2.1. Business model and value chain, 2.1.3. Business environment, About Budimex Group
General market conditions
According to a preliminary estimate, gross domestic product (GDP) in 2023 was higher by 0.2% in real terms compared with 2022, versus an increase by 5.3% in 2022 (at constant previous year’s prices). The full-year estimates show that the recovery is proceeding slowly, despite the presence of disinflationary developments. The Central Statistical Office reported that the average annual total consumer price index in 2023 was 11.4%, compared to 14.4% the year before. The final months of 2023 saw a normalization of price processes, as evidenced by December’s inflation reading of 6.2%.
In 2023, the registered unemployment rate in Poland was relatively flat compared to the previous year as evidenced by a slight decrease of 0.1 percentage points from 5.2% in December 2022 to 5.1% in December 2023. Average monthly remuneration in the economy increased by 9.6% year-on-year and exceeded PLN 8 thousand for the first time ever. In the construction industry alone, average wages rose by 6.3% year-on-year, with higher increases of 10.4% and 10.3% in engineering and specialized construction, respectively, and lower in building construction, which had a negative growth rate of 1.5%.
Gross fixed capital formation in 2023 increased by 8% year-on-year, compared with an increase by 4.9% in 2022. The investment rate in the national economy (the ratio of gross fixed capital formation to gross domestic product in current prices) in 2023 was 17.4% compared with 16.8% in 2022.
At the end of 2023, the construction business climate index was -13.2 percentage points, which suggests that more companies in the sector (20.5%) expect the industry to see a deterioration in business conditions rather than an improvement (7.4%). According to the CSO’s surveys, construction companies are experiencing a year-on-year improvement in raw material issues, with 6.1% of respondents perceiving a shortage of materials at the end of December 2023 (compared to 12.3% a year earlier) and 57.6% perceiving material costs (compared to 73.5% a year earlier) as market barriers. The trends are confirmed by the price indices for construction and assembly production, which increased by 10.2% over the year, while since the beginning of January 2023 they have exhibited decreasing dynamics, with prices going up by 7.5% in December 2023 alone. According to construction businesses, the biggest challenge for the industry is the cost of labor, which was identified by 70.2% of the companies surveyed as a barrier to the sector.
According to data from the Central Statistical Office, construction and assembly output (at constant prices) delivered in Poland by construction businesses employing more than nine people was 5% higher in 2023 than in 2022. Building construction was the only construction segment to show negative year-on-year growth of -1.3%, although it should be noted that the last quarter was characterized by a recovery, with an increase of 13.4% witnessed in December alone. The other construction sectors – civil engineering and specialized construction – were characterized by increases in constant prices of 11.3% and 2.7% respectively in 2023.
The environment of low level interest rates (and therefore a low cost of capital) observed in recent years, which was favorable for the construction market, was replaced by the reality of higher interest rates. A series of increases by the MPC pushed the reference rate to 5.75% in October 2023. The market does not expect a significant reduction in the interest rate trajectory in 2024, which is likely to continue to reduce the potential for debt-backed investment. Despite the high level of interest rates, residential construction in the ten largest cities was characterized by year-on-year increases of nearly 69% in the number of residential units sold. The reason for the increases can be attributed to the introduction of the government’s Safe 2% Loan program, which has increased the number of loan applications by leaps and bounds – rising from 214 thousand loan applications in 2022 to 365 thousand applications in 2023. Ultimately, this resulted in an upturn in residential construction, but it also produced an imbalance between demand and supply in individual metropolitan areas, which led to a negative balance of residential units on offer.
Market development prospects
Poland stands out among the countries of Central and Eastern Europe as a country with potential for GDP recovery, owing to fiscal loosening but also to the impact of inflows from the European Union and a slight potential for interest rate cuts in 2024. The expected decline in inflation is expected to be driven by the reversal of the trend of external price shocks and the strengthening of the domestic currency. According to projections by the Polish Economic Institute (PIE) published in January 2024, the domestic economy will emerge from a period of slowdown and grow by 2.3% in 2024 and 3.5% in 2025. The recovery trend in economic growth is also signalled by the Ministry of Finance and the projections of domestic commercial banks.
Recovery of GDP is expected to be driven mainly by private consumption boosted by an increase in real household disposable income. At the same time, macroeconomic forecasts suggest a deceleration in investment and a deterioration in the effect of the balance of trade with foreign partners. Investment is set to decelerate from 6.7% in 2023 to 1.2% in 2024, driven by both the economic slowdown in Europe and a decline in local government investment volumes – mainly due to the stoppages caused by the change in the outlook for cohesion funds from the European Union. Any support for funding from the National Recovery Plan (NRP) should only be noticeable in 2025, as project implementation anticipates the largest outlays to be made in a period of a dozen or so months after the launch of the initiative.
The PIE forecasts average CPI inflation of 5.1% in 2024, which would sustain the downward trend observed in 2023, but at a much lower rate. Inflation expectations among companies are still high and, according to the CSO Business Survey, the number of companies declaring price increases is still higher compared to the peak of the cycle before the COVID-19 pandemic in 2018–2019. In addition, expectations of price increases will be boosted by energy prices – the reinstatement of market prices and the expiry of the energy price freeze legislation at the end of June 2024. The continuing elevated inflation rate will also be driven by the increase in the minimum wage and the reinstatement of VAT on food from 1 April 2024.
In December 2022, the European Commission (EC) approved all Polish Cohesion Policy programs for 2021–2027, agreed on the basis of the Partnership Agreement developed. Poland remains the largest beneficiary of the Cohesion Policy, with EU contributions of EUR 76 billion. All national programs and 16 regional programs for Poland have been approved. EUR 24.2 billion has been allocated to the FEnIKS program, compared to EUR 27.4 billion under the previous financial perspective. The expected scale of assistance in the area of infrastructure projects should ensure that EU funds will continue to play a significant role in the growth of the Polish construction sector in the coming years. The forthcoming budgetary perspective will be the first in which railway projects will have priority over road projects. The support for infrastructure projects under the Connecting Europe Facility (CEF) competitive instrument will also be important.
The last months of 2023 saw visible progress in terms of access to EU funds. In November, the European Commission (EC) approved a modified NRP budget, increasing the amount of funds linked to the REPowerEU program. The effect of the EC’s move is that 20% of REPowerEU funds can be pre-financed without the need to meet milestones – Poland has already received EUR 5 billion in pre-financing, which is important in the context of the reduction of the remaining EU funds in 2024.
The revised National Recovery Plan envisages the disbursement of EUR 59.8 billion, including EUR 25.3 billion in grants and EUR 34.5 billion in preferential loans. In line with EU targets, a significant proportion of the funding will be allocated to climate-related objectives (46.6%) and digital transformation (21.4%). In addition, at the beginning of 2024, Poland fulfilled the last three conditions necessary for the release of structural funds totaling EUR 76 billion. The structural funds include the Cohesion Fund, the European Regional Development Fund, the European Social Fund, the European Agricultural Fund for Rural Development, and the European Maritime and Fisheries Fund. According to economists’ calculations, Poland will receive a net 1.3% of GDP in grants and up to 2.7% of GDP in 2024 from EU funds, when loans are taken into account.
In 2023, the Polish construction market continued to suffer the consequences of the challenges caused by the difficult geopolitical situation. The price shocks experienced in previous years and the market’s continued anticipation of the release of EU funds have influenced further delays in the public procurement market. However, despite the demands of the market, the General Directorate for National Roads and Motorways (GDDKiA) has once again ensured the stability of the tenders announced and the dialogue on the indexation mechanism. The projected expenditure by the main contracting authority in the road market was around PLN 15 billion, the second highest figure in the last six years. In 2023, GDDKiA signed sixteen contracts for tasks with a total length of 216 kilometers and a value of around PLN 8.6 billion (against twenty-four contracts in 2022 with a length of 333.4 kilometers). The value of tenders announced increased year-on-year to forty-two sections with a total length of 530.6 kilometers (compared to twenty tenders with a total length of 226.8 kilometers in 2022). In addition, in 2023, GDDKiA finalized the signing of indexation annexes with a 15% indexation cap for ninety-seven contracts with twenty-three contractors – responding to the significant increase in contractors’ expenses resulting from the effects of Russia’s aggression against Ukraine in 2022.
In December 2023, the contracting authority signed the first contracts for EU funding under the European Funds for Infrastructure Climate, Environment (FEnIKS) program. As part of the EU-funded projects, more than 2,127 kilometers of national roads (including around 158 kilometers of motorways and 1,765 kilometers of motorways) are scheduled to be constructed. As of the end of 2023, 1,298 kilometers of national roads are under construction, another 507 kilometers are in tender proceedings and 3,306 kilometers are currently in the pipeline. The Government’s National Road Construction Program until 2030 (with an outlook until 2033), updated in 2022, with a total value of PLN 294.4 billion, accounts for most of the investment. The remaining investment will be implemented under the Program for the Construction of 100 bypasses, worth PLN 28.1 billion. In 2024, GDDKiA intends to announce tenders for 215 kilometers, of which 92.2 kilometers relate to roads under the Government’s National Road Construction Program until 2030 and 122.5 kilometers to the Program for the construction of 100 bypasses. In addition, following the replacement of executives at the main contracting authorities in the road and rail markets, the timetables for the signing of announced tenders and the publication of new tenders are expected to be extended. Consequently, this may affect the short-term supply of contracts, but the long-term outlook remains invariably optimistic.
The rail market faced another year of funding problems due to the prolonged wait for EU funds. As a consequence, the period for signing contracts for previously announced tenders was extended. PKP PLK signed nine contracts in 2023 for tenders announced back in 2022, and what is more, two of the tenders from this period are still pending. The main contracting authority has published further tenders worth more than PLN 11 billion in 2023, with five contracts worth around PLN 1.5 billion already signed. From a market perspective, it should be mentioned that at its meeting on 16 August 2023, the Council of Ministers adopted a resolution submitted by the Minister of Infrastructure on the establishment of the National Railway Program until 2030 (with an outlook until 2033). The total value of the National Railway Program 2030 is PLN 170 billion, including PLN 79 billion for the 2014–2020 perspective, PLN 80 billion for the 2021–2027 perspective and PLN 11 billion for the NRP. Some of the funds were pre-financed by the Polish Development Fund (PFR) at the end of 2023. Additional support for investment in the railway market is provided by the Local and Regional Railway Infrastructure Completion Program – Rail + until 2029, worth PLN 13.2 billion, and plans for the construction of 1,800 kilometers of railway lines by 2034 as part of the Solidarity Transport Hub Poland.
Another key project necessary for Poland’s proper energy transition is PSE’s investments. The updated program includes investments in electricity grids, which are expected to amount to nearly PLN 62 billion by 2036. The program includes, among others, the construction of 5,225 kilometers of 400 kV line tracks; 27 new substations and 775 kilometers of direct current lines. Investment objectives selected by PSE include: power evacuation from Polish offshore wind farms in the Baltic Sea; power evacuation from nuclear power plants; integration of onshore RES sources into the NPS; connection of new stable generation sources and energy storage facilities; increasing the potential of the national grid to transport energy through Poland as a transit hub; supplying electricity to new industrial customers; including in special economic zones; supporting the development of electromobility and electrification of the heating sector; and supplying power to the Solidarity Transport Hub Poland, including high-speed rail.
Poland is currently in the process of phasing out its oldest coal-fired power units. The efforts of energy companies are focused on implementing projects geared towards climate neutrality. Among other things, PGE is in the process of preparing a project for the largest offshore wind farm in the Baltic Sea and is working on the construction of two CCGT units at the Dolna Odra power plant. Another important development in the energy sector was the merger of Orlen, Lotos and PGNIG. The establishment of a multi-energy company is an unprecedented event in the domestic market that may change the balance of power on the map of Europe’s energy interests.
At the end of 2023, the Rybnik Power Plant’s two coal-fired power – units No. 3 and 4 – were shut down. These will be replaced by an 882 MW gas-fired unit at this plant. The net value of this investment is approximately PLN 4 billion.
In 2023, planning and preparatory work progressed on the Solidarity Transport Hub Poland project (CPK). Advanced design work included the airport terminal, railway station, runways, air traffic control tower and more than 450 kilometers of railway, including the section between Warsaw and Łódź. Of the almost 2,000 kilometers of lines the company plans to build, investor options have been selected and mileage consulted for more than 600 kilometers – these are the following sections: Warsaw – CPK – Łódź, Łódź – Wrocław, Sieradz – Poznań, Łętownia – Rzeszów and Katowice – Ostrava. Of those listed, design is underway for more than 450 kilometers. In addition, CPK has selected the French-Australian consortium of Vinci and IFM as a strategic investor in the proceedings. The estimated total amount needed for the airport part of the investment is around PLN 41 billion, of which more than PLN 32 billion is to be provided by contributions from private investors and debt financing. CPK has signed agreements for the design of the Warsaw – Łódź line, which will be the first section of the High Speed Railway (HSR) in Poland. The contractors were selected as part of the largest framework agreement for this type of service in Europe. Some rail projects are envisaged to be implemented under the Public-Private Partnership (PPP) formula.
A contract has also been signed with the designer of the passenger terminal and railway station (the so-called master architect) the Foster + Partners and Buro Happold consortium, and with the Master Civil Engineer (MCE), Dar Al-Handasah, a Lebanese company that has been involved in the design of airports in Doha, Dubai and Chicago, among other places. In addition, 13 companies and consortia have been selected with whom CPK will sign a framework agreement, as part of the first tender for the design of support facilities (SIE – Support Infrastructure Engineer).
CPK has already secured a total of more than PLN 400 million in EU funding from the CEF Connecting Europe Facility.
This year, the European Commission granted CPK funding of around PLN 300 million for the construction project of the strategic HSR line between Warsaw and Łódź. The company plans to apply for further funding. In the current round of the CEF program, it will apply for grants totalling at least PLN 1.7 billion.
Port investments are another important pillar of Poland’s infrastructural development. In autumn 2019, the Council of Ministers adopted a resolution identifying key investments for the program called: “Program for the development of Polish seaports until 2030.” Implementation of the program will ensure the efficient functioning and development of Polish seaports and contribute to utilizing their full potential. The implementation of the investments indicated in the program is extremely important for the further dynamic development of the ports and for maintaining and strengthening their position among European ports. The value of the program until 2030 has been estimated at around PLN 30 billion.
Projects currently underway include the upgrade and deepening of the Świnoujście-Szczecin waterway to a depth of 12.5 meters at a cost of almost PLN 2 billion; the upgrade of the protective breakwater system in the Northern Port in Gdańsk at a cost of almost PLN 800 million; the deepening of the approach fairway and internal basins and the reconstruction of quays in the Port of Gdynia at a cost of almost PLN 600 million, and the construction of a protective breakwater in the Port of Gdańsk at a cost of PLN 850 million. The program was prepared with a view to implementing the “Strategy for Responsible Development until 2020 (with an outlook until 2030).”
Budimex SA remains interested in implementing projects under the public-private partnership (PPP) formula. There are still very few PPP tenders for high-value projects on the Polish market.
The Polish electricity market offers good prospects from the point of view of investing in green generation assets.
In 2022, the annual demand for electricity in the Polish electricity system is approximately 174 TWh and 55 GW of installed generation capacity. Currently, Poland has the fifth largest annual electricity demand in Europe, which is largely covered by coal-fired sources. Low-carbon electricity generation accounts for 23% of total output. Over the next decade, Poland will face the challenge of ensuring sufficient generation capacity as coal-fired power plants are being phased out. The main goals and objectives of Poland’s energy development are set out in the “Poland’s Energy Policy until 2040,” which is currently being updated. According to government announcements, a draft of the new document will be prepared by the end of this year. Unofficial information suggests that the share of RES in the energy mix will be higher than originally assumed. The document from 2019 provided for, among other things, an increase in installed photovoltaic capacity to around 10–16 GW (2040), the installation of offshore wind farms with a total capacity of 11 GW by 2040 and an increase in the share of RES in all sectors and technologies by at least 23% (2030). The expansion of the market will be further boosted by the investment program of the Polskie Sieci Przesyłowe (PSE) and investments under the National Recovery Program.
The Budimex Group is scouting for further projects to acquire and is working towards the organic development of such plants through a long-term development process.
Between 2022 and 2023, the Budimex Group entered the electromobility business. Budimex Mobility SA’s network of electric car chargers has already exceeded 160 stations. The company is among the top 5 players in the market. The electromobility market in Poland is at an early stage of development. Charging station operators are focused on securing attractive locations, whose purchase will pay off as a result of successive improvements in market utilization. According to estimates by the PSPA, annual sales of electric vehicles (BEVs) in Poland will increase from 14,425 in 2023 to more than 0.5 million cars per year in 2040. The network of charging points will be expanded dozens of times during this period, from 6,639 points in 2023 to nearly 176,000 points in 2040.
Another promising market for the Budimex Group is the waste management and infrastructure maintenance segment. Since 2012, these markets have been developed by FBSerwis Group companies.
The waste management sector in Poland deviates from Western European standards and requires major changes, in line with the trend of promoting a circular economy. Various legal regulations are being introduced at both national and EU level, forcing municipalities and producers to reduce waste generation and bear the costs of waste disposal. Thermal treatment and landfilling are the least promoted waste disposal options in the EU. In recent years, along with economic growth, the amount of municipal waste in Poland has been gradually increasing. In 2022, 13.4 million tons of waste were produced. Due to the decline in coal mining, a different trend was observed in the case of industrial waste, with over 115 million tons generated in 2022, i.e., significantly less than even 10 years ago. A major problem for the industry is the so-called “grey market.” It is estimated that around 30% of waste in Poland is managed outside the system. For comparison, the same indicator in Western European countries stands at about 5%. In the long term, recycling and reuse of waste as a raw material should be the primary means of “disposing” of waste. If this happens, the amount of mixed waste, and thus the production of the calorific fraction of waste, should decline. This trend will set the stage for further market development. The level of recycling in Poland (30–40%) is far from the figures observed in other countries: Germany (around 70%), Austria (60%), Italy (50–60%) or Norway and Sweden (50%). This percentage has been increasing in Poland to a small extent in recent years, with the main reason being the insufficient level of funding for raw material recovery by producers of packaged goods.
The FBSerwis Group is active in the infrastructure maintenance industry, mainly with regard to the national and local road network. As a result of the successive implementation of the National Road and Motorway Construction Program, the length of expressways and motorways has increased to more than 5,000 kilometers in recent years. The target network is expected to be over 8,000 kilometers. Over time, the emphasis will shift from road construction to road maintenance and repair.
The same trends will be observed at the local level, where the expansion of the road network is supported by programs such as: the New Deal or the Program for Strengthening the National Road Network.
