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“Network fees” proposed by telecommunications operators – will consumers pay twice for infrastructure maintenance?

Posted on 15 May 202315 May 2023 by Weronika Marzec

Warsaw, 15 May 2023

“Network fees” proposed by telecommunications operators – will consumers pay twice for infrastructure maintenance?

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Over the past months there has been an increased discussion regarding ETNO’s (European Telecommunications Network Operators’ Association – representing the biggest telecommunications companies) demands to charge content and application providers for the traffic that is generated by the use of their services. Telecoms believe that because of them they are being forced to bear the costs of infrastructure maintenance, and call content providers “stowaways” who do not contribute to the maintenance of European infrastructure. The truth, however, is quite different, and this is not a fight between telecoms and the big Internet giants, but a fight for the Internet as we know it. The concept of “fairshare payments,” as telecoms call them, is opposed by virtually all circles, except the largest Internet providers. Their introduction will certainly also be felt by Polish digital companies, which employ thousands of people and contribute greatly to the economy.

In this paper, we will present where the idea of introducing “fair share payments” came from and how it is argued. We will also present what effects the implementation of this solution will have on consumers and entrepreneurs, and we will present individual national circumstances.

In view of the ongoing debate on the introduction of “fair share payments” we note the following:

Not even the telecoms themselves agree on the cost of handling Internet traffic. The Fédération Française des Télécoms presented an estimate according to which handling network traffic generates €2 billion in costs in France, or €27 for each resident of the country. That’s a third of the amount of €80 per EU resident calculated by ETNO, and it’s still significantly inflated.
The research indicates that South Korea is so far the only country that has responded to the concerns of telecoms and introduced the legal billing rule of Spending Party Network Pays (SPNP). Under the rules, Internet content and application providers have been required to pay fees to telecoms. The report’s conclusions are clear. All of these regulations have led to a reduction in the quality and variety of content on the Internet. It is also expected to increase costs for the end user of content and reduce investment in local infrastructure
Fair share payments can lead to a deterioration in the quality of online content offered by providers. Additional fees mean a reduction in budgets for creating quality services offered to consumers.
The introduction of additional fees will lead to a competitive imbalance in the telecom market itself favoring the largest players. They will lead in practice to the strengthening of oligopolies in the market.
Fair share payments are widely criticized by almost all circles except the largest telecoms. Experts point out that among the numerous disadvantages of this solution, the most noteworthy is the violation of the principle of Internet neutrality.
In Poland, the expansion of Internet infrastructure is carried out with massive public funding. This means that this purpose is financed by all taxpayers. One can point, among others, to the information contained in the “Broadband Access Plan for Poland,” according to which in the Digital Poland Operational Program for 2014-2020, out of the total funds amounting to 2.57 billion euros, over a billion was allocated to the expansion of broadband networks.

In view of the above, we urge to reject the idea of introducing “fair share payments” within the European Union.

Proposals to introduce so-called “fair share payments”.

For nearly a year there has been a discussion on the idea of introducing so-called “fair share payments”. This idea was presented by Commissioner Vestager on May 2, 2022^[1]. Unfortunately, all indications are that the European Commission is seriously considering the introduction of fair share payments for Internet content and application providers. The issue is being highlighted as a dispute between two big industries, Internet access providers (telecoms) and big Internet corporations. The issue has come to the fore through ETNO’sactivities , which is extensively lobbying for the introduction of fees for “extraordinary growth in Internet traffic that generates challenges for sustainable investment in the European network.” This position is supported among others by Deutsche Telecom, Orange, Telefonica and Telecom Italia, claiming that the six largest Internet content providers account for more than half of Internet traffic^[2]. The argument, in a nutshell, is that large US corporations generate heavy network loads by offering their content, and this leads to the need for large infrastructure expenditures. This traffic is generated by the popularization of streaming, teleconferencing, remote learning, social media, and cloud services. Telecoms assume that since annual network maintenance in 2020 cost €52.5 billion, and service and application providers account for 60-70% of Internet traffic, they should pay €36 billion (€80 per EU resident) to telecoms. Moreover, this amount should increase every year due to the growth of network traffic^[3].

However, the telecoms’ argument is fraught with a number of significant problems. First of all, telecoms charge consumers themselves for internet use. Their demands on service and application providers are nothing more than a demand for a second fee for the same service.

This relationship is illustrated by the graph below:

Telecoms make their infrastructure available to consumers. Consumers use internet content offered by service providers and applications, and this generates traffic on the network. As the use of content available on the Internet generates traffic, telecoms have decided to demand an additional fee from service and application providers called “fair share payment.”.

What is also worth noting is that telecoms argue for their demands with the need to maintain the network due to increased traffic (load). Meanwhile, telecoms’ investments consist of relay stations, fiber optics, modems, and data centers, among other things. A large cost is, for example, the construction of masts and fiber-optic networks. Nevertheless, 70-80% of the total telecom costs are spent precisely on infrastructure, which lasts and can be successfully used for at least 30 years. The remainder relates outdated equipment, which should be upgraded every 5-10 years. The cost of “network maintenance” due to high traffic is therefore not high, and this is explicitly admitted by some telecoms. The Fédération Française des Télécoms presented an estimate according to which handling network traffic generates 2 billion euros in costs in France, or 27 euros for each resident of the country. That’s a third of the amount of €80 per EU resident calculated by ETNO, and it’s still significantly inflated. In France, you can easily find consumer offers of 10 gigabit-per-second connections along with phone and TV at prices around 30-49 euros per month^[4]. These package offers are also a great example of existing interrelations and co-dependencies between telecommunications operators and service providers. In Poland, Orange offers fiber optics with 1 Gbps download speeds for 17.5 euros per month^[5]. It is also worth citing an example in which one German student accommodation organization wanted to provide students with Internet access at a speed of at least 1 Gbps at all times in 2020. The offer for such access was made by 8 German telecoms, of which 5 offered the amount of 11 euros per month per student^[6]. These examples indicate market prices for Internet access, no Internet provider would bid below its costs. Hence, the calculations of both ETNO and the Fédération Française des Télécoms are clearly inflated. It is also difficult to argue that internet platforms are “free riders” because they have invested billions in the construction and development of internet infrastructure over the last decade.

Effects of “fair share” fees on citizens and businesses.

A fee similar to “fair share payments” has been introduced in South Korea, and this is basically the only case where we can find similarities with existing solutions. The Korean example has been studied by BEUC (The European Consumer Organization), among others. It cited a study commissioned by the German Federal Internet Agency. The research indicates that South Korea is so far the only country that has responded to the concerns of telecoms and introduced the legal billing rule of Sending Party Network Pays (SPNP). Under the rules, Internet content and application providers have been required to pay fees to telecoms. The report’s conclusions are clear. All of these regulations have led to a reduction in the quality and variety of content on the Internet. It is also expected to increase costs for the end user of content and reduce investment in local infrastructure^[7].

A similar view is held by the European Internet Exchange Association, which, analyzing, among other things, the situation in South Korea, points out that “fair share payments” are detrimental to the proper functioning of the Internet communications and peering market and distort competition in this market. In addition, they will negatively affect the experience of citizens in basic business operations, data sharing, access to cloud services and the development of research projects^[8] .

Paradoxically, therefore, “fair share” fees in Korea have had exactly the opposite effect of the one that telecoms claim they were intended to serve. It should be pointed out that the introduction of additional fees on Internet content providers could force them to introduce at least partial payment for their services, which were previously free. This could reduce access to online content and lead to digital exclusion of less affluent Internet users. This straightforwardly violates the principle of Internet neutrality, which, however, by definition says that it is the ability of all Internet users to access selected content and applications.

Another issue is the reduction in the quality of content available online. Clearly, many companies offering, for example, streaming services, access to online TV or other video content will be affected by such fees. Prices for access to content can be introduced here or raised only up to a certain level, above which consumers will not be able to accept additional fees. In practice, it will be impossible to pass on the entire cost to content consumers. This means a smaller budget for the creation of quality online content. Similar concerns are presented, among others, by the European Association of Commercial Television and VoD Services, which has issued an open letter expressing concern on the introduction of network fees and its’ effects on the European creative industry^[9]

Crucially, the dispute over “fair share payments” should not be viewed as a conflict between big telecom companies and big Internet corporations. These fees have the potential to very seriously undermine competition on the Internet and threaten the smallest entrepreneurs. Such concerns are presented by the French Association of Alternative Telecom Operators, among others, which notes that fees of this kind will be fatal to the survival of small and medium-sized digital companies[10]. Small companies offering content on the Internet will be put in a very difficult position, as on the one hand they will be charged for Internet traffic, and on the other hand it will be difficult for them to pass this cost on to consumers. The introduction of fees to offset the cost of “fair share” fees will make them lose their competitiveness with larger players in the market.

What’s more, smaller telecom service companies are also openly criticizing the idea of fees. Such threats are pointed out by both MVNO Europe and the EU Competitive Telecommunications Association (ECTA). They point out that the fees will cause serious damage to competition in the telecom market, will directly affect smaller operators, and will negatively impact both individual consumers and telecom customer companies. The fees will only benefit the largest players in the market by strengthening their oligopolies^[11] .

“Fair share payments” are also criticized by academics. In October 2022, they sent a letter to the European Commission signed by 29 market experts, PhDs and professors who know the market very well. They pointed out that the proposal to charge Internet service providers and applications is not new and has always been rejected as harmful. They point out that for the past decade the idea has been unequivocally criticized by experts, business and NGOs. The experts point out in their letter that in 2015[12], the EU granted internet users the right to freely access information and content, use and deliver applications and services of their choice. EU standards require broadband service providers to treat data in a non-discriminatory manner, regardless of what it contains, what application transmits the data, where it comes from and to whom it is directed. Even if fair share payments were directed only to the largest Internet content providers, this would still directly violate open Internet access standards.

Experts also point out that broadband networks are an important part of the value chain just as Internet content providers are driving demand from Europeans for access to the Web. Broadband providers gain significant benefits from the fact that service providers generate demand for broadband access. In doing so, telecoms pay nothing for the efforts of Internet content and application providers in creating that demand. Without the demand generated by Internet content providers, telecoms would not have many customers for high-speed Internet access services. Customers who, after all, pay telecoms for that access. Moreover, governments, universities, government offices and other public entities are also Internet content providers. All of these entities are already paying for the development of Internet networks. The researchers also explicitly point out that history and economic theory indicate that similar fees will not increase investment in Internet infrastructure by telecoms^[13].

The European Video on Demand Coalition is also opposed to “fair share payments,” pointing out that the introduction of this fee will harm the development of innovation in Europe and the digitization process. They also express concern that proposals of this kind are being put forward without adequate public consultation and analysis of the impact of such solutions[14]. Germany’s VAUNET argues that fees threaten media pluralism and the quality of content^[15], while the Association of Commercial Television points out that Internet access fees for content providers mean less money for content creation. Which will ultimately lead to less or lower quality content^[16].

Finally, it should be noted that on June 8, 2022. 34 social organizations from 17 countries sent an open letter to Commissioners Vestager and Breton pointing out the problems cited above and opposing the introduction of “fair share payments.” The authors of the letter emphasize that the Commissioner’s statement about players generating a lot of Internet traffic who should be charged a fair fee to telecoms shows a fundamental misunderstanding of how the Internet works^[17].

So it turns out that both businesses (including smaller telecoms), social organizations, industry organizations and academia speak with one voice and strongly oppose the idea of “fair share payments” stressing that it is harmful to the entire market. The only entities that will gain from it are the largest telecoms, which are actively lobbying the solution at the European Commission.

Polish market

The value of the Polish telecommunications market is 40.8 billion Polish zlotys (approximately 8.73 billion euros). Telecommunications investments in 2020 amounted to 8.9 billion Polish zlotys (approximately 1.95 billion euros). As many as 66.6% of broadband internet users have a connection with a bandwidth of at least 100 Mbps, and estimates indicate that by 2026, over 80% of mobile internet users will have access to 5G technology[18].

According to a survey conducted by the Office of Electronic Communications on a sample of 2011 people aged 15 and over, 97.2% of people in our country use mobile phones, 54.9% use mobile internet, and 54.1% use stationary internet. Any kind of internet access was declared by 79.1% of the respondents. The average monthly bill for stationary internet is 59.17 zlotys (just under 13 euros), while for mobile internet it is 46.43 zlotys (approximately 10 euros)[19]. Poland ranks 30th in the Speedtest Global Index for broadband internet access speed, with an average speed of 106.40 Mbps, and 44th for mobile internet with a speed of 47.86 Mbps[20]. Therefore, the internet in Poland is relatively fast and inexpensive.

Providing fast internet at a relatively low cost, of course, requires investment in infrastructure. However, in Poland, a number of such tasks are undertaken from public funds and do not cost telecom companies a penny. One can point, among others, to the information contained in the “Broadband Access Plan for Poland,” according to which in the Digital Poland Operational Program for 2014-2020, out of the total funds amounting to 2.57 billion euros, over a billion was allocated to the expansion of broadband networks[21]. Further expenditures are planned in the program for 2021-2027. The entire 2 billion euros is to be allocated, among other things, to ensure access to broadband internet with a speed of at least 100 Mbps in every household and business and with a speed of at least 1 Gbps in every place that is significant in terms of social and economic aspects, such as schools, hospitals, offices, and technological and business centers[22]. In addition, funds for the expansion of internet infrastructure have also been planned in the Broadband Fund, which will finance investment projects worth a total of 20 million zlotys in the first call[23]. Further financing has also been planned in the National Recovery Plan. Formally, 21% of the budget is allocated for digitization-related projects, although Minister Plenipotentiary Paweł Lewandowski suggests that even over 30% of the NRP budget may be allocated to this purpose. By 2026, 931 thousand households are planned to be connected to broadband networks[24].

Taking into account the scale of public investments in expanding internet infrastructure, it is clear that the largest cost associated with the dissemination of fast internet in Poland has been to a large extent supported by public funding, mainly through funds from the EU. Similarly, in other countries, huge amounts of money from both the EU and national budgets are allocated for digital transformation. Therefore, telecom companies are not bearing these costs, but rather taxpayers. This means that big telecommunication companies are using infrastructure financed by all of us, burdening their customers with the costs of internet access, and now they are demanding “fair share payments” from content and internet application providers, which could result in significant changes to the internet as we know it, unfortunately only for the worse. Telecom companies will gain by receiving enormous amounts of money, while we will all lose.

In addition, other instruments such as the Broadband Fund are being prepared or already launched, and the development of telecommunications infrastructure is included in the National Recovery Plan.

Therefore, it is difficult to find rational reasons for additional funding of telecommunication operators’ budgets. Moreover, the adoption of the proposal on network fees may in practice lead to limiting access to certain platforms, which directly contradicts the principle of net neutrality.

***

^[1] https://www.reuters.com/business/media-telecom/eus-vestager-assessing-if-tech-giants-should-sharetelecoms-network-costs-2022-05-02/ (accessed April 27, 2023).

^[2] https://www.reuters.com/technology/eu-wants-details-big-tech-telcos-investment-plans-source-2023-01-10/ (accessed April 27, 2023).

^[3] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[4] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[5] https://oferty.orange.pl/swiatlowod2/ (accessed April 27, 2023).

^[6] https://www.project-disco.org/european-union/020123-fast-internet-doesnt-cost-eu-telecom-operatorsmuch-at-all/ (accessed April 27, 2023).

^[7] WIK-Consult report, Study for the Federal Network Agency Germany, Competitive conditions on transit and peering markets Implications for European digital sovereignty Final report.

^[8] https://www.euro-ix.net/media/filer_public/c7/72/c772acf6-b286-4edb-a3c5042090e513df/spnp_impact_on_ixps_-_signed.pdf (dostęp na dzień 27.04.2023 r.).

^[9] https://www.acte.be/publication/tv-vod-statement-on-network-fees/ (accessed April 27, 2023).

[10] https://www.project-disco.org/european-union/020723-is-anyone-in-favour-of-taxing-internet-traffic/ (accessed April 27, 2023).

^[11] https://www.project-disco.org/european-union/020723-is-anyone-in-favour-of-taxing-internet-traffic/ (accessed April 27, 2023).

[12] Regulation (EU) 2015/2120 of the European Parliament and of the Council of November 25, 2015, Official Journal of the European Union L 310.

^[13] https://www.komaitis.org/personal-blog/29-internet-experts-and-academics-send-a-letter-to-thecommission-urging-to-abandon-the-sending-party-network-pays-proposal (accessed April 27, 2023).

[14] https://www.europeanvodcoalition.com/positions/position-paper-on-net-neutrality/ (accessed April 27, 2023).

^[15] https://www.politico.eu/wp-content/uploads/2022/11/02/VAUNET-positionpaper_NetworkFees.pdf (accessed April 27, 2023).

^[16] https://www.acte.be/publication/tv-vod-statement-on-network-fees/ (accessed April 27, 2023).

^[17] https://epicenter.works/sites/default/files/2022_06-nn-open_letter_cso_0.pdf (accessed April 27, 2023).

[18]https://www.telepolis.pl/images/2022/06/raport_o_stanie_rynku_telekomunikacyjnego_w_polsce_w_2021_r._30.06..pdf (accessed April 27, 2023).

[19] Office of Electronic Communications, Analysis of the functioning of the telecommunications services market in Poland and assessment of consumer preferences. 2022. Survey of individual customers.

[20] https://www.speedtest.net/global-index (accessed April 27, 2023).

[21] https://digital-strategy.ec.europa.eu/en/policies/broadband-poland (accessed April 27, 2023).

[22] https://www.gov.pl/web/funds-regional-policy/nearly-2-billion-euros-for-polands-digital-transformation (accessed April 27, 2023).

[23] https://www.gov.pl/web/cyfryzacja/fundusz-szerokopasmowy–pierwszy-nabor-wnioskow (accessed April 27, 2023).

[24] https://www.wirtualnemedia.pl/artykul/internet-szerokopasmowy-rozwoj-sieci-budzet-kpo ; https://www.gov.pl/web/planodbudowy/transformacja-cyfrowa (accessed April 27, 2023).

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The role of RES in the post-war reconstruction of Ukraine

Posted on 13 April 202311 May 2023 by Weronika Marzec

Warsaw, 13 April 2023

The role of RES in the post-war reconstruction of Ukraine

The following is a Memorandum summarising the debate that took place during the 3^rd roundtable of the Energy and Climate Forum of Union of Entrepreneurs and Employers, dedicated to the Ukrainian energy sector and implemented as part of the EUROPE-POLAND-UKRAINE REBUILD TOGETHER 2023 project, in cooperation with the Embassy of Ukraine in Poland.

Renewable energy development in Ukraine:

Over the last five years (prior to the war), Ukraine was able to attract approx. EUR 10 billion in investment in the renewable energy industry.
According to a 2019 assessment by Bloomberg, Ukraine ranked 8^th out of 140 countries in terms of attractiveness for renewable energy investment.
In terms of the pace of green energy development, Ukraine was among the top 10 economies in the world in 2019 and was in the top 5 European countries in terms of solar energy development in 2020.
In the structure of electricity production before the war, renewable energy accounted for 8% of the overall energy balance.
Solar power plants accounted for ca. 58% of renewable energy, wind power plants generated 32%, biomass about 3%, hydropower plants approx. 2%, and biogas close to 5%.
Currently, over 50% of Ukraine’s energy infrastructure is damaged.
As a result of the war, wind power has suffered losses and damage to 90% of the entire infrastructure.
The share of renewable energy according to the “National Action Plan for Renewable Energy Development until 2030” and the “National Energy Strategy of Ukraine” should reach 25% by the year 2030.
Presently, Ukraine has surplus green energy production and is capable of energy exports.
The renewable energy industry in Ukraine is one of the few sectors that operated in a market-oriented and transparent manner even before the war.
The Polish Investment and Trade Agency (PAIH) operates programmes to rebuild Ukraine’s energy infrastructure, which Polish companies can participate in, and the funds can reach up to EUR 100-200 million.

The following esteemed guests attended the debate:

Prof. Alicja Chybicka – Senator of the Republic of Poland

Ivan Grygoruk – Vice President, Energy Club

Janusz Gajowiecki – President of the Polish Wind Energy Association

Igor Krechkevych – Technical Director of the Energy Efficiency Fund

Karol Kubica – Head of the Foreign Trade Office in Kyiv, Polish Investment and Trade Agency (PAIH)

Konstantin Magaletskyi – Green Recovery Fund Ukraine

Olexander Podprugin – Member of the Board, Ukrainian Wind Energy Association and President of Elementum Energy

Anastasiia Vereshchynska – International Development Manager at Energy Act for Ukraine Foundation

Serhij Zasowienko – First Secretary of the Embassy of Ukraine in Poland

Moderators:

Dominika Taranko – Director of the Energy and Climate Forum, Union of Entrepreneurs and Employers

Hennadii Radchenko – Advisor, Ukraine Business Center, Union of Entrepreneurs and Employers

Current state of affairs of energy generation from renewable sources

The first person to be asked to speak was Ivan Hryhoruk, who discussed the current situation and pointed out that as of now more than 50% of Ukraine’s entire energy infrastructure has been damaged. Unfortunately, this also applies to renewable energy sources (RES), mainly photovoltaic and wind power. These were mostly located in areas where current or past military operations are taking place, as the largest number of solar and wind power plants were installed in the Zaporizhia, Kharkiv, Dnipropetrovsk, Mykolaiv, Kherson and Odesa regions. Some solar power plants survived and are still operational in certain locations, but most facilities were destroyed during military operations or were vandalised and looted. Wind energy production infrastructure was damaged by 90% compared to its per-war capacity. Power plants in central and western Ukraine are operating normally if the distribution network allows it. However, power sources in southern and eastern parts of Ukraine are severely limited. Overall, out of the installed capacity of 13 GW, only approx. 40% is currently in operation, and are experiencing serious limitations.

Plans regarding renewable energy production

In post-war conditions, the structure of energy production will change. Ukraine has opted for integration with the EU, and the national energy grid is being synchronised with the European one. The synchronisation processes are ongoing, and Ukraine is fulfilling all the commitments it has made regarding the development of RES in the energy balance structure. This trend will continue to develop. However, it will develop according to a slightly different concept, as significant relocation of production potential from the so-called “grey zone” to the western and central regions of Ukraine is taking place due to the war.

Structure of pre-war electricity production

Renewables accounted for 8% of the overall energy balance in electricity generation prior to the war. These were mainly large industrial power plants. Photovoltaic power plants accounted for around 58% of all energy produced from RES, wind power plants – 32%, biomass – approx. 3%, hydroelectric power plants – 2%, and biogas – ca. 5%. Total installed solar capacity amounted to almost 7 GW, while installed wind capacity reached 3.5 GW. Industrial installations required large areas of land. When solar energy began to develop in Ukraine, 2 ha of land corresponded to 1 kW of power. Over time, technologies became more advanced, surfaces decreased, in some cases rotating mechanisms were implemented, and to produce 2 MW, only 1.4 ha of land could be used. Due to the upcoming post-war relocation of many types of economic activity as well as the population’s “change of address” to western and central parts of Ukraine, such significant free land areas where large industrial power plants could be developed will likely no longer be available. The map of solar activity in western Ukraine practically corresponds to the southern part of the country, hence the potential for PV installations is still considerable. As for the wind energy, it is a little trickier, with winds of 6-8 m/s characteristic only of the Zakarpattia and Prykarpattia regions. There, thanks to the mountainous landscape, aerodynamic currents are created. In other regions, according to experts, it will not be possible to construct large wind power plants, since generators with a capacity of 5 MW or more require higher wind speeds. Therefore, large industrial power plants will not be built in western Ukraine. As for distributed generation, these are power plants up to 20 MW, and they should dynamically develop in the post-war structure of electricity production as distributed generation will be necessary for the future stability of the energy system and can provide electricity to both industry and infrastructure.

Ukrainian Energy Transformation

Currently, the Ukrainian energy sector is going through a difficult period of transformation. After the war will have ended, the situation should improve, but Ukraine is currently dependent on fossil fuel imports, whereas many thermal power plants are damaged and non-operational. Thus, it is necessary to urgently develop RES, such as photovoltaic and wind energy, to replace the consumed fossil fuels and reduce dependence on imports.

Nonetheless, one of the problems that arise from the production of energy from RES is their instability. Therefore, conventional energy and heat generation systems were used to oversee peak loads. Currently, most of them are damaged to a degree exceeding 50% and cannot play the same role in the post-war period. It seems that in spite of all that, they will be rebuilt, assuming that the energy consumption structure will change, and industry will start to develop again. Power plants will gain new importance and will play a crucial role in ensuring the reliability of local infrastructure and industry. Furthermore, actions will be taken to create energy communities and local distribution centres that will ensure the stability of the energy system at the local level. The aim is to create one distribution centre for every 1 to 3 regions, which could connect renewables, heat generation, and hydroelectric power plants. This way, such cooperatives will balance the power in the local energy system and also operate in all market segments: daily operations, next day, balancing, and ancillary services.

Settlements between market participants would take place within a day, so there would be no deficits in settlements for renewable sources, as was the case before the war. For effective use of small distributed power plants, distribution network operators will be appointed. Ukrainians are already switching to a higher voltage level of 20 kV to reduce electric energy losses during transmission. As a result, the quality of electricity supply services to customers will improve.

Legal changes to attract investment

Serhij Zasowienko, the First Secretary of the Ukrainian Embassy in Poland, pointed out that in recent years, thanks to the introduction of the green tariff model in Ukraine, there had been an increase in installed RES capacity. At the beginning of 2022, the installed RES capacity reached 9.5 GW, with investments in the industry exceeding USD 12 billion. Currently, about one quarter of the installed RES capacity is located in occupied territories. The situation is particularly difficult for wind power plants, with about 80% of installed capacity located in the occupied areas of the Kherson and Zaporizhia regions. About 20% of the power plants are completely damaged, many destroyed or looted by the occupying forces. Despite these circumstances, even during the war, Ukraine ensures the fulfilment of its obligations to investors in the field of renewable energy. This is one of the priorities of the Ukrainian Ministry of Energy. Regarding the future of the country, like the rest of Europe, the creation of future energy balances will be based on RES. According to the “National Action Plan for the Development of Renewable Energy until 2030” and the “National Energy Strategy of Ukraine”, the share of renewable energy should reach 25% by 2030. Currently, the parliament has submitted a package of laws to the government for consideration, such as “On Stimulating Local Production of Electricity from Alternative Energy Sources” and “On Improving the Conditions for Supporting the Production of Electricity from Alternative Sources” as well as further legislation related to energy projects. The Ukrainian Ministry of Energy is working on market solutions and facilitation for investors regarding the development of energy. The government is already inviting investors to become active players on the Ukrainian market, because with the end of the war, the physical reconstruction must begin, rather than just the administrative process.

The situation in wind energy

Olexander Podprugin pointed out that there are currently about 35 wind farms connected to the transmission grid in Ukraine with a total capacity of 1.7 GW. Energy is one of the most aggressive military frontlines. An energy war is being waged, with atomic blackmail and attacks on nuclear power plants. It is difficult to estimate the losses in infrastructure in a credible way, as many installations, including wind turbines, are located in hostile territory and are thus inaccessible. Only 20% of the turbines are located in the unoccupied territories of Ukraine. Ukrainian wind energy, which was operational last winter, made a significant contribution to the survival of Ukrainians, providing them with the basic minimum of energy and often being the only available source.

Despite the ongoing war, the construction and installation processes of wind power plants continue in a few locations. There are currently two projects in the pipeline, in Mykolaiv and in Odesa regions, with a total capacity of ca. 150 MW, expected to be launched in the spring. Unfortunately, for most projects, work is not being carried out due to occupied ports and blocked logistics.

The reconstruction of the Ukrainian energy system should be based on clean energy sources, primarily wind generation. The Ukrainian government’s recovery and development plan provides for a significant increase in wind and solar plants to at least 10 GW. As for green energy generation, over 30 GW of RES are planned for hydrogen production. Research conducted in various regions of Ukraine shows that many large power plants and fairly large wind farms using the best and most powerful turbines currently available can be built in Ukraine. We are talking here about both onshore and offshore wind farms. The potential for Ukrainian offshore wind power is immense and could theoretically be as high as 250 GW in installations located in the Black and Azov Seas, of course, after de-occupation and opening up investment opportunities. However, much still needs to be done to give this momentum, including regulatory changes such as reducing barriers to connecting new power plants, simplifying permit systems, and simplifying procedures for obtaining both environmental and construction decisions. Separately, many changes need to be developed in legislation concerning land and sea use, including connecting new wind power plants to the grid. From a technical standpoint, efforts should be made to increase the flexibility of Ukraine’s energy system so that it can accommodate more renewable energy.

Existing barriers that can be eliminated

According to our interviewees, administrative deadlines are also barriers to RES development, as power plants whose construction has been halted due to the war have missed their deadlines for commissioning. They will not be built on time and could be connected to the grid in the near future. Investors in Ukraine should be able to rely on promises being fulfilled, and capital and assets being protected. Therefore, a law should be adopted to extend the deadline for commissioning the planned power plants (on the same terms as in 2022). This may enable the execution of planned projects. Ambitious goals and a strategy according to which RES development will be based should be documented. Administrative decisions should have a validity period of 5-10 years and provide for conditional extension of the investment execution deadline. At the same time, the issuance of environmental documentation and construction permits should be expedited. It would also be worthwhile to implement regulations that allow investors to receive additional benefits for green energy.

Energy efficiency in the reconstruction of Ukraine

Igor Krechkevich, the technical director of the Ukrainian Energy Efficiency Fund, discussed the Fund, which is the only state organisation established by the Ukrainian government to stimulate energy efficiency and energy savings, mainly in the multi-family sector. Before the war, the fund successfully implemented the “Energodom” programme, which aimed to introduce energy-saving measures in the private and communal housing sectors. The organisation worked and is still working with residents’ self-government organisations, even during the war. Innovative programmes were implemented both from the state budget and with support from the EU, in particular Germany. After 24^th February 2022, the war forced changes in the fund’s activities, and thus began the search for possible ways to provide additional support to the people of Ukraine. The “Rebuild Your Home” programme was developed, which to some extent can also be called energy efficiency activities, as many apartments and multi-family residential buildings were damaged and continue to suffer from air strikes, missile fire, explosions, leading to broken windows, roof and façade damage etc. “Rebuild Your Home” is also co-funded by the European Union. The programme helps residents’ self-government organisations rebuild damaged homes, repair windows, façades and roofs. Fortunately, it is now spring, and the enemy’s plans to prevent Ukraine from surviving the winter failed to succeed. The energy network survived, and the process of stabilising it continues. Therefore, there is a developed programme that allows families without a roof over their heads to return to their homes. The energy modernisation programme, which also operated during the previous year of the war, did not stop and paid out over UAH 1 billion (Ukrainian hryvnias) for modernisation purposes. An example is the city of Mykolaiv, which continued modernisation efforts even during shelling.

The development potential of Ukraine

According to Bloomberg, Ukraine ranked 8^th out of 140 countries in 2019 in terms of attractiveness for investing in renewable energy. Investments lead to business development, influx of money, and profits. In this model, investment opportunities and an attractive rate of return are crucial. The Ukrainian government has already developed certain mechanisms and steps, while projects and laws are being created, and there is an understanding that RES represent a vast space for development and huge investment opportunities. Earlier in the text, offshore perspectives for wind energy were mentioned, which can only be developed with access to the Black Sea. Nevertheless, its potential is indeed enormous and has great significance in the European energy strategy, where Ukraine is a possible electricity supplier (especially to Germany, from which 75% of equipment imports originate).

The private residential sector is also active in the field of distributed energy, where small solar power plants are installed – not so much for business purposes as for powering homes. The war has shown that distributed generation and the development of energy cooperatives are necessary. They can develop basing on both multi-family residential buildings and private estates. There are already opportunities to work with the private sector in Ukraine, and after Ukraine’s victory over Russia, there will be an opportunity to enter a completely new market with new, investor-friendly rules. It seems that the scale of the planned investments will be sufficient to support Ukraine’s economy and help it transition to green energy. In western Ukraine, where there is less enemy shelling, preparations for the implementation of residential renewable energy are already underway. Ukraine has already been systemically integrated with the European market and had supplied energy to the EU market before the war broke out.

RES as a source of primary energy

Anastasia Vereshchynska, the Development Manager of the Energy Act for Ukraine Foundation, emphasised that the projects of the Energy Act for Ukraine Foundation are gaining attention not only in Ukraine, but also abroad. The foundation was established in response to the full-scale war in Ukraine and focuses on providing energy assistance primarily to Ukrainian civilian facilities, schools, and hospitals. The Energy Act for Ukraine Foundation focuses on a long-term, large, and very ambitious project to equip 100 schools and 50 hospitals in the country with hybrid solar power plants. The foundation is constantly looking for sponsors. The latest completed project was in a school in Irpin, where the installation had a capacity of 25 kW, satisfying a third of the school’s energy needs. The energy generated by the installed power plant also provides power for street lighting, so that children can safely return home from school, which is particularly important during winter.

On the other hand, the Energy Act for Ukraine Foundation installs hybrid power plants in hospitals to ensure the functioning of surgical theatres, maternity wards, and ICUs. Schools and hospitals participating in the programme are selected in cooperation with the Ministry of Education and Ministry of Health, which recommend institutions covered by the programme. These are chosen at a safe distance from the frontline and the Belarusian border. Investors do not want newly installed PV panels to attract the attention of the enemy, which could further endanger these facilities. One of the criteria for allocating investments is also having a bomb shelter at the school. Children and patients must be provided with safety.

The Energy Act for Ukraine Foundation’s programme also includes lessons on renewable energy and green solutions installed in schools. The organisation also informs why the development of renewables and conscious energy consumption is critical.

The third direction of the Foundation’s activities is the delivery of energy equipment to the civilian population. This is mobile equipment, mainly energy storage systems with PV panels that can be easily moved. It is important for hospitals located in strategic locations. Some of them have been delivered to field hospitals in the Donetsk and Zaporizhzhia regions. Polish and German donors were involved in the project. The Foundation also tries to draw attention to the fact that renewables can not only be a part of post-war reconstruction, but also an exceptionally effective way to provide immediate help. This need for help is urgent and desperate, and not as harmful to the environment as diesel generators. The organisation is not opposed to diesel generators, which it also buys when there is no alternative, but it draws attention to the existing proposals for energy storage systems that are a more forward-looking solution. The goal is to make energy consumers in Ukraine independent of fuels, so that people do not have to die due to a lack of access to electricity.

Polish perspective on RES in Ukraine in the context of health and safety

Senator Alicja Chybicka, Vice-Chair of the Health Committee, member of the Senate Committee on Climate and Vice-Chair of the Environmental Committee, noted that several laws related to RES are currently being processed in Poland, a national milestone. The entire world is striving to use renewable energy, which is currently the cheapest source of energy. We can use wind, water and sun. As we need wider access to the transmission grid today, we also need to learn how to store energy better. In the opinion of Senator Chybicka, it is important that children in Ukraine are taught about clean environment. Most diseases, not only cancer, have their origin in negative factors related to the climate and environment, not only universally understood, but also in what we eat and breathe. Cancer, which we now have a genetic accumulation of, needs an initiator to activate the gene – these can be found in the air, water or food.

The war in Ukraine has caused numerous countries to focus on RES development. Nowadays, we provide Ukraine with many generators, because we need to provide electricity to residents right now, but assistance must be planned in such a way that these green solutions remain in Ukraine after the war.

How does Polish business currently fare in Ukraine?

Karol Kubica, Manager of the Foreign Trade Office in Kyiv at the Polish Investment and Trade Agency (PAIH), assures that the economic cooperation between Poland and Ukraine is constantly developing. Poland is one of Ukraine’s most important trading partners, and Ukraine is also climbing higher in the national trade balance. The PAIH office has been operating in Kyiv since 2018. For the last 5 years, interest in Polish products and services has been steadily increasing. Polish businesses are also increasingly interested in investing in Ukraine and seek cooperation with local entities. Over the past 20-30 years, Poland has undergone a transformation and has been one big construction site. Now, our experiences can be useful to Ukrainian companies.

The issue of alternative energy sources is a topic that the entire world is currently facing, not just Ukraine. In Poland, there is quite a long investment process in RES, both due to legislation and investment schedules. For Polish businesses to enter into these investments in Ukraine, they must have guarantees, security, and prospects for adapting legislation for foreign investors provided by the government. The inquiries from the renewable energy industry received by PAIH represented a few percent per year, usually totalling about 700 inquiries. Despite the ongoing war, these trends are similar. PAIH educates and presents investment prospects, but representatives of the agency believe that education alone is not enough. So far, about 1,800 entities interested in rebuilding Ukraine have registered, of which 33% represent the construction and energy sectors. The renewables sector, which includes not only energy companies but also energy-efficient buildings, is a part of this sector.

Developing business in Ukraine

Polish companies may not be visible in the renewable energy sector on a daily basis in Ukraine, but they participate in the broadly understood RES supply chain. These are suppliers of equipment and technologies who offer their solutions. Both Polish state-owned companies such as Orlen, PGNiG or Unimot Energy, as well as other private sector companies operate in Ukraine. However, businesses also like stability and not always report to government agencies, implementing investment assumptions independently. PAIH often intervenes when there is a problem with the administration, such as when Polish factories operating in Ukraine face difficulties connecting additional power demand. An example of support from PAIH may be ensuring an increase in the capacity of power lines when, after investing, additional production lines are launched. Ukraine’s accession to the EU structures is still quite distant and will require, among other things, adapting legislation, which should in turn improve investment conditions. However, Polish sectors such as construction, food and energy are already present in Ukraine.

Money for investments in Ukraine for Polish companies

Tenders related to the reconstruction of critical infrastructure in which Polish companies can participate are announced on the website https://odbudowaukrainy.paih.gov.pl/ and on the website of the Ministry of Development and Technology. These are funds allocated for various purposes. The pool of funds can amount to EUR 100-200 million for a single grant.

Currently, Ukraine is declaring what it needs and what needs to be rebuilt in order for it to function properly. Without energy, there is no business, without business there are no taxes or jobs, and then economic emigration increases. On 1^st December 2022, PAIH held industry consultations for entrepreneurs, including those representing the energy industry. During such meetings, PAIH presents the scale of destruction and the possibilities of entering the market, but mainly emphasises that Polish businesses should cooperate with Ukrainian entrepreneurs, share their technology, use preferential loans offered by, among others, Bank Gospodarstwa Krajowego, and insure transactions with KUKE. We should not only be competitors on the Ukrainian market, but the best solution is to find a long-term partnership on the Ukrainian side. Poland and Ukraine together would be unbeatable in Europe. PAIH is already preparing domestic businesses for this.

Cooperation with private and state-owned companies in Ukraine

Konstantin Magaletskyi who represented the Green Recovery Fund Ukraine explained how a fund focused on investments in green energy in Ukraine operates. Its task is to rebuild damaged renewable energy installations and build new ones. From the perspective of Ukraine’s future, this is not only beneficial, because of the use of green energy, but also because of the possibilities of decentralising energy production. Ukraine has experience in this area from previous years, when it exported its green energy to European countries. According to Konstantin, it is best to invest in the private sector, because most of the funding currently goes through the public sector, which is more formalised. A good example may be the operation of a private port: while investment in a state-owned port is greater, the ROI is higher in a private port. The reconstruction of Ukraine will progress much faster with the involvement of the private sector than if only central administration were involved.

Ukraine is already producing surplus green energy and is able to export it. The prospect of damage to a RES farm is now negligible. Furthermore, presently, energy production in Ukraine is stable and it does not need to be imported from abroad. The green energy market is developing steadily. Due to the fact that Ukraine is a large country, there is a need for collateral from large financial institutions for investments planned in this country.

Polish experience in the RES industry vs. knowledge of the Ukrainian market

Janusz Gajowiecki, President of the Polish Wind Energy Association, stressed that the industry is counting primarily on the development of RES in Poland, for instance through appropriate legal regulations. Onshore wind energy will develop all over Europe, and Poland should be a powerhouse in this respect. At the same time, companies from the Polish renewables industry have relations with investors from Ukraine. This sector is well developed in terms of substantive and project-related issues. Industry-specific knowhow is already available in Ukraine, which is why bilateral talks are incredibly detailed and at a high level.

The issue of wind energy in the context of RES is critical. Its impact on the national energy system is enormous. The installed capacity of 10 GW often provides 30% or more energy to the system. Poland has become a kind of hub for foreign companies employing experts from Poland and abroad. The potential of wind power installations in Poland is the largest in the CEE region. Ukraine, Romania or Croatia have all a relatively smaller development potential than Poland, even though Ukraine to a certain degree also has this potential. All companies, private and state-owned alike, are looking at a package of laws that are to change the regulations and simplify investments on the Ukrainian market. They already have projects ready for implementation, the entire permitting is in place, including grid connection, along with analyses of the latest available technologies, which are both ground-breaking and can reach up to 50% of the achievable power. This means that a 6 MW turbine can produce 3 MW over a year.

The UN will also support the development of wind energy. A model of cooperation is currently in the works, with such issues as who is to own farms that are going to be built with European funds among relevant topics. Nowadays, the RES industry is aware of the mission to create something extraordinary, to revolutionise the Ukrainian energy sector. PWEA, hand in hand with the Ukrainian association, are implementing the project “Work service for Ukraine” which helps find a job in the industry.

Unless the 700-metres-rule for wind energy is liberalised, wind energy development will not reach its peak dynamics over the next 8 years. Then the solution for investors will be to engage their remaining capabilities in Ukraine. Possibilities of transmitting green energy from Ukraine to Polish companies are already being analysed. Soon, no foreign investment will stand a chance in Europe without green energy. Without 100% green energy, no Western company will think about opening a new factory in Poland or Ukraine.

Procedures for obtaining permits for RES construction in Ukraine

The issue of permitting in Ukraine is currently similar to how it functions in Europe. There are some good practices that have already been implemented. In Europe, there are presently efforts to simplify and shorten the entire process, as stated in the adopted Re-Power EU package published last year. The regulations indicate that processes related to, among others, spatial planning, duration, and the amount of documentation require to issue environmental decisions should be shortened. Time is of the essence here, because we will need green energy in the short term. This technology is already proven and environmentally safe, so certain procedures can be abandoned or proceeded in a template manner.

Ukraine is prepared when it comes to environmental conditioning specialists and other requirements. The RES industry is one of the few sectors in the country that is corruption-free and transparent. The number of companies operating on the market is large enough to avoid centralisation or monopolising activity in the hands of the state or oligarchs. Therefore, it is a safe part of the market and economy.

Poland has many companies that are not well-known, but produce equipment for wind farm construction. Practically every element of wind turbines in Poland involves Polish companies. They manage logistics, materials, and construction to a full extent. Despite the war, entities associated in PWEA receive many inquiries from Ukraine regarding the implementation of wind projects. These investments are carried out all the time, also with the help of Polish companies.

The energy structure in Ukraine is very outdated and looks similar to the Polish one in the 1990s. By rebuilding the infrastructure, which has been destroyed by 40-50%, Ukraine can create the most modern energy system in Europe, adapted to the EU system. At the moment, however, there are no funds for this purpose and unless the world and foreign institutions help, Ukraine will not recover.

See more: 13.04.2023 The role of RES in the post-war reconstruction of Ukraine

Position of the Union of Entrepreneurs and Employers: regulatory changes announced by the Ministry of Health will affect the development of telemedicine companies in Poland

Posted on 25 April 202310 May 2023 by Weronika Marzec

Warsaw, 25^th April 2023

Position of the Union of Entrepreneurs and Employers: regulatory changes announced
by the Ministry of Health will affect the development of telemedicine companies in Poland

Telemedicine is one of the strongest trends in how the world develops nowadays, and Poles are valued specialists and programmers who create great tools in this field of innovation.
The Ministry of Health has announced that new regulations are to combat “prescription machines” – unfortunately, the solutions may in real life also affect companies offering remote medical consultations, whose purpose might be to provide a patient with an e-prescription.
Telemedicine companies in Poland contribute to greater access to healthcare for patients. Too restrictive regulations, especially in the light of the introduction of a harmonised, cross-border e-prescription within the EU, court the risk of pushing domestic companies out of the market and replacing them with entities registered outside the country.
The Union of Entrepreneurs and Employers appeals to the Ministry of Health to be open to dialogue and not to proceed with hasty amendments which are therefore imperfect, and additionally far-reaching and affecting the development of telemedicine in Poland.

Telemedicine is the future of medicine around the world as it facilitates access to medical care for patients, primarily in the context of system overload and staff shortages. The possibility of obtaining a quick diagnosis (e-consultation) and appropriately selected therapy (e-prescription) is a solution for those patients who cannot wait in a long queue to see a doctor. These are people who are simply sick and require immediate treatment or suffer from a chronic condition and merely need to quickly purchase a prescription to ensure they continue to take their medication.

During COVID-19, telemedical solutions were considerably promoted and widely used with the approval of the Ministry of Health. Some of them, such as the e-prescription, were ahead of their time and, having entered into force shortly before the outbreak of the pandemic, enabled patients to safely continue therapy. For some time, however, we have been observing a disturbing shift in the practice of the Ministry of Health by tightening the regulations in the direction of limiting or simply excluding the possibility of benefitting from telemedicine. Presently, solutions are being announced that are to be a blow to the so-called “prescription machines”. And one should stress in this context the fact that no court or administrative authority has confirmed the widespread occurrence of this type of phenomenon, and it only exists in press publications. In fact, most of this market consists of entities in which issuing (or not issuing) a prescription is always preceded by a remote medical consultation.

Telemedical services do not work automatically and are not conducive to fraudulent prescriptions for an uncontrolled amount of drugs. Honest websites, before they decide to prescribe a specific pharmaceutical, collect medical history from patients using an IT system that supports their work. It is always the doctors’ task, thanks to which they can fully devote their time to their patients. The doctors during the teleconsultation are also fully responsible for the diagnosis and therapy prescribed to their patients on this basis. The fee applies to a medical visit, and it is a g cheaper than a visit to a stationary facility – therefore, these portals significantly increase the price availability of medical services.

In addition to price, time is another principal factor. Due to staff shortages, access to doctors in Poland is limited. The problem concerns not only specialists, but also general practitioners, especially during periods of increased incidence (such as the flu season or a pandemic). This is a major obstacle both for working people, who often must change their professional plans to make it to a doctor’s appointment, as well as the elderly (who often require immediate advice), or for example those chronically ill who need to maintain the continuity of treatment. Telemedicine and similar solutions to an e-prescription following a remote consultation effectively remedy these problems. Now even in crisis situations – for instance, a sudden lack of constantly taken medications or an unforeseen trip abroad – patients can safely continue their therapy.

An important fact in the context of the plans of the Ministry of Health is the work on the implementation of a cross-border e-prescription at the European Union level. The introduction of this solution will mean that an e-prescription issued in an EU member state can be filled in any other EU country. Under normal circumstances, these circumstances would be considered as an opportunity – Polish innovative companies could internationalise and conquer foreign markets. However, if proposed solutions are adopted in Poland, companies registered in the country will have much worse conditions for doing business than their foreign competitors. The latter, in turn, will be able to freely enter the Polish market. As a result, instead of expanding their operations and conquering European markets, Polish companies may be pushed out of the domestic market and replaced by foreign entities.

If the scenario presented above comes true, taxes paid by reliable and honest telemedicine companies will not go to the Polish budget.

Another extremely important thread is the question of entrepreneurs’ trust in the state. A whole series of regulatory initiatives, such as the introduction of e-prescription, were intended to foster the development of telemedicine. Companies operating ethically and caring for the well-being of their patient had the full support of key decision-makers in introducing products increasing the availability of medical services. Such a sharp turn undermines trust in the state and its laws alike, both of which are particularly important when doing business.

To sum up, Telemedicine is one of the strongest trends in how the world develops nowadays. Creating digital services, supporting the work of doctors, building patient databases that have their treatment history built-in- this is the future of medical services. A future from which there should be no turning back – especially in Poland, where we suffer from an obvious shortage of practicing doctors, which results in gigantic queues for patients.

See more: 25.04.2023 Position of the Union of Entrepreneurs and Employers: regulatory changes announced by the Ministry of Health will affect the development of telemedicine companies in Poland

Position of the Union of Entrepreneurs and Employers: Let’s impose sanctions on exports of Russian food to the EU

Posted on 5 April 202310 May 2023 by Weronika Marzec

Warsaw, 5^th April 2023

Position of the Union of Entrepreneurs and Employers: Let’s impose sanctions on exports of
Russian food to the EU

EU sanctions against the Russian Federation specifically exclude the export of agri-food products (excluding seafood, alcohol and tobacco products) and fertilisers, while activities involving food and fertilisers from Russia are allowed, as are their procurement, transport, and delivery.
Russian producers bear much lower costs than Polish food producers. This makes Russian agri-food products a huge competition for Polish products.
Russia can still export food products to Poland. Meanwhile, our country has been subject to an embargo since 2014 that prevents the shipment of many product categories to Russia. The effects of the closure of this market are particularly acute in the horticultural production sector.
The Union of Entrepreneurs and Employers calls for the extension of EU sanctions imposed on Russia to include food products and, in the longer term, depending on the situation on the EU market, the export of fertilisers.

Successive sanctions imposed on the Russian Federation since the beginning of the armed invasion of Ukraine are aimed at numerous key areas of the invader’s socio-economic life. They cover the following sectors: energy, finance, transport, defence, raw materials, and services. Also in place are a media embargo, visa, and diplomatic restrictions, as well as a number of measures regarding economic cooperation. However, there are still huge loopholes in the sanctions system that allow for a lively trade in many instances, such as food and fertilisers.

According to the European Commission’s website, EU sanctions explicitly exclude the export of agri-food products (excluding seafood, alcohol, and tobacco products) and fertilisers, and activities involving food and fertilisers from Russia are allowed, as well as their purchase, transport, and delivery. The EU emphasises that the loophole has been left in order to ensure the continuity of supplies of these goods to countries most in need.

In the case of food exports, many of the Russian “obligations” can be easily fulfilled by EU member states. However, from the national perspective, the influx of Russian (and Belarusian) agri-food products to Poland remains a problematic issue.

Russian vegetables and fruit are still imported to Poland. This is a major problem for domestic producers who are in no way able to compete with regard to price with products coming from the aggressor abroad. Poles are not able to use cheap Russian coal, they incur significant costs of CO₂ emissions – Russians do not, Poles have to face – unlike Russians – the restrictions of the European Green Deal etc. Also, labour, and natural gas costs in Poland are many times higher than in Russia. This puts Polish producers in an inconvenient situation. Whereas in peacetime, market competition is the desirable, during an economic crisis – to a substantial extent deliberately and meticulously planned by the Russian side (for instance: the price crisis on the gas market) – it can become a serious threat.

Deliveries of fruit and vegetables from Russia to Poland may these days not reach record volumes – according to the Chief Inspectorate of Plant and Seed Health, close to 1666 tonnes of cucumbers have been delivered to Poland from Russia and Belarus since the beginning of the year until 7^th March. Nevertheless, exports are still growing. According to data from the Ministry of Agriculture and Rural Development, the value of agri-food imports from the Russian Federation to Poland amounted in April 2022to EUR 178 million. This is an increase of 48% compared to the same period last year. While this is not a value that may undermine the stability of the agricultural production sector in Poland, it translates into difficulties in the functioning of specific Polish companies.

The moral aspect of the aggression against Ukraine alone ought to prompt EU officials to impose sanctions on Russian food exports. Besides, should we consider the significant role that the Russian Federation plays on the global map of food producers, the threats related to the intensification of exports, which are fully allowed by EU regulations currently in force, should be given due consideration. Furthermore, there is a gross disproportion in trade relations between Poland and Russia. Let us recall that there is an embargo imposed by Russia since 2014 on certain Polish foods. For this reason, record losses were reported, for example, by fruit producers. Our country is an EU powerhouse it terms of apple production, but only one in four apples from Polish orchards remains in our country, while the rest is a surplus intended for exports. Until 2014, the most important recipient of Polish apples was Russia. The losses incurred by Polish fruit producers related to the closure of this market have already amounted to several billion euro.

Finally, the issue of fertiliser supplies from Russia may also be controversial. While Europe is not self-sufficient in the production of agricultural fertilisers, one must not forget that not including this market in the sanctions system allows Russia to multiply export revenues. Sparked by Putin, the price crisis regarding gas, which is the most key component in the production of fertilisers, has multiplied the price of the product. As a result, revenue from fertiliser skyrocketed, which – despite a 10% decrease in volume – recorded a 70% increase in revenues in 2022 (year on year).

The Union of Entrepreneurs and Employers calls for the extension of EU sanctions to cover a ban on exports of Russian food products to the territory of the Community and – in the longer term, depending on the situation on the EU market – exports of fertilisers.

See more: 05.04.2023 Position of the Union of Entrepreneurs and Employers: Let’s impose sanctions on exports of Russian food to the EU

We need a strategy to restore Poland’s importance on the international arena!

Posted on 5 April 202330 November 2023 by Weronika Marzec

Warsaw, 5^th April 2023

We need a strategy to restore Poland’s importance on the international arena!

On 4^th April at 3 pm, a conference inaugurating the Agenda Poland 2030 project was held in the Freedom Lounge. During the meeting, issues that are essential from the perspective of Poland were discussed, including national security, as well as how to respond to future challenges.

The dynamics of events that transpired in recent years are but a historical opportunity that is opening up for Poland. Not only our prosperity and security, but also the political order of the whole of Europe and its relations with what will emerge from Russia in the future may depend on how we make use of Poland’s growing significance in Europe today. The strategic goal of Polish policy should be to create a permanent Berlin-Warsaw-Paris axis within which decisions would be made on the most important aspects of European foreign and economic policies, as well as concerning the model of EU cooperation. To achieve this, Poland must be wealthy and strong. We want to help build it; therefore, we updated the programme of the Polish Agenda regarding the critical areas of the functioning of the state.

The first Agenda Poland was published 4 years ago. You can find it on our website: agendapolska.wei.org.pl. A number of our postulates resulting from that analysis of the political and economic situation were taken into consideration, while others over time have become even more urgent and are still waiting for their implementation. The experience of the first Agenda Poland gave us not only a wealth of knowledge, but also faith that even the most ambitious and seemingly abstract goals can be achieved. The project, to which we invite not only our experts, but all those who see the uniqueness of the moment and the opportunities ahead of Poland, will be widely consulted and will not be limited to pure theory, but also practical ideas for its implementation.

The following are our key postulates:

The most urgent task for the state is to restore the authority and dignity of the judiciary. Things have gone so far that the only option available is the Zero Option, which includes, among other things, the liquidation of the Constitutional Tribunal and the State Tribunal, and a transfer of their powers to the Supreme Court; the appointment of a new National Justice Board whose members would be appointed in equal numbers of 5 persons by the judiciary itself, the President of the Republic of Poland and the academic community, and 3 persons by the government of the Republic of Poland, the parliamentary opposition, and civic society (Social Dialogue Council, Commissioner for Human Rights). The National Justice Board should deal with disciplinary matters and carry out the decommunisation of the judiciary.
EDUCATION AND HIGHER EDUCATION. Radical reforms are necessary that will encourage the creativity, entrepreneurship, and inventiveness of Poles. We postulate, among others, for the introduction of an Education Voucher and changes to the role of the state in education – the state should not organise, but finance education, while schools ought to be transferred (excluding real estate) to parents, teachers, private companies, associations, local governments, foundations etc. by way of tenders.
The role of the state in healthcare ought to be changed from running hospitals, clinics, and medical facilities to financing healthcare for citizens. Furthermore, universal health insurance should be introduced, which the state would purchase for each citizen in the insurance company of their choosing. Insurers must organise themselves into a Reinsurance Fund in the event of bankruptcy of one of them.
If we are to quickly catch up with wealthy Western economies in terms of development and have the necessary funds for national defence, it is necessary to radically deregulate the economy according to the EU+0 formula, and to make the labour market more flexible. It is also necessary to introduce fundamental stability of the legal system. New economic regulations should only enter into force once a year, after a vacatio legis of at least twelve months.
SOCIAL POLICY. We are changing the model of social policy to a fully automated one. Both the available IT tools and data collected by the National Revenue Administration and the Social Insurance Institution are sufficient for this purpose. We eliminate the human factor in the social benefits’ process. Mechanisms for benefits valorisation should also be automated. We exclude affluent people from the support system, and at the same time we introduce the “one zloty for one zloty” rule so that exceeding the income threshold per family member is not tantamount to the loss of the entire benefit, but only its reduction in proportion to exceeding said threshold.
A key security objective is Poland’s ability to defend itself. At the same time, we draw attention to the necessity of the greatest possible involvement of the Polish defence industry. The potential of the Polish economy and science should be used to the maximum extent in defence of Poland. Purchases from foreign “shelves” should be limited to the absolute minimum.

We encourage you to have a look at the full contents of our Agenda, which can be found HERE.

Until now, these were Germany and France who decided the fate of Europe. Paradoxically, the geopolitical turmoil we are witnessing today means that Poland will be able to join these two countries, provided it introduces appropriate internal reforms. The outline of such reforms was presented by the Warsaw Enterprise Institute, the WEI Centre for Strategic Studies, the Union of Entrepreneurs and Employers, and the Consumers Forum on 4^th April 2023 at 3:00 p.m. at the Liberty Lounge.

During the conference, Adam Eberhadt, Director of the Centre for Strategic Studies, pointed out that the European Union is not about establishing dogmas, but pursuing a flexible form of cooperation. Poland’s strength lies in its initiative-taking policy and ability to build coalitions with the strongest European countries. This was the case recently with Internal combustion engine vehicles. As a country, we will become a valuable partner for Berlin and Paris, but only if we cooperate with them and stand together against them.

Cezary Kaźmierczak – President of the Union of Entrepreneurs and Employers said that when it comes to the economy, we are successfully catching up with wealthy Western countries. However, we are hindered in this race by a tragic tax system, bad economic law, and legal instability. These obstacles must be removed so that we can start acting faster, because it gives us a position in conversations with the Germans or the French. If we have a solid economy and an army, it will be possible to achieve the goal.

Tomasz Wróblewski – President of the Warsaw Enterprise Institute, in turn, stated that the goal is to create an agenda that everyone can make use of, which will determine our prospects and directions of action. Differences in society will always be there, but maybe when we engage in a strategy that deals with matters and not people, there will be less hatred.

Agnieszka Plencler – President of the Consumers’ Forum Foundation took up the topic of consumer choices vs. civic choices. Consumers, expecting social leadership in business, want to know the values and missions of brands, but in demanding situations, the price becomes the most important criterion for them. The citizen, on the other hand, choose the opposite, turning off rational thinking in a crisis situation and following emotions. This is how elections are held, people do not consider the politicians’ postulates of, and give in to empty promises. Consumers learn that when they pay, they demand, and the citizen pays, but does not account for efficiency.

A new health platform – the Health Forum of the Union of Entrepreneurs and Employers

Posted on 5 April 202330 November 2023 by Weronika Marzec

Warsaw, 5^th April 2023

A new health platform – the Health Forum of the Union of Entrepreneurs and Employers

Healthcare has always been a challenge for experts, representatives of government and local government institutions, medical specialists, representatives of patients’ organisations, but also entrepreneurs and employers themselves. Health is and should be treated as the foundation of all values. But it also is an important branch of the economy. In response to the enormous needs of all stakeholders on the medical market and the challenges it faces, the Union of Entrepreneurs and Employers brought to life the Health Forum.

Daily problems of Polish healthcare are issues that concern us all and further deepen the need dialogue within the sector. These problems include, among others, the lack of reimbursement for treatment of given patients, employers’ costs related to employees on sick leave, queues to specialists, staff shortages, digitisation, and finally the effects of various pandemics, wars and their impact on medicine supply chain safety are.

“There is much to be done in healthcare. This is a particularly sensitive area that requires careful consideration of the views of all parties involved. Therefore, the Health Forum of the Union of Entrepreneurs and Employers, being a completely new health platform is an optimal place to exchange experiences, to present the postulates of various entities, to advocate ideas, and develop the best solutions with the possibility of their implementation in health policy,” says Aleksandra Sienkiewicz, Director of the Health Forum.

The goal behind establishing the Forum is to promote the postulates of rational systemic reforms and an attractive regulatory and institutional environment for companies from the universally understood health sector, which will ultimately translate into change that will benefit everyone. The Union’s Health Forum focuses on the organisation of an expert discussions on a broad spectrum of issues related to healthcare, from prevention to treatment, taking into account the financial and regulatory environment. As part of the Forum, we will publish commentaries, positions, and reports that help draw attention to current problems and find the best approach to difficulties in each area of healthcare in Poland.

Position of the Union of Entrepreneurs and Employers (ZPP) regarding the Regulation of the Minister of Development and Technology on the Ban on the Import of Agricultural Products from Ukraine

Posted on 18 April 202318 April 2023 by Weronika Marzec

Warsaw, 17 April 2023

Position of the Union of Entrepreneurs and Employers (ZPP) regarding the Regulation of the Minister of Development and Technology on the Ban on the Import of Agricultural Products from Ukraine

On April 15, 2023, the Regulation of the Minister of Development and Technology on the Ban on the Import of Agricultural Products from Ukraine was published in the Official Journal of the Republic of Poland.
The products covered by the ban are grains, sugar, hay, seeds, hops, flax and hemp, fruits and vegetables, processed fruit and vegetable products, wine, beef and veal, milk and dairy products, pork, lamb and goat meat, eggs, poultry meat, ethyl alcohol of agricultural origin and bee products.
According to the Union of Entrepreneurs and Employers, closing Polish borders to Ukrainian food will have long-term negative consequences for trade between our countries. It will fail to utilize this potential for the Polish economy.
The ZPP’s position is that the ban on Ukrainian transit goods also deprives Polish entrepreneurs and all of us of the chance to create a global food distribution center in Poland. It is an essential step towards building Polish economic sovereignty throughout Europe and taking the initiative away from the largest economies in the Union.
There is a risk that Russia will use the growing grain crisis not to renew the grain agreement with Ukraine, which expires on May 18 this year and allows Ukraine to transport grain by sea. Russia is interested in further destabilizing our neighbor’s economic situation and exacerbating tensions between EU countries and Ukraine.
International law experts point to the inconsistency of the Polish government’s decision with EU law. Today, importers and exporters affected by restrictions on importing goods from Ukraine may be able to claim compensation for resulting losses.
According to the Union of Entrepreneurs and Employers, the mechanisms that would solve the current pathological situation in the Polish agricultural market are the introduction of a deposit mechanism for imported goods, the rationalization of control systems for imported food quality, and allowing only those goods, that meet the highest quality standards in the Community to be exported to the EU.

On April 15, 2023, the Official Journal of Laws of the Republic of Poland published a regulation by the Minister of Development and Technology regarding the ban on the import of agricultural products from Ukraine. According to the content of the law, a ban on the import of agricultural products listed in the annex to the regulation from the territory of Ukraine to the territory of the Republic of Poland is established until June 30, 2023. The banned products include grains, sugar, dried fodder, seeds, hops, flax and hemp, fruits and vegetables, products from processed fruits and vegetables, wines, beef and veal, milk and dairy products, pork, lamb and goat meat, eggs, ethyl alcohol of agricultural origin and bee products.

The Union of Entrepreneurs and Employers negatively reacts to the content of the regulation, stating that the drastic measures adopted were designed only with a short-term perspective in mind. The long-term effects of the decision will destabilize the food trade in the region and have negative consequences for the supply of food to consumer markets. The imposed ban will also be a destabilizing factor in the agricultural market and a source of tension in Poland’s relations with the European Commission.

We understand the urgent need to help Polish agricultural enterprises, which have found themselves in a difficult situation due to the uncontrolled inflow of agricultural raw materials from Ukraine. Especially since the problems today are concentrated – as was previously the case – in the grain production sector and other categories of products, with particular emphasis on poultry meat. The economically, legally, and politically unprepared broad ban is contrary to the interests of our country.

The Union of Entrepreneurs and Employers was surprised by the information that the transit of all categories of goods listed in the regulation is also subject to the ban. Considering practical and economic aspects, we negatively assess both the import and transit bans. It is precisely transit that allows Poland to use its potential as a link between Eastern Europe and ports in the EU, with a unique role for Gdańsk. Poland can therefore act as an intermediary for Ukrainian agricultural products, placing them on the global market. It is the responsibility of state institutions to organize transit in such a way that it does not lead to the destabilization of the domestic agricultural market. The lack of transparency in the Polish government’s decision may affect our country’s economic relations. We believe the planned visit to Poland by the Ukrainian Minister, responsible for the agricultural economy, will allow for a compromising solution to the transit problem. Moreover, the legal transit of Ukrainian grain through Poland has recently become a source of income for many Polish enterprises. Today, with one decision, we can deprive ourselves of the chance to become a kind of hub that could reap long-term profits from cooperation with Ukraine.

Creating the right environment to transit Ukrainian goods through Poland is complex. In achieving the necessary scale, an important role is played by rail transportation, which requires the use of transshipment terminals. Poland has appropriate infrastructure in this area and can still handle additional orders. In the longer term, managing transit and increasing its scale will require investment in infrastructure and rolling stock in Poland. Domestic and foreign capital companies are keenly interested in this direction, and our conversations indicate that agricultural producers from western Ukraine would like to conduct transit through Poland permanently. In this context, importing agricultural products from Ukraine is also an opportunity to develop the domestic economy. Poland can build a supply chain and infrastructure (warehouses, port expansion, storage facilities) to allow us to be present in international markets. We can aspire to trade grains on a global scale beyond the EU.

The selection of product categories included in the regulation is also absurd, with particular consideration given to wine, which plays a marginal role in Polish-Ukrainian trade. Russia could also use the growing grain crisis not to extend the existing grain agreement, which allows Ukraine partial transport of grain by sea until May 18 of this year. Russia will undoubtedly use the situation to destabilize the economic situation of our neighbor further. The lack of the possibility to export Ukrainian grain by waterway may translate into an even more significant oversupply of grain in Europe, disrupting the region’s price situation for a long time. It is also a threat to the food supplies of countries currently dependent on imports of Ukrainian grain, and thus a return to the situation at the beginning of Russia’s armed invasion of Ukraine.

The Polish government should demand the application of EU safeguard measures, which involve the implementation of temporary import restrictions to protect the European industry from sudden increases in imports that could cause serious harm to European producers. However, the European Commission makes such decisions, and the use of protective measures is limited and subject to regular assessment. International law experts point out the inconsistency of the decision taken by the Polish government with EU law. Importers and exporters affected by restrictions on importing goods from Ukraine may seek compensation for resulting losses.

The Union of Entrepreneurs and Employers, in their statement from March 30, already indicated that a critical mechanism for improving the problematic situation would be the introduction of a deposit system for Ukrainian grain exported to Poland. The export of Ukrainian agricultural products is usually carried out by companies specializing in exports, which have the necessary capital to secure the proper transit of goods. Using a temporary system of security deposits would allow for the continued clearing of Ukrainian grain corridors, which is necessary for the context of the Russian invasion, while also securing the interests of Polish farmers. The deposit would be refunded immediately after the grain leaves the territory of Poland. This solution would eliminate the risk of paying further compensation to Polish producers in the future, initiate a process of price stabilization on the Polish market, and ensure continuity of export for Ukrainian agricultural companies. We understand that from a purely technical perspective, the term “temporary deposit” does not appear in the nomenclature adopted in the Union Customs Code. However, the situation could lead to developing a parallel solution with a similar scope that would relieve Poland and other countries bordering Ukraine without any reputational and economic damage as it is happening today.

With real support from the European Union, Poland should also implement effective control mechanisms to ensure that only goods from farms meeting the stringent standards applicable in the Community are sold on the territory of the EU. This requirement should apply to all product categories imported by EU member states. The problems currently glaringly present in the grain market are already visible in the poultry sector.

Organizing the import of Ukrainian grain into Poland also requires clarification, as it raises many legal questions. We need to unravel the path that led to the pathological situation in the agricultural product market to proceed to implement steps as far-reaching as the regulation in question. Otherwise, thousands of enterprises will become prisoners of the condition they were entangled in by influential players who bend the law and the ill-conceived decision of the European Union to introduce duty-free trade in food with Ukraine without creating parallel redistributive mechanisms to relieve the countries in our region.

The Union of Entrepreneurs and Employers understands the intentions of the legislator. However, it cannot accept the form of their enforcement, which would have negative consequences for both the Polish and Ukrainian sides, undermining the good relations that have been achieved thanks to Poland’s engagement in helping war-torn Ukraine.

See more: 17.04.2023 Position of the Union of Entrepreneurs and Employers (ZPP) regarding the Regulation of the Minister of Development and Technology on the Ban on the Import of Agricultural Products from Ukraine

Position of the Union of Entrepreneurs and Employers regarding the draft law amending the Act on State-Guaranteed Export Insurance (no. in the Journal of Laws UD484)

Posted on 14 March 202312 April 2023 by Weronika Marzec

Warsaw, 14 March 2023

Position of the Union of Entrepreneurs and Employers regarding the draft law amending the Act on State-Guaranteed Export Insurance (no. in the Journal of Laws UD484)

Poland is one of the most involved countries in helping Ukraine. However, participating in the process of rebuilding and modernizing the country requires significant investments, which are difficult to carry out without an appropriate system of insurance and guarantees.
The answer to this need is the amendment of the Act on State-Guaranteed Export Insurance, which introduces numerous mechanisms that can help Polish entrepreneurs. The proposed mechanisms will largely facilitate the participation of businesses in the Ukraine rebuilding project. Both new and existing KUKE (Export Credit Insurance Corporation) support mechanisms will be available to a wider range of entities, including Polish foreign branches of companies.
KUKE will be able to assume the risk of damages resulting from “extraordinary risk.” KUKE’s activities will also be directed toward investments in the energy transformation sector.
Not only exporters but also entities making “direct foreign investments” will be able to benefit from KUKE’s assistance, which can significantly help in the process of rebuilding Ukraine.
The Union of Entrepreneurs and Employers supports the proposed solutions, although it points out that their effectiveness will largely depend on the efficiency of procedures and financial resources allocated for this purpose.

On February 21, 2023, the Ministry of Development and Technology published a draft law amending the Act on State-Guaranteed Export Insurance (UD484, hereinafter referred to as the “KUKE Act”) on the website of the Government Legislation Centre. In February, the Union of Entrepreneurs and Employers (ZPP) wrote about the announcements of new solutions, citing a statement by the President of KUKE[1], and now we know the specific proposals for amending the law.

Since the first days of the Russian Federation’s aggression against Ukraine, Poland has been one of the most involved countries in helping our eastern neighbors. For the Union of Entrepreneurs and Employers, humanitarian and military aid to Ukraine is extremely important, and a particular project for us is “EUROPE-POLAND-UKRAINE. REBUILD TOGETHER”, under which we have organized numerous conferences and meetings of Polish, Ukrainian, and European politicians and business representatives. We talked about how Polish companies can participate in this extremely difficult but necessary project, and how to ensure that it benefits both sides.

The Ukraine reconstruction project is an initiative that requires significant resources and involves a high level of risk. The Export Credit Insurance Corporation (KUKE) plays a crucial role in this regard. One of the most important mechanisms currently offered by this institution is the insurance of commercial receivables, which translates into an increased ability to supply Ukrainian partners with essential products (medicines, food, and building materials) through the export of Polish products.

However, Polish entrepreneurs have long been pointing out that one of the most significant barriers to investment in Ukraine, especially under conditions of such high risk and uncertainty, is inadequate protection of investments and capital. One of the most important demands in this area is the creation of an effective system of investment insurance, including real estate, production facilities, and all necessary infrastructure. There are still no effective mechanisms in this area, which makes it difficult for Polish companies to participate in the Ukraine reconstruction project, which could be an exceptional opportunity for them to be present in the Eastern market and develop, which will directly translate into the strength of the Polish economy.

The solution to the above problems is supposed to be the amendment of the law on the Export Credit Insurance Corporation (KUKE), which, in addition to existing mechanisms for protecting the export of goods to the Ukrainian market, is also to introduce insurance for investments made by Polish companies in Ukraine in green-field projects and acquisitions, as well as insurance for the participation of Polish suppliers of goods and contractors in reconstruction and modernization projects in Ukraine. This means that KUKE will have new tools at its disposal that are not directly related to exports, but will enable action, among others, in the area of energy transformation.

Undoubtedly, the energy transformation of Poland is one of the most important challenges that we will face in the coming years. The European Green Deal imposes numerous obligations on our country, particularly in the area of reducing CO2 emissions, which require very intensive investments in renewable energy sources. Additionally, the geopolitical situation, especially in the context of Russian aggression towards Ukraine, makes it necessary to achieve not only independence from hydrocarbons from the East, but (at least to a large extent) from imported hydrocarbons altogether. The experiences of recent months indicate that only in this way will we be able to protect ourselves from the serious and real risk of the use of energy resources in the policies of states that are not always sympathetic to Poland and Europe. Certainly, enabling KUKE to support investments in this area should be evaluated positively, especially given the very high cost of energy transformation.

The draft law also provides for the possibility of providing Polish companies with insurance against extraordinary risks associated with wartime activities. Article 2 will include paragraph 8b stating that KUKE will assume the risk arising from damages resulting from events defined as extraordinary risks (in cases specified in the mentioned provision). The definition of extraordinary risk will be determined by the Council of Ministers based on the provisions to be included in Article 2, paragraph 10. Such solutions may be useful, among others, for Polish transport companies.

Very significant is also the proposed change to Article 6 (1) of the Act, which provides for a significant expansion of the catalogue of entities that will be able to use the support instruments available to KUKE. These entities will include, among others:

“entrepreneurs having a place of residence or registered office on the territory of the Republic of Poland, who carry out:

a) export of national products and services, with the reservation of paragraph 2,
b) direct investment abroad, including through dependent entrepreneurs having a registered office abroad;”.

This is an extremely important change, as the previous wording of Art. 6(1) only applied to entrepreneurs “engaged in the export of domestic products and services.” The proposed law will therefore expand the competences of KUKE to also support entities making direct foreign investments, i.e. those that want to operate directly in the East. This need has been expressed multiple times by Polish businesses, which can obtain a very important impetus for development through expansion into the large Ukrainian market.

This is not the only very important change in Art. 6. Paragraph 1 point 2 of this article will state that “branches of foreign entrepreneurs, subject to paragraph 2,” will also be eligible for support from KUKE. This means that appropriate instruments can be directed to foreign entities that have branches in Poland. Such companies pay taxes in Poland and support the Polish labor market, and thanks to KUKE’s assistance, they will have a chance to further develop, among other things, by increasing exports. Importantly, the existence of such a mechanism improves the investment environment in Poland and can help increase the interest of entities that want to make direct investments here. Such a solution can also help attract Ukrainian companies to our country.

Considering all the proposed changes, the Union of Entrepreneurs and Employers evaluates the amendment project positively. However, it should be noted that even the best support mechanisms will not work properly without appropriate operating practices. The investment process in Ukraine, in the context of rebuilding and modernizing the country, can be a great opportunity for the development of Polish entrepreneurship and, therefore, the Polish economy, but it also involves significant risks due to military actions. Therefore, guarantee and insurance mechanisms must be financially secured and the KUKE’s practice of using procedures must be fast and transparent. Only in this way will it be possible to effectively minimize the investment risk in the East.

***

[1] https://zpp.net.pl/wp-content/uploads/2023/02/10.02.2023-Komentarz-ZPP-w-sprawie-wsparcia-inwestycji-polskich-przedsiebiorcow-na-Ukrainie-i-zapowiedzi-planowanej-w-tym-celu-nowelizacji-ustawy-z-dnia-7-lipca-1994-r.-o-gwarantowanych-przez-Skarb-Pans.pdf

See more: 14.03.2023 Position of the Union of Entrepreneurs and Employers regarding the draft law amending the Act on State-Guaranteed Export Insurance (no. in the Journal of Laws UD484)

The new shape of the common energy market – the future of European energy

Posted on 20 March 202312 April 2023 by Weronika Marzec

Warsaw, 20 March 2023

The new shape of the common energy market – the future of European energy

The project of a new shape of the EU energy market (Electricity Market Design) was released in mid-March as announced earlier.
The work on the document was preceded by public consultations conducted at the beginning of 2023.
The aim of the regulation is to develop a better harmonized, more flexible, sustainable, and resilient energy market.
The document emphasizes long-term mechanisms for stabilizing prices for consumers, combined with intensive development of RES (PPAs, CfDs).

Electricity Market Design, a document that was sent for review to many European energy-related organizations in January, is one of the most important initiatives planned by the EC for this year, demonstrating the determination to create a single energy market in Europe.

The price dynamics in the energy and gas markets have significantly increased in the last 4-5 years. Prices for energy and gas have shown hyperbolic increases and decreases since 2021, which has had far-reaching consequences for businesses and consumers in the EU, as well as for the global economy. To reduce the impact of these market dynamics, the European Commission proposed a range of extraordinary measures that most member states have implemented, targeting excessive energy costs.

In parallel with the intervention measures, the European Council called on the Commission to accelerate the structural reform of the electricity market to ensure energy sovereignty for Europe and achieve targeted climate neutrality by 2050. In her annual State of the Union address, President Ursula von der Leyen announced at the end of last year a proposed comprehensive overhaul of the energy market architecture, which is part of the Commission’s Work Programme for 2023. At the Energy Council meeting on December 19, 2022, Energy Commissioner Kadri Simson presented to ministers the project for a new energy market architecture. According to the adopted schedule, on January 23, 2023, the European Commission launched public consultations on the reform of the structure of the electricity market in the European Union. The proposed changes aim to protect consumers from unlimited price dynamics, promote access to energy from renewable sources, and make the market resilient to crisis situations.

The European Commission has identified several areas in which changes are possible, including the organization of the electricity market, demand management, the approach to renewable energy sources, and the method of setting the price of carbon emission allowances. The consultations ended on February 13th of this year and based on them, a draft legal act on the new shape of the electricity market was presented.

The previous structure of the electricity market in the European Union

The current structure of the electricity market in the European Union is regulated by the regulation on the internal market for electricity (EU) 2019/943 and the directive on common rules for the internal market in electricity (EU) 2019/944, adopted in May 2019 as part of the “Clean Energy for all Europeans” package. Both acts came into force in June 2019 and aimed to modernize the EU electricity market, increase competition, and accelerate the integration of renewable energy sources with national power systems.

These regulations introduced several key changes in the EU electricity market, including:

Activating consumers: the regulations allowed consumers to have a more active role in the electricity market, for example by selling excess energy production to the grid or participating in demand response programs.
Greater regional cooperation: the creation of regional coordination centers to facilitate cross-border trade and ensure supply security.
Greater flexibility: allowing market participants to trade electricity in shorter intervals (15 minutes) instead of the previous hourly intervals.
Greater support for the development of renewable energy sources: increasing the share of energy from renewable sources in the energy mix by introducing more market mechanisms to support their implementation, such as auctions and other forms of unrestricted tenders.

Although the shape of the electricity market in the European Union was established in 2019 and brought about several necessary changes, there were also criticisms raised, including a lack of harmonization of actions, insufficient support for renewable energy sources, management of energy storage, and inadequate emphasis on demand-side flexibility.

The idea of further reforms and modifications to the structure of the electricity market in the European Union was highlighted by the energy crisis, during which Europe needed a more harmonized, flexible, and sustainable energy market.

The reforms currently recommended by the European Commission aim to address the aforementioned shortcomings and build stable and well-integrated energy markets. Importantly, the achievement of the goals of the European Green Deal will not be possible without attracting private investment to support the transformation of the economy towards zero emissions. The new Electricity Market Design aims to create a market that is more flexible, competitive, and consumer-friendly, while also being able to better account for the growing share of renewable energy sources in the EU energy basket.

Increasing the independence of electricity bills from short-term prices of fossil fuels

The current structure of the electricity market is heavily reliant on short-term markets, which are susceptible to the instability of fossil fuel prices. This has resulted in significant price fluctuations for households and businesses. Energy consumers have often been deprived of choice and, due to a lack of access to cheaper electricity from renewable sources or the ability to install their own solar panels, have been subject to the volatility of the market. Short-term markets are important for integrating renewable energy sources and ensuring the appropriate balancing of electricity supply and demand. However, in times of energy crisis, this situation has exacerbated energy poverty while leading to a rapid increase in revenues and profits for low marginal cost producers such as renewable energy and nuclear power.

According to the European Commission, additional instruments and tools are necessary to address the instability of short-term electricity markets. This would create a “buffer” between consumers and short-term markets, providing more predictable electricity bills in the long term. Power purchase agreements (PPAs) are one type of long-term contract that allow the sale of electricity at an agreed price, which is less susceptible to short-term variability. PPAs aim to generate benefits for both energy consumers, by providing them with a competitively priced and stable electricity supply, and renewable energy producers, by providing them with a source of long-term income, as well as governments by providing an alternative to public funding for renewable energy implementation. However, the share of PPA contracts in the market remains limited mainly to large companies, and the entire segment is developing unevenly in individual EU member states.

The aim of the Commission’s regulation on EMD is to increase the share of power purchase agreements (PPAs) in the electricity market and create incentives for their use within the market structure. Additional legal measures are also planned, which could encourage industrial consumers and energy providers to enter the PPA market.

Another type of long-term contract that the European Commission believes could provide a boost to public-supported investment is the contract for difference (CfD). Such contracts also have less exposure to short-term price volatility, and their terms can be determined through a competitive tendering process. In the event of periodic high prices, CfDs can provide member states with additional funds to mitigate the impact on consumers.

The current reform of the electricity market presents an opportunity to include CfDs in the market structure. However, the rate of growth of CfDs should not have a negative impact on the growth of power purchase agreements (PPAs) in the EU, as both instruments are essential legal tools to meet the challenges of renewable energy dissemination. According to the Commission’s proposal, CfDs would be mandatory for new renewable energy sources and nuclear energy.

However, in the opinion of the European Commission, increasing the share of renewable energy and its use is crucial for ensuring the security of supply, and affordability, and achieving climate neutrality in Europe by 2050. The accelerated deployment of renewable energy, together with measures to improve energy efficiency, is expected to reduce demand for fossil fuels and ultimately lower energy prices across the EU. At the same time, any regulatory interventions in the structure of the electricity market should maintain and enhance investment incentives, ensuring investor confidence and predictability, while also addressing the economic and social problems associated with high energy prices in Europe. Otherwise, the Green Deal may begin to lose support.

There is also a certain risk associated with the proliferation of member-state particularism. The existence of national support systems for PPA agreements, national CfD contracts, national capacity-building mechanisms, and national flexibility support systems on the one hand allows for solutions to be adapted to local specificities. However, if requirements for coordination between member states are not defined, this may hinder the sustainable development of the common European market.

Alternatives to gas to maintain the balance of the power system

The uncertainty and high prices of gas have been blamed for the energy turmoil in Europe. As part of the new Electricity Market Design, the aim is to equip the market with flexible solutions such as demand management, energy storage, and participation in the market by independent, stable, renewable or low-emission sources. The consultation of the EMD project also aimed to gather information on how to guarantee supply security and self-sufficiency in unforeseen crisis situations while ensuring timely investment in new transmission and generation capacities. The consultation process also examined whether some aspects of exceptional interventions could be transformed into permanent elements of the energy market structure, which seems dangerous as it could introduce a greater culture of central market control that could harm investment incentives necessary for decarbonizing the electricity sector. On the other hand, the idea of a well-isolated exceptional regime, placed in the law a priori, could help regain trust in the markets. A known, formalized mechanism, triggered only in exceptional circumstances, could reassure market participants that there are no backward changes in stable times and that in exceptional situations, predictable measures can be applied. In this case, it seems that based on the new regulations, member states will have the freedom to apply regulated prices for individual and SME consumers in exceptional situations.

The energy crisis has led to increased energy costs for consumers and industry, resulting in a lowering of living standards and production capacity. It has also had an impact on professional energy companies and trading firms for whom the temporary legal solutions in force in 2023 are a significant burden. It is therefore difficult to determine whether the use of interventionist maximum prices and solidarity charges should be the preferred solution or whether it may be more effective to offer consumers greater opportunities to participate in energy markets (spot and forward) and access long-term contracts for the purchase of energy from renewable sources, coupled with universal education on ways to contract energy, control and plan consumption, and build energy efficiency.

Stronger protection against market manipulation

Regulation 1227/2011 on wholesale market integrity and transparency (REMIT) aims to ensure the integrity of the electricity and natural gas energy markets, fair prices, and the prevention of market abuse. However, in times of high price volatility, market disruptions, and new trading behaviors, there is a risk of negative trading practices. Therefore, the Commission is also focusing on strengthening the safeguards described in REMIT, with a greater emphasis on transparency, monitoring capabilities, cross-border investigations, and enforcement of regulations, in order to support the new structure of the electricity market. It also appears crucial to protect internal markets, whether it be EU-ETS, electricity, or gas trading markets, from strictly speculative actions that are characteristic of financial markets.

What does EMD mean for Poland?

The Union of Entrepreneurs and Employers took advantage of the opportunity to express its opinions on both the policy goals and specific measures through participation in consultations. The official presentation of changes to the electricity market structure occurred in mid-March 2023, although a few days earlier, commentators’ references to a leaked draft document began to appear in the public domain.

Electricity Market Design certainly arouses emotions, as it is a document directing European policy towards integration in many other areas of life. And although the general organization and structure of the market remain unchanged (the so-called Merit order), we must realize what a unified energy market in Europe means. Given that the electrification of practically all areas of life is unavoidable, the electrification of transport and heating will have particular significance in shaping a different way of functioning of European economies and lifestyles of Europeans.

Common European energy management will be of crucial importance for the standard of living and the pace of development of EU member states. It is no wonder that cost-effective energy contracting has come to the fore. Customers will soon have wider access to products with dynamic and fixed prices (for energy/gas purchases). New guidelines on securing trading positions by trading companies will be introduced. The new regulations will also increase the flexibility of the system through demand management (peak shaving, DSR) and energy sharing.

A common energy market is a continuation of the process of unifying Europe, which now, in the face of the war in Ukraine, seems like an absolute necessity if we do not want to lead to a split in the EU. Today, some European countries have decided to merge the command of their armies, which clearly shows the path of functioning and development they have chosen – which just a few years ago would have seemed too bold a step.

A common energy market in Europe, if the project of its reform and unification succeeds, will certainly be characterized by a relatively high level of stability, despite the extremely different energy systems of individual countries.

French nuclear energy is a relatively cheap source of energy, especially since most power plants have been fully amortized, so after overcoming maintenance downtime and strikes in the atomic sector, it will again be able to afford stably low energy prices. Naturally, over time, the technical condition of some reactors and the costs of servicing them will become an issue. Therefore, in recent times, the French renewable energy market has become one of the most dynamically developing in Europe.

In German energy, the level of investment in renewable sources has allowed for a radical reduction in energy prices from these sources. The size of the German economy will not allow for full reliance on renewable sources for a long time. Hence the almost pan-European debate on the justification of phasing out some nuclear power plants. However, without coal-based energy, the German economy cannot function. Yet, after gas prices return to an acceptable level resulting from the real costs of extraction and stabilized supply (independent of Russia), German gas-based energy, along with renewable sources, can gradually replace coal-based energy.

It seems that the target level of 50-60 euros per megawatt-hour is a realistic, stable price level for the common European energy market. What do price levels in a sustainably energy-balanced Scandinavia portend for the rest?

In light of this, what might the future price of energy look like in our domestic market? It seems that by creating a proper mix of renewable, gas, and coal energy, supplemented in the future with nuclear and hydrogen energy, we should be able to meet the challenges in this area.

A major problem could be the flexibility level of our transmission lines. Given the connections between our economy and the European economy, being a part of the European energy market seems unquestionable. However, negotiating optimal conditions for participation in such a market will be extremely difficult for our energy sector.

The dynamics of change in our energy system over the past 30 years have been weak. We have also not achieved significant success in terms of social acceptance of changes in energy. A common energy market requires a complete change in mentality for both producers and consumers. It requires optimizing the work of distribution and transmission systems, operators, and traders. Finally, it requires developing the market for distributed energy and tangible constraints on the work of base sources.

EMD (European Market Design) is a clear signal in which direction European energy is heading. However, in Poland, sometimes problems arise with basic laws relating to the foundations of the common European energy market, such as the wind farm act, amendments to regulations on direct lines, or the introduction of a system of a common use of transmission lines by various sources of dispersed energy (cable pooling).

A common energy market will be created in Europe, and soon. The lack of the possibility to synchronize our energy system with the market-oriented European model may have serious negative consequences for the entire Polish economy and threaten the further development of the country.

The war in Ukraine and the energy problems associated with it throughout Europe have led to greater negotiating flexibility for the European Commission in the energy sector. This is an opportunity for our economy to develop favorable conditions for our country’s participation in the entire European energy and heat market.

See more: 20.03.2023 The new shape of the common energy market – the future of European energy

Memorandum ZPP – Challenges for the Polish Agricultural Sector

Posted on 27 March 202312 April 2023 by Weronika Marzec

Warsaw, 27 March 2023

Memorandum ZPP – Challenges for the Polish Agricultural Sector

Despite the negative impact of numerous economic crises in recent years, Polish agricultural enterprises continue to achieve spectacular successes both in the country and abroad.
However, in the perspective of the coming years, the significant problem for the agro-sector firms operating in the Polish market may be the consequences of the European Green Deal, which may undermine the satisfactory production indicators today.
For years, agricultural enterprises in the country have been facing a wave of attacks with ideological motives, particularly those functioning in the breeding sector. Numerous problems have recently been taking on the framework of legislative changes implemented at the EU and national levels.
The development of modern economic and consumer patriotism should now be one of the main strategies for the agricultural sector in the country. Statistics show that Poles attach much less importance to the origin of products than citizens of Western European countries.
One of the most important tasks for agro-sector firms operating under Polish law should be diversification of the directions of export of agri-food products.
The recipe for still high fragmentation of domestic farms is to create incentives for joint management within cooperative structures or producer groups. The level of organization of farms in Poland is several times lower than in Western EU countries.
The last years, starting from the period of the coronavirus pandemic, through the energy price crisis, to the ongoing war in Ukraine, have been characterized by a regular increase in the costs of running agricultural enterprises in Poland. The most significant price increases have been recorded in the areas of fertilizer prices, agricultural fuels, gas, and energy.

Polish agriculture has relatively coped well with the effects of the crisis that has been ongoing for several years. The coronavirus pandemic and its wide spectrum of economic consequences, the breakdown of supply chains, the energy price crisis, which has led to an increase in the prices of plant protection products and fertilizers, as well as the consequences of the war in Ukraine are factors that have nevertheless left their mark on domestic agricultural enterprises.

Polish agro-sector companies felt the effects of all the above-mentioned events, but the diversification of export directions that has been built up for years and the business professionalization of agricultural enterprises allowed them to achieve another record value of food exports from the Vistula River region. In 2022 alone, Polish food producers exported goods worth 26.1 percent more than in 2021, or 47.6 billion euros. Polish products remain competitive in price on international markets. The favorable exchange rate of the zloty against the euro also played a role in the past year’s exports. Domestic suppliers also properly prepared for the consequences of the pandemic and were able to respond to diverse consumer preferences by designing their product offerings appropriately. Surplus production indicators allowed for the full supply of the domestic food market, making agriculture one of the most important pillars of national security, alongside military and energy production.

However, the agricultural sector in Poland still struggles with numerous problems that effectively hinder the stabilization of the functioning of some entities on the one hand and their development on the other.

The European Green Deal

The European Green Deal is an EU economic strategy that places particular emphasis on shaping a communal economy while taking into account restrictive climate goals. In the context of the agricultural sector, the two main components of the Green Deal are the Biodiversity Strategies and From Farm to Fork. These strategies entail changes that will fundamentally impact the development of EU farms and a decisive shift towards ecological farming (based on EU guidelines). According to the European Commission’s assumptions announced in 2020, they include a 50 percent reduction in the use of plant protection products and a 20 percent reduction in the use of fertilizers by 2030, the mandatory allocation of 25 percent of the area for organic production, and a reduction in the number of antibiotics used in animal husbandry.

The European Commission maintains that the new strategy for agriculture will make this sector of the economy more modern and environmentally friendly, and should not result in significant production declines. However, units under the supervision of the Commission have not presented concrete calculations regarding the impact of the planned reforms on agricultural production indicators. Relevant research has been presented by USDA, HFFA Research, the Joint Research Centre (JRC), the University of Cologne, and the Wageningen University and Research Centre scientists. In their view, the new shape of EU agriculture could seriously threaten the EU’s position as a group of countries that are secure in terms of access to food. This is particularly important in light of the war in Ukraine and the uncertain financial situation of many EU farms, which, faced with significant increases in the cost of doing business, may limit production. Experts from the Wageningen University and Research Centre have calculated that EU agricultural production could be reduced by 10-20 percent after the full implementation of the regulations, and up to 30 percent in relation to certain specific crops. Difficulties may also arise in the livestock sector, where scientists point to potential production declines of around 20 percent for beef and about 17 percent for pork production. This will result from the limited use of certain veterinary medicines and the reduction in the production of feed crops (most of the grain grown in Poland is intended for the feed industry).

Representatives of the Polish agricultural sector also point out that some of the EU regulations have a much greater impact on domestic companies than on those in the western part of the Community. Concerns include the mandatory transfer of land for organic production, which, as representatives of the agricultural sector rightly point out, is usually low-yielding. According to data from the Supreme Audit Office, between 2012 and 2019, when the average area of organic crops in the EU increased by 25 percent, it decreased by the same value in Poland. This puts our country in a more difficult starting position compared to Germany, France, and a number of other countries in the western part of the continent.

Similar doubts arise regarding the restriction of the use of plant protection products under the EU directive on the sustainable use of plant protection products (SUD). The European Commission’s requirement concerns a 50 percent reduction in the use of PPPs, based on their current levels of use. In practice, this means that Poland will be a country disadvantaged compared to other Western European countries. In 2022, Poland used 2.1 kg of PPPs/ha, while the EU average was around 3.1 kg/ha, with significantly lower levels of use in countries on the southeastern flank of the Community. For comparison, the average use of PPPs in the Netherlands in 2022 was about 8 kg/ha. After the planned reduction by the European Commission, Poland will be able to use a maximum average of 1.05 kg of plant protection products/ha, while Dutch farmers will be allowed to use 4 kg of PPPs/ha – twice as much as Poland uses today, before the full implementation of the SUD.

According to numerous experts, the planned reduction may lead to the uncontrolled spread of agricultural pests. Restrictions, as emphasized by sector representatives, can effectively prevent the proper protection of crop plants in Poland.

The Union of Entrepreneurs and Employers believes that regulations shaping the EU agricultural economy should be based on solidarity, meaning fair, and favoring a certain group of countries at the expense of others is absolutely unacceptable. The government side should make every effort to ensure that Polish agricultural enterprises are not disadvantaged as a result of the implementation of EU regulations.

Winning against hate

Poland is one of the leaders in food production among the countries of the European Union, particularly in the livestock sector. According to data from the National Center for Agricultural Support, meat, meat products, and livestock accounted for the largest group of goods in national exports (20% of the total value of agricultural and food exports from Poland). In the last year alone, the foreign sales of this category amounted to a value of 9.6 billion euros, representing a year-on-year growth of 37%. Additionally, the dairy production sector exported goods worth over 3.6 billion euros (+37% YoY) in the previous year, which indicates the dynamic development of animal production in the country. Poland is now an EU leader in the poultry market, one of the top egg producers, an important player in the dairy market, a significant supplier of pork and beef, and a world champion in fur animal breeding.

The livestock sector is now a kind of pearl in the crown of Polish agriculture. The high standards that Polish farms operate under, combined with the competitive price of our products, make Polish meat, milk, cheese, and eggs sought-after goods in many regions of the world.

However, it is difficult not to notice that the growing position of domestic producers on foreign markets has made their companies the target of numerous attacks by organizations unfriendly to the animal husbandry sector. Campaigns such as “The End of the Cage Era,” “The End of the Slaughter Era,” “Meat Tax,” “Ban on Fur Animal Farming,” “Elimination of the Possibility of Slaughtering for Religious Communities,” campaigns against popular “3” eggs, and other similar initiatives have effectively absorbed the attention of producers in recent years, significantly hindering their business development. It should be noted, however, that the possible consequence of actions such as the introduction of a ban on the use of cages in the breeding and rearing of poultry, additional taxation of meat products, regulation of meat under the C40 agenda, or the departure from “3” eggs by successive retail chains (based on arguments that have been repeatedly refuted by scientific communities) may translate into a significant reduction in agricultural production indicators in the country. It should also be noted that many campaigns against animal husbandry are inspired by purely ideological motives. However, while we fully respect the decision to give up consuming animal products, we believe that this should always be a choice, not a compulsion.

According to the Union of Entrepreneurs and Employers, every effort should be made to ensure that animal welfare in Poland is at the highest possible level, but any moves in this regard should be made with the utmost caution so as not to undermine the position of domestic firms. Raising production standards is a global trend today, which is scientifically justified. However, revolutionary movements towards the organization of breeding, advocated by activists from some non-governmental organizations, may lead to a situation in which Chinese or MERCOSUR companies, i.e. locations far from the breeding standards prevailing in Europe, replace Polish or broader European producers. The market does not tolerate a vacuum, and sudden restrictions on the production of animal-derived food in Europe will not lead to a long-term decrease in its consumption on a global scale.

Meat consumption in the EU amounted to 69.8 kg per capita in 2020, which was more than twice the global average. Limiting meat production in the EU – as is the case with dairy or eggs – will not result in a decrease in consumption, but will only increase the scale of importing these products to the European Union, limiting the position of European companies and reducing the quality of food.

Building a strong brand “Poland”

The idea of modern consumer patriotism should guide the national agricultural economy. In Poland, numerous campaigns have been carried out for years to awaken consumer patriotism among the citizens. However, the results of these campaigns are far from ideal. Although the share of domestic products in the market is still increasing, the average Pole purchases fewer domestically-produced products than in Western European countries. According to a survey conducted by “Polish Countryside and Agriculture,” only 56% of non-farmer Poles consider the country of origin of a product to be important. It’s not surprising since real actions to raise awareness of what truly constitutes a Polish product and what is just a simulation have only been implemented in the last decade. The majority of Poles still do not know how to differentiate Polish products from those representing foreign capital.

Certifications, galas, campaigns, conferences, or even whole congresses have not fulfilled the expectations placed on them. Neither symbols supposedly indicating the Polish origin of a product nor even a barcode starting with the number 590 provide consumers with certainty that the purchased goods were actually produced by a company representing Polish capital. This does not mean that the domestic market should be closed to products delivered by foreign companies – Poland is not self-sufficient in the food market and does not have such aspirations today. The key issue should be building knowledge that allows consumers to make informed choices between foreign and Polish products.

A modern approach to consumer patriotism requires a focus not only on the consumer aspect but also on institutional support for domestic companies that comply with EU law. Building a strong position for Polish brands both domestically and internationally should become one of the main goals of the Ministry of Agriculture, as well as the Ministry of Development and Technology, the Ministry of Foreign Affairs, and institutions subordinate to the Minister of Agriculture and Rural Development, with particular emphasis on the National Centre for Agricultural Support.

The agricultural sector in Poland has a wide range of opportunities to enable Polish products to gain a reputation comparable to world-renowned “French cheeses” or “Italian wines”. Consumer and economic patriotism should be nurtured as it ensures proper circulation of capital in the economic cycle. If supported by an appropriate legislative environment, it can be a real driving force of the Polish agricultural economy. This idea is not new – the importance of building a strong “Poland” brand was emphasized by the government as early as 2015, during the announcement of the Plan for Responsible Development.

Diversify exports

For almost a decade, one of the main goals set by the Ministry of Agriculture and Rural Development has been to diversify the export destinations of agri-food products produced in Poland. The importance of expanding markets beyond the country’s borders was highlighted by the coronavirus pandemic and the war in Ukraine, which disrupted supply chains and affected demand for food products in the European Union market.

Poland has been steadily increasing its share of non-EU countries as recipients of domestic products. In 2022, Polish agricultural companies sold goods worth a total of EUR 12.3 billion to non-EU countries. This is 20 percent more than in 2021. Outside the European Union, we mainly sold milk (EUR 1 billion), poultry (EUR 990 million), wheat (EUR 776 million), chocolate and chocolate products (EUR 773 million), bread and bakery products (EUR 731 million), and tobacco products (EUR 612 million).

In 2022, Polish goods were mainly exported to the United Kingdom (EUR 3.7 billion), Ukraine (EUR 945 million), the United States (EUR 770 million), Saudi Arabia (EUR 521 million), Israel (EUR 439 million), Norway (EUR 296 million), and Algeria (EUR 242 million). For each of these countries, there was a significant increase in the value of exports, with the UK seeing a 25 percent increase, Ukraine a 16 percent increase, and the US a 16 percent increase.

It should be emphasized that such significant increases in foreign sales values were largely caused by increases in production costs, which resulted in price increases for products. Nevertheless, the upward trend in foreign trade of agricultural and food products to non-EU countries was already noted before the coronavirus pandemic, and positive trade balances indicate proper planning of the global trade exchange.

However, despite undeniable successes, Polish food exports outside the European Union accounted for only about 26 percent of the total export of agricultural and food products from Poland. One should not deceive themselves that non-EU markets will replace the position of the EU market, but the intensification of trade exchange with three key areas should be demanded: Ukraine, China, and countries in the northern part of Africa. Today, the presence of Polish companies in these regions of the world is mainly the result of entrepreneurs’ efforts. Increasing the state’s involvement in supporting negotiations on trade exchange conditions – in relation to these three groups of countries – is crucial.

Regarding Ukraine, which is potentially a very important partner for Polish food producers, the trade balance in the last “measurable” period, i.e., in 2021, was unfavorable for Poland. Polish companies exported agricultural and food products worth 811 million EUR to our eastern neighbor while importing food worth over 919 million EUR at the same time. In recent years, the growth dynamics of imports from Ukraine have also been higher than in relation to exports. Only in the period 2020-2021 did the import of goods from Ukraine to Poland increase by 27 percent.

Poland mainly exports milk and dairy products to Ukraine. They accounted for 15% of all agricultural exports to this country. Cheeses, curd cheese, butter, and milk fat also occupy an important place in the export structure. Poles also export significant quantities of yogurt, cream, fruits, confectionery, and animal feed products. However, considering the significantly surplus character of domestic agricultural production, this is still too little. The revival of foreign trade in food products with Ukraine, with particular emphasis on reversing the unfavorable balance of foreign trade, should become one of the main challenges in the export of domestic products. Inevitable production declines in Ukraine caused by the Russian invasion now create an opportunity for Polish exporters who have gained the possibility of establishing themselves in the market of their eastern neighbor. Increasing exports from Poland is also desirable for the Ukrainian side, which must quickly deal with the supply gap caused by massive aggressor attacks on agricultural infrastructure.

The increased role in the export map of the Polish agri-food sector should be played by China, the world’s largest consumer market. The only significant product sent to the Middle Kingdom for years has been dairy products. In 2021, Polish companies from this sector sold products worth about 1.76 billion euros to the Asian hegemon market. However, this is still a drop in the ocean of needs. The export of agri-food products from the largest EU economies to China exceeds today’s Polish indicators many times over. The success of the dairy industry should give other leading sectors in the country food for thought. An increase in exports to China could be realistically achieved, for example, by the poultry industry, which is crucial for the Polish agricultural economy. However, there is a significant need for institutional support, which has so far been ad hoc and often only illusory. Meanwhile, the dynamic development of successive retail chains in China and the thriving online trade make it easier to reach consumers with new product categories every day.

The natural direction for expanding exports should also be Arab countries and Israel. Poland is already strongly present in these markets, but the potential has remained untapped for years. The most desired Polish products there are grains and meat products from halal and kosher slaughter systems. Especially the latter two categories are exceptionally lucrative, and Poland – thanks to competitive prices and high-quality deliveries – can increase its engagement in exporting these products to countries in the region.

Increase in costs

The recent years – starting from the period of the coronavirus pandemic, through the energy price crisis, to the ongoing war in Ukraine – have seen a regular increase in the costs of running agricultural businesses in Poland. One of the most important factors here is the increase in fertilizer prices, which are necessary to maintain high yields and soil quality. Another factor influencing the rise in costs of running agricultural businesses is the increase in gas prices. Gas is used to heat buildings and equipment, but it also constitutes a major component of the final price of fertilizers.

According to data published by the European Statistical Office, in the last year, the costs of agricultural businesses in the European Union countries increased by nearly 40 percent, which is a huge challenge for farmers. At the same time, it was pointed out that agricultural product prices in the EU increased on average by about 30 percent, which does not allow for “catching up” with the high production costs. However, it is worth noting the huge disparities between EU countries. The cost of agricultural production in Lithuania increased by 65 percent in the last year, while in Denmark the increase was only 7 percent.

Eurostat has also analyzed the costs of agricultural production such as the cost of fertilizers and soil improvers, which have increased by an average of 116 percent in the European Union. In addition, energy and fuel costs have increased by 61 percent.

According to Eurostat data, Poland ranked 7th last year in terms of the growth of agricultural production costs in EU countries and 5th in terms of the growth of agricultural product prices. The data indicates the complexity of the situation in the agri-food market in Europe and the need to implement measures to protect the interests of agricultural entrepreneurs.

Immediate institutional financial aid, while in many cases beneficial for food producers, should not be a permanent mechanism. According to the Union of Entrepreneurs and Employers, schemes should be implemented to maximally relieve entrepreneurs by rationally reducing the level of contributions, taxes, and other costs that effectively tie the hands of domestic companies in the agricultural production sector.

Problematic fragmentation of farms

The problematic fragmentation of farms in Poland, resulting from the shaping of the agricultural policy during the communist era, has remained a significant issue for the national agricultural sector. This has a decidedly negative impact on the negotiating power of Polish farmers. The average land ownership per person employed in Polish agriculture, as indicated by Eurostat, is only 8.7 ha/person. Meanwhile, the EU average in this regard is 19.2 ha/person. Poland is also well below the average for the region. For example, in Hungary, the land ownership rate is 11.9 ha/person, in the Czech Republic, it is 33.5 ha/person, and in Slovakia, it is as much as 40.5 ha/person. The average size of a Polish farm in 2022, according to GUS data, was only 11.32 ha, which is not much when considering Eurostat’s 2020 data indicating that the average size of a farm in the EU was 17.4 ha. Poland is particularly behind compared to the largest agricultural economies in the European Union. In France, it is around 45 ha, in the Netherlands just over 22 ha, and in Germany over 53 ha.

An additional advantage of smaller farms in Western Europe is their high rate of the organization into cooperative structures or groups of agricultural producers. This allows small entities to compete on equal terms with the largest companies in the industry. This opens up a path for negotiations with the largest points of sale for goods and significantly increases their ability to conduct exports, which requires the accumulation of significant amounts of homogeneous goods. Achieving this goal is only possible with proper production planning, which is the responsibility of cooperatives or other forms of farmer association.

The organization rate of farms in Poland is around 15%, while in France, Germany, Belgium, the Netherlands, and Scandinavian countries, it is over 90%. This means that 85 out of 100 farmers in Poland remain with their problems without real support. The fact that agricultural cooperatives payoff is evidenced by the fact that French cooperatives generate annual revenues of EUR 85 billion, Denmark – EUR 30 billion, and in the Netherlands – EUR 25 billion. In Poland, however, a high percentage of farm organizations is only recorded within the dairy production and fruit growing sectors.

An additional advantage of the special organization of farms in Western European countries, i.e., Agricultural Commodity Exchanges, is their presence at all levels of the agricultural production and food trade chain.

Poland, even before the communist period, laid the foundations for the development of agricultural cooperatives in Europe. However, the times of the People’s Republic of Poland distorted this form of common management, discouraging Polish farms from it for years. Today, the only chance for the development of cooperatives is to create regulatory incentives. In this context, recent changes in the Corporate Income Tax Act should be pointed out, which introduced “tax exemptions for the trade in products for the production of which the cooperative was established” for cooperatives functioning as micro-enterprises. Under these provisions, cooperatives were removed from the group of taxpayers for property tax on “buildings and structures or their parts and land occupied under them that are owned or in perpetual usufruct of the agricultural cooperative or its association conducting activities as a micro-enterprise.” However, Polish law still provides cooperatives with meager benefits compared to the West for joint management.

Summary

Polish agriculture – despite numerous successes achieved both domestically and abroad – still remains an area of untapped potential. Apart from the discussed challenges, the focus will have to be on, for example, freeing Polish farms from direct EU subsidies, a real fight against epidemics of ASF and avian flu, development of water retention, which can protect us from effects of drought, and a number of other pressing issues.

Companies in the domestic agricultural sector, synergistically cooperating with public administration, have all the arguments to continue the process of professionalization of their activities. Every year, new agricultural enterprises emerge from the group of previously small entities in Poland, which quickly begin to become noticed on the domestic or international market. The Association of Entrepreneurs and Employers believes that the group of over 1.3 million farms in the country is a potential source of future success for the national economy. Many agricultural sector companies are already leading the way in the region, building a positive perception of Polish business in markets around the world.

See more: 27.03.2023Memorandum ZPP – Challenges for the Polish Agricultural Sector

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