Warsaw, 10^th October 2018

 

Position of the Union of Entrepreneurs and Employers on rising energy prices 

 

Electricity prices constitute a very important parameter for all participants of a state’s economy. For entrepreneurs, naturally, expenditures on electricity embody a cost that is particularly acute for production enterprises with high energy consumption. For distributors, rising electricity prices mean higher risks (these entities become, in principle, hostages of the situation they found themselves in – they distribute a product whose prices grow in a fashion completely independent from them). From the point of view of a consumer, more expensive electricity (ergo higher costs of enterprises) is associated with an increase in the prices of products and services. In addition to all of the above, everyone obviously uses electricity also at home, independently from their economic activity. In connection with the above, rising electricity prices are no good piece of information for market participants. Therefore, it is necessary to consider the reasons behind this phenomenon and potential ways of solving this very problem.

Offer prices for energy sales for 2019 for business oscillate at a level, depending on the specifics, circa PLN 350-480 per one megawatt hour (1MWh), whereas this year the business was getting electricity for PLN 210 per 1 MWh. This means that next year at least a large part of entrepreneurs will have to pay for electricity more than a half more than they paid over the present year. This state of affairs will not remain without impact on the entire economy, including – which seems to be particularly sensitive from a political point of view – the situation of consumers and households. Therefore, drastic increases in electricity prices have recently become such a popular topic in the media.

First and foremost, it should be noted that the problem is not of a temporary nature. A transient increase in electricity prices would obviously be worrying at the time, but in the long run, it would not have significantly impacted the economy. However, according to estimates of the Institute for Renewable Energy, after 2020, Poland, having set up an energy mix based in half on coal and supplemented with nuclear energy and renewable sources, will have the highest in Europe wholesale energy prices and tariffs for all recipient groups. Such forecasts indicate that the problem of rising energy prices in Poland is of a strategic nature and does not constitute only an interim economic hardship.

As for the reasons for rising electricity prices, one must state that they are largely external and, as a rule, independent from Polish decision makers. One of the basic reasons mentioned by analysts is a drastic increase in the prices of CO₂ emission fees.

Within the European Union, there is a system of emissions trading, which is a de facto key element of the Community’s climate policy. It consists in the fact that every year, there is a certain number of CO₂ emission permits on the market. Such a permit gives the holder the right to emit one metric tonne of carbon dioxide. In 2013, the number of 2,084,301,856 permits was established, which until 2020 will be decreasing annually at the rate of 1.74%, and from 2021 to 2030, by 2.2 %. Emission permits are allocated to companies through auctioning and can then be sold on the open market by means of a stock exchange. In the autumn of 2017, the price of one permit equalled on average approximately EUR 6. At the moment, the price has increased to EUR 25, and in the near future, it is not entirely impossible that it breaks the level of EUR 30, and some analysts mention the possibility of reaching the level of EUR 100 in the long term. The Polish power industry, based in 85% on coal, is additionally high-emission (about 770 kg of CO₂ per one megawatt hour, whilst in Germany, it is only about 420 kg per 1 MWh), which means that changes in the prices of permits for CO₂ emissions directly translate into energy prices in our country. In the long term, the problem may turn out to be even more severe, as due to the fact that Poland had surpluses of CO₂ emission permits, some producers received them for free. In the near future, these entities will have to participate in auctions, which means an increase in demand for permits, and therefore a further increase in prices.

Considering the above, one must not forget about the second, no less important, component of the problem, that is coal prices. At the beginning of July this year, coal prices in Australia exceeded the level of USD 120 per metric tonne. Coal was so expensive for the last time in 2012. The increase in coal prices is almost directly attributable to China’s growing demand for this raw material. Undoubtedly, there are several reasons for the increased demand – analysts indicate, among others, an exceptionally warm summer, but it is not without significance that Chinese industry is growing dynamically, and at the same time, China does not have any CO₂ emission limits adopted by EU countries. Coal prices on world markets are very important for Poland, as about 20% of the raw material used in the country is imported. Coal mining in Poland is expensive, because it comes from proper mines, not strip mines, as it is in Australia.

To recapitulate, in view of the current perturbations on the global markets, two unfavourable factors – from the point of view of energy prices in Poland – accumulated, which are: the increase in the prices of permits for CO₂ emissions and the increase in coal prices. At the same time, more and more expensive electricity in Poland is at the moment only part of the problem, because, in the long term, we can even expect a gap in electricity supply. According to estimates, our demand for power may increase by 2030 from 26 gigawatts to 33 gigawatts. Simultaneously, there are no new power plants in Poland that could meet growing needs for energy, and more than 60% of existing installations are already this old that soon they will no longer be able to continue their operations. Consequently, the power grid in Poland requires far-reaching and continuous modernisation, which would cost the budget tens of billions of zlotys.

Taking into account the above facts and forecasts, one must admit that the discussed situation has a direct negative impact on the competitiveness of the Polish economy. Within a few years, we may have the most expensive electricity in Europe, and already at the moment, large customers pay significantly more per one megawatt than other countries in the region (approximately EUR 69 in Poland vs. EUR 57 in the Czech Republic or EUR 38 in Germany). This, of course, translates into operating costs of enterprises, their competitive position relative to other European entities, product prices, and ultimately also into the costs of maintaining a household. No wonder, then, that the problem was addressed by both the Ministry of Energy, which explained the reasons behind higher prices, as well as the largest Polish energy companies that discussed their investment plans during the proceedings of the Energy and Treasury Committee of the Polish Sejm.

Pursuant to the above-mentioned facts, we consider it reasonable for the government to conduct remedial actions as part of the formulation of Poland’s energy policy. Therefore, we draw attention to the need to create a framework and to stimulate the formation of energy clusters, i.e. agreements concluded by means of contracts between locally operating entities that deal with the production, consumption, storage and sale of, among others, electricity (but also heat or fuels). Investing in distributed energy, as well as improving the regulatory framework for energy clusters (the definition of a cluster was only introduced into our legal system in mid-2016, and is, therefore – from a legal point of view – a relatively young formula), becomes necessary to balance future demand for energy – clusters concentrate in different energy sectors, and by strengthening the decentralisation of production, storage and supply, they also significantly reduce the risk of a blackout.

At the same time, efforts should be made to increase the share of “green” sources in the Polish energy mix, including in particular wind farms, along with those built on the sea. This is a de facto necessity resulting from both permanent and objective conditions, such as inefficient methods of extracting the key raw material for the Polish energy industry, which is coal and growing demand for electricity, with insufficient number of production units, as well as political conditions resulting from climate regulations adopted at the level of the European Union. For this reason, in order to maintain the competitiveness of Polish entities on international markets, we call for – apart from reacting to the current situation – long-term and strategic activities.

 

Union of Entrepreneurs and Employers

 

Fot. magro_kr/ na lic. Creative Commons/ flickr.com

Warsaw, 11st October 2018

We’re opening the Freedom Lounge

 

In the former headquarters of the Communist Party, the building in the very center of Warsaw that housed the Central Committee of the Polish United Workers’ Party, the Warsaw Enterprise Institute opened the Freedom Lounge. It was created with conservative and free-market youth in mind – a place where youth organizations will be able to organize their events free of charge, use the in-house television studio, develop of their professional careers, as well as for socializing and entertainment purposes. WEI will help them successfully achieve their goals.

The Freedom Lounge consists of three levels. The underground floor is where the conference room for 60 people is located, on the ground floor, there is a bar and canteen, whereas on the mezzanine, there will be a television studio.

We would like to invite all ambitious young people to cooperate with us. If you are interested in this project, please contact Tomasz Kołodziejczuk – t.kolodziejczuk@wei.org.pl, +48 661 616 522.

We would like to thank our partners – Orange, PKP Energetyka, the PGNiG Foundation, Philip Morris – and other companies and institutions that supported us in this undertaking.

Since the Liberty Lounge is located in the building that once used to be home to the Central Committee of the communist Polish United Workers’ Party – we may also speak of personal satisfaction, as we ourselves contributed into fighting against this place’s previous tenants.

 

 

Cezary Kaźmierczak, Union of Entrepreneurs and Employers
Tomasz Wróblewski, Warsaw Enterprise Institute

Warsaw, 26^th September 2018

 

Busometr ZPP Index:
Entrepreneurs in a good mood – record-high Busometr index

 

In entrepreneurs’ view, the Polish economy is in a good condition. This is indicated by the latest forecasts of the Union of Entrepreneurs and Employers discussed in the next edition of the Busometr Index survey, which had a reading of 56.8 points. This result is 12.13 points higher compared to the results from the 1^st half of 2018.

The overall value of the Busometr Index was influenced by the “economic situation” component, which currently stands at 55.4 points. One can see a significant increase here compared to the 1^st half of this year (when the value of the component stood 41.75 points). As many as 39% of entrepreneurs are of the opinion that in the months to come the economic situation will improve, while 25% expect it to deteriorate.

It should be emphasised that from this measurement on, the Busometr index is realised using a different business database (previously, this used to be the database of the Union of Entrepreneurs and Employers – ZPP; currently, that of the Ariadna National Research Panel). The sample structure in terms of the size of the companies surveyed in this measurement and the previous ones does not differ, but the demographic structure of the respondents has changed considerably. This change may be partly responsible for the observed increase in indices.

“In the latest edition of the study, we have noticed a very dynamic growth in every indicator analysed as part of the Busometr Index,” comments Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “Perhaps the change in the demographic structure of the respondents has impacted the situation, but undoubtedly the reading results for the 2^nd half of 2018 reflect a clear trend: entrepreneurs observe excellent economic conditions and are willing to make use of them, for instance, by investing their money.”

The least concerned about the economic situation in the country, in terms of the next six months, are entrepreneurs from the commerce sector (here the index reached 61.32 points), followed by production and services sectors (59.11 and 51.06 points, respectively).

The value of the ZPP Busometr Index was also influenced by the other two components – the labour market and investments.

Regardless of the size, region, sector or the age of an enterprise, the moods of entrepreneurs in the area examined in terms of the component “labour market (wages and employment)” is at a decent level of 61.9 points. In the case of “wages”, the barometer amounted to 62 points, with 43% of entrepreneurs declaring an increase in remuneration in the near future. In terms of “employment” 42% of respondents plan to increase it.

“The fact that almost half of entrepreneurs plan pay rises, is not at all surprising,” claims Cezary Kaźmierczak. “We are dealing with insufficient labour supply today, entrepreneurs are competing for employees, hence wage increases are natural. Due to the good economic climate and dynamic growth in consumption, companies can afford to offer higher wages.”

A significant increase can also be seen in the “investments” component – the latest reading is at 53.7 points. (increase by 10.24 points with respect to the previous Busometr measurement). As many as 64% of respondents declare that they will invest over the next six months, while 36% of respondents do not plan to invest. Medium-sized and large enterprises as well as enterprises operating within the production sector are most optimistic in this respect (63.1 points).

***

Busometr ZPP – the Index of Economic Mood in SME Sector is an economic barometer illustrating the level of optimism in small and medium enterprises, and their plans for the coming six months.

Three components affect the index: (1) the economic situation, (2) labour market (remunerations and employment) and (3) investments.

A value within the range of 0-100 is assigned to each component.

The Union of Entrepreneurs and Employers along with Maison Research House conduct the research among a representative group of small and medium enterprises (up to 250 employees). Busometr ZPP is published every six months.

Small and medium enterprises constitute in Poland 99.8% of all the companies in the country. They create three quarters of the work places and generate 67% of GDP.

 

26.09.2018 ZPP Busometr Index. Forecast for 2^nd half of 2018

Warsaw, 19^th September 2018

 

The economy and state budget are in good shape

 

 

Both the financial situation of the budget and the results achieved by enterprises are getting better, as the latest Business Paper by the Union of Entrepreneurs and Employers regarding the financial condition of the Polish economy describes. However, there are threats appearing on the horizon.

The financial condition of an economy can be analysed from two angles. The first is the issue of the situation of public finances. In this respect, Poland has seen a clear improvement recently. With a gradual increase in budget expenditures, revenue increased even more, especially in terms of VAT.

“One can clearly see the results of the coexistence of two factors, i.e. the excellent economic situation, manifested by the increase in internal demand and the tightening of the tax system in the field of counteracting extortion of VAT refunds,” says Cezary Kaźmierczak, President of the Union of Entrepreneurs and Employers. “These two elements have significantly contributed to the reduction of the deficit, as the revenues from taxes on goods and services constitute the main component of budgetary tax revenues,” he adds.

In 2017, the lowest budget deficit was achieved in ages. At the same time, however, due to the excellent economic situation in the world, some countries have recently recorded a budget surplus, while in Poland a long-term deficit has been maintained for a long time. As a result, the debt of the public finance sector is growing, even though the situation of the budget recently can be described as good compared to previous years. While indirect taxes, in particular VAT, are of key importance to budget inflows from the point of view of revenues to the budget, the greatest threat to the stability of public finances seems to be the expenditure related to the execution of compulsory social security benefits, which are already the most important component of budget expenditures (in 2017, we spent almost twice as much on them than on family benefits, including 500+).

Apart from the relatively good situation of the state budget, attention should be paid to the financial condition of enterprises. Their revenues have recently increased dynamically, although large companies play a major role in this respect. It is enough to mention that in 2017, they achieved an average income of PLN 578 million, while medium-sized and small companies achieved an average income of PLN 29 million. At the same time, micro-entrepreneurs could in 2016 boast an average revenue of PLN 520,000 – merely four years earlier, this was only PLN 460,000. Therefore, there is no doubt that economic entities of all sizes are achieving higher and higher revenues, however, the disproportion between SMEs and large enterprises is very large, which naturally results from the specificity and scale of their operations. Interestingly, in small companies we can observe a slightly higher share of wages in total costs than in the case of large entities.

“Revenues of business entities are growing regularly, but we have in fact experienced increased dynamics recently,” says Jakub Bińkowski, Secretary at the Department of Law and Legislation of the Union of Entrepreneurs and Employers. “The result thereof is that entrepreneurs have accumulated a record amount of savings on their bank accounts. At the same time, micro-enterprises have a relatively small share in the revenues generated by companies in spite of a clear advantage in terms of their number.”

To sum up, Polish economy is clearly gaining from the excellent economic situation, from the resourcefulness of Polish entrepreneurs, as well as from the tightening the tax system. However, the question remains unanswered whether – especially in the area of budgetary discipline – are we taking advantage of the current conditions to a sufficiently high degree.

 

19.09.2018 Business Paper by the Union of Entrepreneurs and Employers – Financial condition of the Polish economy

 

 

Fot. Martin Henriksen / tempest.dk

Warsaw, 5th October, 2018

 

Position of the Union of Entrepreneurs and Employers on the proposed text of the directive on the reduction of the impact of certain plastic products on the environment

 

The draft Directive on disposable plastic products by the European Commission raises strong concerns of the business community. In the long-term, it will affect many Polish entities in a strongly negative way, significantly worsening their situation.

 

It should be noted that the original proposal raises far-reaching concerns, but the situation is getting even more dangerous, as in recent weeks there has been a significant tightening of the course taken. Members of the European Parliament have made numerous amendments, two of which disproportionately and in an ill-considered manner hit the Polish tobacco industry. This is important inasmuch as in this industry Poland has a strong competitive advantage over other EU markets, both in terms of production volume as well as the size of investments and employment. The concerns about the shape of the draft Directive and the amendments tabled is only reinforced by the fact that the vote in the Committee on Environment, Public Health and Food Safety (ENVI) will take place on 10^th October while the works in both the Council and the European Parliament are held on the principle of the so-called “fast track”.

 

The first amendment proposed by EU parliamentarians concerns the introduction of additional information obligations for manufacturers of tobacco products regarding appropriate methods of disposal of garbage, the effects of illegal littering, and information about the presence of plastic in the product. One must note that the appearance of a cigarette pack is already regulated by numerous legal acts. Relatively recently, the appearance thereof has been significantly interfered with, imposing on manufacturers the obligation to put health warnings on the packaging of tobacco products relating to the effects of tobacco use. The proposal to impose additional obligations on manufacturers of tobacco products in terms of informing about the proper ways of disposing of garbage, the consequences of illegal littering, or the content of plastic in the product, raises legitimate objections. It must be emphasised that the European Commission took the above-mentioned conditions to be considered when designing the directive in its current shape.

The second amendment aims to reduce the use of cigarette filters, i.e. of the elements that have a key health impact as far as the product goes, which is to limit the amount of harmful substances that end up in consumers’ organisms. The observance of acceptable concentration levels of certain substances (resulting from legal acts of the European Union) requires the use of filters with appropriate properties. It must be highlighted that despite of the fact that many studies have been conducted over the years, one has yet not managed to find an appropriate substitute for the currently used cigarette filters. Any limitation to the possibility of using filters is therefore tantamount to an adequate limitation of the production and sales of tobacco products. In practical terms, this would entail a real risk of production reduction or even closure of factories of tobacco producers in Poland. In the tobacco industry, there would be reductions of employment, while the revenues to the state budget due to excise tax on tobacco products would be significantly reduced. It seems that the scale of the potential negative effects of accepting the amendments proposed by Members of the European Parliament is large enough to clearly oppose them.

 

In recent years, Western European countries moved the production of tobacco products to the east, primarily to our country. Polish factories, serving hitherto the our local market, started to manufacture products for exports – in total to a several dozen countries. Poland became the industry leader. Presently, the Western European countries are pushing the solutions described above, which will result in the elimination of the established market position of Polish factories, as well as the mass dismissals of tobacco industry employees.

 

We recognise the need of legislation and the importance thereof, aimed at reducing the amount of plastic in the natural environment. However, we would count on actions to be undertaken that represent a wider socio-economic compromise.

 

 

Fot. marcin049/pixabay.com