Dywidenda FIZ invests in income generating office buildings - ones that are existing and leased. In principle, we are talking about a type of a property bond whose coupons are linked to cash flows gener-ated by rental income. If we are given the opportunity to continue adding on to the fund, we would like to ac-quire 5-6 buildings of this type for our investors over a period of less than three years • PT: Is this your first fund? What are REINO's cre-dentials? RŚ: REINO Dywidenda FIZ is an absolute novelty on the Polish market and, as such, it is also the first fund REINO Partners has raised from high net worth indi-viduals, clients of Polish private banking institutions. With each of our Partners boasting 18+ years of ex-perience and offering a unique set of credentials span-ning real estate, investment, and capital markets, we believe we are well suited to manage property funds. The combined value of transactions and developments
our Partners have taken part in to-date, including the period prior to REINO's founding, comes in excess of EUR 3bn and covers all segments of the property mar-ket. One example of REINO's past achievements was our cooperation with the Azora fund, under which we successfully acquired existing office properties with a combined value of EUR 165m, in line with a predeter-mined investment strategy. • PT: Do high net worth individuals care whether a fund invests in Polish properties only? What are the advantages of such a strategy for the clients? RŚ: We believe this is very important. Firstly, the Pol-ish commercial property market is among Europe's most attractive but paradoxically, it generates returns mainly for foreign funds, who represent wealthy in-vestors, not only future pensioners. At the same time, Polish investors have practically no institutional means to invest in this market. We are talking about high value transactions that in most cases remain be-yond the capabilities of any individual investor. More-over, Polish pension funds, the OFE, likewise - curi-ously - do not invest in real estate. Many of our foreign colleagues consider this a rather bizarre situation. Secondly, for Polish private investors the domestic market is relatively more familiar and easier to assess risk-wise. Finally, Polish properties are physically within their reach. Some of the investors behind RE-INO Dywidenda FIZ chose to personally inspect the property we presented to them. Investing in real estate is a total opposite of the new economy, which is often virtual in nature. • PT: Polish properties have been the target for larger and smaller funds from Europe and the US, who often have huge financial resources at their disposal. How can small local players, like REINO, compete with foreign giants in a market where the supply of suita-ble assets is limited?
RŚ: In many cases direct competition won't be possible for many years to come. This has to do not only with the resources at hand, but also with expectations with regard to yields. Euro zone funds, for instance, can ac-cept much lower returns Polish individual investors, for whom low interest rates are a relatively new thing. As for REINO, our opportunities and advantages stem from our location and a unique blend of competences. Foreign investors rarely have such strong local teams, and being up-to-date with what's available on the market is key to success. Know-how in SPV formation and raising financing also do matter, which is why many large foreign players are negotiating strategic al-liances with REINO. • PT: Can you see any attractive niches in the Polish property market, ones that haven't yet been explored by real estate funds? RŚ: At this stage we need to keep our ideas for niche strategies to ourselves as our competitors are follow-ing us closely. But the current situation, with histori-cally low interest rates, many recent negative stories involving corporate bonds, and uncertainty in the stock market, bodes well for real estate investments. In the nearest future we will continue to focus on in-come-generating commercial real estate. We are not going to look for niches for our dividend funds. For-eign funds are not only our rivals, but also the most likely future buyers for our assets. After all, exiting an investment is just as important as the acquisition of a new asset.
Vastint Polska, the property arm of Sweden's Inter IKEA Group, has just broken ground on its third (and largest) office park in Poland - Business Garden Wrocław. The company, which until recently had op-erated under the SwedeCenter name, is hoping to deliver the park's first three buildings, with a com-bined floor space of 37,000 sq.m, by the end of 2016. Once fully built-up, Business Garden Wrocław will in-clude eight office buildings and a hotel, spread, to-gether with the surrounding garden, over an area of 7ha. The project is located on Legnicka street, close to the Magnolia shopping center and the Mikołajów railway station.
The groundbreaking ceremony in Wrocław took place on October 29. Image: Vastint Polska
Vastint is currently developing three parks under the Business Garden logo – in Warsaw (90,000 sq.m) and in Poznań (80,000 sq.m). In Warsaw, the company has so far delivered 32,000 sq.m (including a hotel) and the work on the following three of the remaining five
buildings is to begin shortly. In Poznań, the construc-tion of the 42,000 sq.m phase one is to reach comple-tion early next year. Unlike the Warsaw and Wrocław projects, the Poznań one will not include a hotel.
Designed by APA Wojciechowski, Business Garden Wrocław will include an internal garden with a cen-trally located restaurant. In line with Vastint's empha-sis on sustainable solutions, the project has been LEED precertified with the "Gold" rank. Image: Vastint
The company is also working on an office and hotel complex Gdynia Waterfront. Located in one of Gdy-nia's most attractive spots, next to the landmark SeaTowers building and near the busy Kościuszki Square, phase one the LEED certified development is to reach completion in 2015. Gdynia Waterfront is a mixed-use project with a floor area of 90,000 sq.m, featuring offices, residential, retail, and hospitality space accompanied by cultural and leisure facilities. The general contractor is Austrian-owned PORR Polska, which has cooperated with Vastint on a num-ber of other projects, most recently on Business Gar-den Poznań. The first stage of the project (21,100 sq.m) will comprise a Mariott Courtyard hotel and confer-ence center (to be managed by Scandinavian Hospi-tality Management) and an office building that were to serve as the new headquarters of Nordea Bank
Polska, before the latter got bought out by Polish bank PKO BP. Although Vastint is primarily a real estate investment and development company, it also manages its own portfolio of commercial properties. Established two decades ago in a move to back the commercial real es-tate operations of Inter IKEA Group's property divi-sion in Poland, it has since developed a portfolio of 600,000 sq.m in completed and pipeline projects. Their developments include the SwedeCenter, Uni-versity Business Center and N21 office buildings in Warsaw and Cracovia Business Center in Krakow (the latter three have been sold), Brama Portowa in Szcze-cin (13,000 sq.m with tenants that include Deloitte, LUX MED, Genpact, and Starbucks) as well as Mera Hotel & Spa in Sopot.
PROPERTY & CONSTRUCTION
S+B Gruppe acquires S+B Gruppe acquires S+B Gruppe acquires S+B Gruppe acquires top investment site in top investment site in top investment site in top investment site in WarsawWarsawWarsawWarsaw
Austrian developer S+B Gruppe has secured a yet another top investment site in downtown Warsaw with the acquisition of the Universal building located by Rondo Dmowskiego, where the Polish capital's key arteries, Aleje Jerozolimskie and Marszałkowska St., intersect. Built in mid-1960s, the office building used to be the headquarters of the Communist-era interna-tional trade firm Universal. Most recently, it belonged to a bankrupt firm Metro-Projekt, whose receiver has been trying to sell the asset for more than two years, starting at an asking price of PLN 110m and most re-cently seeking buyers at PLN 80m.
"It's too early to be discussing our plans with regard to that property. We may have more details in December, at the earliest," Izabela Kieler, Marketing & Leasing Dirctor at S+B Gruppe's Warsaw office told Poland Today. Without a doubt, the new owners will seek to demol-ish the existing structure, which lacks an underground parking lot and offers office space of very low quality by today's standards. The local zoning plan allows for the construction of a taller structure at the site, and a few years ago the Warsaw-based studio JEMS Architekci created a preliminary concept for what could replace the existing building.
Due to its location at Warsaw's busiest and most central intersection, the Universal site is a perfect lo-cation for a large office project, like the one envis-aged by JEMS Architekci (in the centre). Image: JEMS
S+B Gruppe is perhaps best known in Warsaw for its 18,2180 sq.m Zebra Tower office building by the Politechnika subway station, which was sold to Ger-many's Union Investment for EUR 76m – the largest single transaction in the developer's history. Complet-ed in 2010, the building is home to Samsung's R&D centre, among other prestigious tenants. Earlier this year, the company completed another major invest-ment, the Hampton by Hilton Warsaw City Centre ho-tel on 72 Wspólna Street, which well illustrates their expertise in handling challenging projects. Located close to the Marriott hotel and the central sta-tion, the imposing 55m-tall unfinished building shell at
Wspolna 72 used to be a true eyesore to anyone visit-ing the Warsaw city centre. Construction activity on this 12,500 sq.m tower had proceeded at pace until spring 2009, when lack of funds brought building work to a halt. The site was closed and a group of more than 90 creditors filed claims, forcing the project to a complete standstill, and pushing the owners to the brink of bankruptcy. The Austrians acquired the scheme and turned it into a hotel, which opened in June. According to initial plans, the capex on this pro-ject were to reach EUR 40m. More recently, S+B broke ground on its latest Polish project, an office building króLEWska, at the junction of Królewska and Graniczna Streets in Warsaw's city centre. The building offer 5,430 sq.m of offices and 570 sq.m of service space as well as 44 underground parking spaces and it is expected to reach completion in late 2015 or early 2016 with LEED sustainable building certification at the Gold level. króLEWska will occupy an attractively located 1,847 sq.m site that used to belong to an American-Swedish investor Stel-lar, which many years ago sought to build offices and later had plans for a luxury apartment complex in this location. After S+B Gruppe acquired the plot, they re-turned to the original plans for an office development. With offices in Austria, the Czech Republic, Poland and Romania, S+B Gruppe has been operating as an investor and general contractor for over 25 years. The team headed by joint CEO Reinhard Schertler and Viennese architect Alfred Michael Beck specializes in architectural design, contracting, financial manage-ment and marketing for top-quality construction pro-jects. A number of major developments are currently underway in Central and Eastern Europe. So far, the Group has in-vested over EUR 2.5bn in developing a total of 850,000 sq.m of usable space.
PROPERTY & CONSTRUCTION
Logistics the hottest Logistics the hottest Logistics the hottest Logistics the hottest subsubsubsub----sesesesector in CEE real ctor in CEE real ctor in CEE real ctor in CEE real estate marketsestate marketsestate marketsestate markets
Ahead of the upcoming CEE GRI 2014 real estate in-vestment meeting in Warsaw, of which Poland Today is a media partner, we are publishing an interview that GRI has conducted with Maciej Tuszyński, executive director, head of Poland, at Westdeutsche ImmobilienBank. Tuszyński speaks about some of the big picture and current issues related to the prop-erty markets of Central and Eastern Europe, including where the best opportunities and the most promising new real estate projects are.
GRI talks to: Maciej Tuszyński, executive director, head of Poland, at Westdeutsche ImmobilienBank
• GRI: Outside of Poland, which CEE country will provide the best opportunity for investors in 2015, and why? Maciej Tuszyński: Romania. It has gone through a ma-jor asset price adjustment and therefore now provides for purchases at attractive yields. Furthermore, the se-cond largest country by population in CEE has the po-tential to create the largest number of opportunities, while the economy will be rapidly developing to catch-up with the EU average.
• GRI: What are the hottest sub-sectors in CEE re-gion real estate? MT: Logistics, in my opinion. With the new retail chains expanding, new projects are being developed, not only on a build-to-suit basis but also partially [on a ] speculative [basis]. Furthermore, on the basis of re-cent investment transactions there seems to be quite a significant demand for such an asset class. • GRI: Where are the best opportunistic investments in CEE? MT: This is a tricky question. It depends on how we define “an opportunity.” Furthermore, each so-called opportunistic investor will have their own risk profile and preferences. I would think that there will be still many opportunities as usual for the real estate market i.e. the development /redevelopment of assets. Corpo-rate real estate seems to be the next niche to be ex-plored. Finally, for the investors with a more conserva-tive risk approach, I do believe that investment in un-derperforming, but strategically located office assets in the capital cities will provide substantial opportunities in the mid-term.. • GRI: Which countries do you think will provide the future international investment in CEE? MT: I do not think that it will change much. Nor will it really matter. If there is some new money coming from the Far East or Persian Gulf countries, it will most probably be channeled through funds managed by London-based fund managers, thus from the local CEE perspective the names of the investors will remain the same. • GRI: How is the lending environment in CEE and are there any new players on the scene? MT: The lending environment seems to be back on track in CEE. There are a number of active lenders in each market, willing to provide loans against operating assets, as well as to offer development facilities. [When it comes to] new players, I am sure that we shall see
debt funds taking their place on the stage finally, so banks, which are the traditional lenders, will finally not be the only loan providers in CEE. Poland Today is a media partner of the CEE GRI 2014 real estate investment meeting in Warsaw
POLITICS & ECONOMY
Q3 GDP and PMI data Q3 GDP and PMI data Q3 GDP and PMI data Q3 GDP and PMI data surprise on the upsidesurprise on the upsidesurprise on the upsidesurprise on the upside
Falling prices and unemployment pushed the Polish economy up by 3.3% y/y in Q3, against a revised 3.5% in Q2, according to a preliminary estimate released on Friday by the country's statistical office GUS. The reading was considerably higher than the 2.7% median forecast of 29 economists compiled by Bloomberg. In quarterly terms, the economy grew 0.9% from Q2. Although the official breakdown of Poland's GDP components will be available on November 28, accord-ing to GUS's deputy head Halina Dmochowska posi-tive contributors to economic growth included retail-ing, wholesaling, services, transport and local govern-ments. "Domestic demand has been the main driver of mod-erate economic growth. The improved purchasing power of wages is having an impact," Dmochowska told a press conference. "We don't see any sudden changes in demand, production and retail sales. Those positive, stable tendencies should be maintained in the fourth quarter," she added. "The flash release shows no details about GDP break-down, so it is hard to say what was the main source of the surprise. However, we suspect two issues. First is
the methodological change, as this was the first release according to ESA2010. The second is probably a stronger than anticipated growth in fixed investments. The latter is signaled by, among other things, better than expected performance of the labor market and surprisingly robust credit growth for companies," commented BZ WBK analysts, adding that the positive data reduced the odds of an interest rate cut in De-cember, as amid a deflationary environment the Mon-etary Policy Council has recently shifted its focus from CPI to GDP.
Y/y GDP growth in Poland, by quarter
0%
1%
2%
3%
4%
Q1'12
Q2'12
Q3
'12
Q4
'12
Q1'13
Q2'13
Q3
'13
Q4
'13
Q1'14
Q2'14
Q3
'14
Source: GUS *) year-on-year; ESA 2010
Friday's flash GDP reading is a second important indi-cator that surprised the markets on the upside in the past two weeks. In October, Poland's purchasing man-agers' index PMI, a gauge of manufacturing, increased by 1.7 pts month on month to 51.2 points, according to a recent report by HSBC and Markit. It was the first time since June the indicator was above the 50 points threshold that separates expansion from contraction. Growth of new orders was the main factor contrib-uting to the improvement in the sector. "Although the growth pace was moderate, it was the biggest increase in new orders since April," HSBC wrote. Trends for the labor markets remained positive, while inflation-ary pressures remained week. Production costs grew moderately and prices of finished goods continued their decline, it added.
Purchasing Managers' Index (PMI) The 50 mark separates growth from contraction
45
50
55
60
Aug 13 Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14
Source: Markit & HSBC
Following a series of disappointing macroeconomic data from the past few months, in early November the European Commission cut its GDP growth projections for Poland to 3% y/y in 2014 and 2.8% in 2015. The Commission also said and the growth rate should pick up again in 2016, accelerating to 3.3%.
Y/y GDP growth in Poland, by year
0%1%2%3%4%5%6%7%
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
*20
14
*20
15
*20
16
Source: GUS, EC *) average projections by European Commission
"Economic growth in Poland is expected to moderate over the rest of the year, as weaker demand in the euro area and the situation in Ukraine dampen exports," the Commission said, adding that the slowdown should be only temporary and the negative impact of the Ukraine/Russia conflict "is assumed to peter out in 2015." According to the Commission, the pace of eco-nomic activity under the forecast horizon will support
the labor market as well which, in turn, should be one of the drivers to strengthen private consumption. The institution is also expecting a gradual improvement in public finances.
POLITICS & ECONOMY
Opposition party Opposition party Opposition party Opposition party PiS PiS PiS PiS wins local election wins local election wins local election wins local election according to exit pollsaccording to exit pollsaccording to exit pollsaccording to exit polls
According to exit polls, the winner of Sunday's local elections is Poland's conservative opposition party Law & Justice (PiS), with 31.5% of the seats in regional legislative assemblies, ahead of the ruling center-right party Civic Platform (PO), with 27.3%. The voter turn-out came to a record 47.7%. Although the actual winners vary depending on region (with the less-developed eastern part of the country traditionally voting for conservatives), the overall re-sult serves as a poignant indicator of the general mood in the nation ahead of the next year's parliamentary and presidential election. A PiS-led government, with all the uncertainty that may come with it, is becoming an increasingly likely scenario. The Civic Platform continues to lead in big cities, where PiS-backed candidates for mayors failed to at-tract much voter support. However, some cities (most importantly - Warsaw), where no candidate secured more than 50% of the vote, will see runoff votes in two weeks. The incumbent Warsaw mayor Hanna Gronkiewicz-Waltz, representing PO, won close to 49% of the vote on Sunday, compared with 26% by PiS's Jacek Sasin. A second round of mayoral election is expected also in Kraków, Wrocław, Poznań, Kato-wice and Gdańsk.
Despite their bitter rivalry, both PiS and PO originate from the Solidarity movement, and share the same conservative ideological background. They parted ways in 2005 when PiS won both the presidential and parliamentary vote and chose to team up with nation-alists and populists instead of forming a coalition with PO. The PiS-led government did not last long and its presidency was cut tragically short by the Smolensk air disaster which saw President Lech Kaczyński, twin brother of the current PiS leader Jarosław Kaczyński, killed along with dozens of high-ranking Polish offi-cials. Although policy-wise PiS seems to have gone downhill since, focusing much of its campaigning on conspiracy theories surrounding the Smolensk disas-ter, supporting fringe ultra-catholic views, and aggres-sively attacking the government without presenting any viable alternatives, Kaczyński and his party began to regain popularity over the past year, repeatedly beating PO in popularity polls. PiS has recently named a former presidential chancel-lery official Andrzej Duda as its candidate in the 2015 presidential election where he will face the current President, PO-backed Bronisław Komorowski. Duda, 42, a lawyer and university lecturer, and currently a member of the European Parliament, was undersecre-tary of state at the chancellery of the late president Lech Kaczyński. It seems that by selecting a little known candidate to compete with Komorowski in next year's presidential election, the opposition is ad-mitting to the fact that beating the incumbent presi-dent, who despite (or perhaps because of) his lack of charisma is Poland's most popular politician, will be an impossible feat. According to a recent poll by IBRIS (former Homo Homini), carried out prior to the November 16 local election, voter support for PO remained stable at 33% in November, but the ruling party extended its lead over PiS to 4 pps, as the latter slid to 29% backing.
November 18, 2014 Tęczowy Młyn Hotel and Kielce Racing Track Kielce
AUTOMOTIVE SECTOR MARKET LEADERS MEETING What is the state of play in Poland’s automotive market? Is Poland’s automotive industry shifting into higher gear? What are the influences driving the market? What are newest technologies? Find out the answers to these questions and more at a meeting of leaders in Poland’s automotive sector. The conference will fea-ture the latest automotive sector report by DNB Bank Polska and Deloitte, while experts and leading fig-ures in the industry will offer their own views on market trends. The conference will also provide net-working opportunities with automotive sector deci-sion makers. Plus, there will be a presentation of the hybrid BMW i3 and i8 models. Moreover, partici-pants will have the chance to experience an adrena-line rush with unique driving experiences: the Lam-borghini Gallardo SE (520HP), the Ferrari 458 Italia (570HP) the Hummer H2 (325HP) and the BMW 3 (230HP)! Sponsorship opportunities still available!
November 26 Sala Sesyjna, Town Hall, ul. Sukiennice 9 Wrocław
PRIMETIME WROCŁAW Poland’s entrepreneurial capital? Wrocław, under open and steady political leadership, has blazed a business trail in Poland. But with others catching up fast, can the city maintain its entrepre-neurial edge? The event will include a special "Fireside Chat" with Wrocław Mayor Rafał Dutkiewicz, in which he will discuss the city's rising expectations and the chal-lenges it faces with Jan Cienski, Poland Correspon-dent for The Economist. Panel discussion topics will include innovation, sus-tainability, as well as cooperation between business and education. Speakers include: - Krzysztof Sachs, Partner, Director of Wrocław Re-gion, EY - Tomasz Gondek, Director, EIT+ - Karol Patynowski, Associate Director, Tenant Rep-resentation, JLL - Marcin Kozłowski, Global Manager, AIP Business Link - Jarosław Prawicki, Head of Sales & Marketing, UBM Polska There will also be an "Open Forum" where partici-pants will have the opportunity to discuss other is-sues, as well as a "speed dating" session.? Sponsorship opportunities still available!
To sponsor or attend any of Poland Today events, please call Magdalena Gawlikowska on +48 602-223-634 or
Dąbrowa Górnicza Dąbrowa Górnicza Dąbrowa Górnicza Dąbrowa Górnicza touts attractiveness for touts attractiveness for touts attractiveness for touts attractiveness for automotive sectorautomotive sectorautomotive sectorautomotive sector
The prospects for the further development of the automotive sector in Dąbrowa Górnicza were dis-cussed during the "Dąbrowa Górnicza – destination: investments. Automotive investments – destination: Dąbrowa Górnicza" conference which took place at Pałac Kultury Zagłębia in the city on November 6. The participants, who included businesspeople, as well as representatives of the municipal authorities and the Katowice Special Economic Zone, focused on the con-dition of the automotive industry in Poland and on the investment offer which Dąbrowa Górnicza has for companies from that sector. Marek Zuber, an economist and financial markets ana-lyst, argued that the growth prospects for the automo-tive industry in the global markets in the upcoming years are very good. Car sales in the developing coun-tries are on the rise. Poland can, and should, benefit from that boom, Zuber said. While Poland will yet have to wait for automotive in-vestments with purely Polish capital, a number of pro-duction facilities of international automotive compa-nies already operate in the country. The participants in the conference stressed that when it comes to the quality of production, Polish factories are some of the best in the world.
Poland is a good country to move production, said Stefan Moisa, member of the management board at General Motors Manufacturing Poland. The panelists pointed out that because of the ongoing political and military crisis in Ukraine, foreign companies are not likely to move production further east in the near fu-ture, as had previously been expected. "We have gained a few years and have to take advan-tage of this," said Piotr Wojaczek, president of the Ka-towice Special Economic Zone. The participants in the conference also argued that the crisis in Ukraine is creating new opportunities for Polish companies which can now enter the Ukrainian automotive mar-ket, replacing Russian companies.
The event attracted businesspeople, local officials and representatives of the Katowice zone. Image: PT
Much of the discussion focused on what can be done to make Poland more competitive in the global auto-motive market. It was generally agreed that low labor costs are not enough and that there is the urgent need for investments in innovation and the training of skilled employees. Poland needs a new vocational training model and new research and development centres. The fact that
large international automotive companies usually al-ready have their own R&D centres outside Poland is a problem here, admitted Roman Kantorski, chairman of the Polish Chamber of Automotive Industry. A number of manufacturers from the automotive sec-tor are already active in Dąbrowa Górnicza. On the day of the conference, the Tucznawa investment area, which is a key element of the investment offer of Dąb-rowa Górnicza and can help attract more automotive sector investors to the city, was officially opened. The Tucznawa investment area encompasses almost 260 hectares of land which is covered by a zoning plan. The necessary infrastructure is already in place and much of the area is located within the Katowice Special Economic Zone, said Agata Zając, a land trans-actions coordinator at JLL. The location is perfectly suited to the needs of the automotive sector, argued Zając. The area can house production and service facilities. What is important for potential investors, Tucznawa does not neighbour any residential areas, which practically eliminates the risk of any neighbourhood protests. Dąbrowa Górnicza is today a city of approximately 120,000 inhabitants and around 12,000 entrepreneurs. Human capital, good transportation links and the presence of the Katowice Special Economic Zone are some of our main assets, said Dąbrowa Górnicza Mayor Zbigniew Podraza. The city of Dąbrowa Górnicza and the Katowice Spe-cial Economic Zone were the organizers of the "Dąb-rowa Górnicza – destination: investments. Automotive investments – destination: Dąbrowa Górnicza" confer-ence. Bluevine Consulting was an organizational part-ner, while Poland Today was a media partner of the event.
Silesia: The Money PitSilesia: The Money PitSilesia: The Money PitSilesia: The Money Pit
by Business Review+ Editor Lech Kaczanowski Although there seems to be a universal agreement among experts and politicians that Poland's top prior-ity in the coming decade should be innovation and R&D, the innovators have too little bargaining power to make the officials put the public money where their mouth is. Because the money - an awful lot of it - that could be spent on stimulating innovation or prevent-ing an impending demographic disaster, instead ends up in Silesian coal pits. In the first days of her term in office, Poland's newly appointed Prime Minister Ewa Kopacz did not meet up with scientists, startuppers, or innovators. Instead, she rushed to appease the miners, who began making noises about wreaking havoc in the Polish capital. Dark clouds have been looming over Poland's coalmin-ing sector for years but recently the situation has be-come so serious that the big, state-owned mining com-panies started considering the unthinkable: trimming employee benefits. This triggered a wave of discontent across Silesia, because in line with tradition, albeit against all economic sense, Silesian miners expect to keep producing coal that nobody needs, at prices that no-one can afford, and on employment terms set by the employees themselves. In the first half of the year Polish coalmining compa-nies posted a loss of PLN 772m after tax. With a net loss of PLN 329m, Kompania Węglowa (KW), the largest one of them, was responsible for the bulk of the sector's woes. The situation looked even worse when taking into consideration only the sector's core busi-ness: coal sales. Here, the loss exceeded PLN 1bn.
The key problem for Polish coalmines are high pro-duction costs, which at PLN 311 (around USD 100) per ton in 1H 2014, make Polish coal way too expensive, against global prices that oscillate around USD 70 per ton. In Poland, coal prices dropped 8% y/y in 1H, down to PLN 280. Following decades if not centuries of intensive exploitation, Silesian mines have to dig deeper and deeper for coal, which, together with ex-cessive worker benefits, is pushing costs beyond ac-ceptable levels. Polish coalmines extracted slightly more than 34m tons of coal in the first six months of the year with sales reaching 31.8m tons. Stockpiles of unsold coal amounted to 8.3m tons as of end of June. Although Poland' coal reserves are the second largest in Europe, it is cheaper for Polish power plants to im-port coal from abroad, while KW loses PLN 50 for every ton of coal it mines.
Polish miners are a tough folk and economic realities, however grim, do not faze them. With more than 100,000 employees and powerful trade unions, Po-land's coalmining industry has effectively resisted any real change, even though only three of the 14 mines that make up KW showed profit in 1H. While some of the loss-making ones experienced nothing but tempo-rary problems, a few have been in the red for years, re-lying on state-funded life support.
The government has been tiptoeing around the issue for months, never failing to emphasize that job cuts at KW were not an option, even though the company produces merely 620 tons of coal per employee (35m tons in total) annually. Globally, the worst-performing companies mine about 1,000 tons per full-time em-ployee. Britain's coal mines, slimmed down after the drastic Thatcherite restructuring, produce more than four times as much coal per employee as Polish ones. The listed Polish Lublin-based coalminer Bogdanka, which benefits from a much more favourable geology than KW's Silesian mines, but which has also under-
gone in-depth restructuring, aims to produce 11.5m tons this year, or 2,300 tons per worker. Fearing strikes and civil unrest, no government in the past quarter of a century dared to take on the miners, who continue to enjoy wage levels and benefits that are unheard of in any other industry. Proposals to give up some perks, including double-than-average pen-sions, two annual bonuses, discounts for city transport, free coal allowances, or school subsidies for children, are being met with strong resistance on the part of the unions, who believe their members deserve what their fathers and grandfathers got, paying no attention to changing market conditions. Little less than a decade ago, the Solidarity union blocked government plans to raise the retirement age for miners after demonstra-tions turned into street fights. The memory of those scuffles remains vivid among Polish politicians, who keep finding new creative ways of avoiding any drastic measures in Silesia, usually by shifting the burden onto other, profitable state-run en-terprises. It seems obvious that this approach will merely prolong the sector's agony and increase the end cost to taxpayers, but as long as the latter watch pas-sively as their hard-earned tax money continues to disappear in the depths of Silesian mineshafts, there is little hope for any breakthrough. Thousands of miners have the unions to raise hell on their behalf. Millions of ordinary employees, who never get to even taste true job security, are yet to find someone to represent them. The scientists, who lack funding for research, migrate abroad after hearing repeatedly that the state coffers are empty. The entrepreneurs, whose budding businesses creak under the weight of Poland's many fiscal burdens, quickly lose motivation to innovate. As a country that still has plenty of catching up to do, Po-land may one day realize the price it paid for social peace was too high. Let others have their Apples and Samsungs. Poland will have its coal.
The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat
- Net foreign assets 290,786 301,207 304,359 310,172 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP
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The financial sector's net lending in PLN bn,
loan stock at the end of period
Type of loan Jun' 14 Jul' 14 Aug' 14 Sep' 14
Loans to customers 940,703 939,641 950,774 954,978
- to private companies 276,709 274,549 277,482 280,248
- to households 578,639 581,447 587,136 590,208
Total assets of banks 1,667,783 1,678,129 1,718,251 1,737,728
