Warsaw, 20^th November 2023

 

Memorandum of the Union of Entrepreneurs and Employers on proposals of amendments to European Treaties: A blow to Poland’s competitiveness and while a step towards a European state, the road ahead is still very long

• The report of the European Parliament Committee on Constitutional Affairs (AFCO) on the proposals of amendments to European treaties should be considered in the context of a long-standing discussion on the directions of the European Union’s evolution, in which concepts of federalisation are pushed forward as well as those that preserve the hegemony of the so-called the “Old Union”, Germany and France in particular;
• The proposed amendments to treaties aim to limit the roles played by the European Council and the Council of the European Union as bodies created directly by representatives of EU Member States, while significantly strengthening the European Parliament. Abandoning the principle of unanimity, as well as changing the rules for determining simple and qualified majorities, along with further structural reforms, will not result not in solidifying the position of the strongest players in the EU, but in strengthening it.
• Combining the aforementioned amendments with the expansion of the scope of EU competences, also in economic areas, as well as the introduction of references to agreements and documents that are not yet directly binding (such as the European Pillar of Social Rights or international climate agreements) into treaties, will lead bring about the weakening of competitiveness of the Polish economy. The desire to decouple – implicitly stated in the report – with regard to China, but also Poland’s key partner, the United States, is yet another threat.
• The procedure for amending treaties is difficult, so the AFCO report is not expected to lead to actual changes in primary law. At the same time, due to the fact that it is part of a broader discourse that has been going on for years, one should expect attempts to push for similar solutions in a manner that does not require amending the treaties, as well as the return of the concepts included in the resolution, particularly in the context of possible enlargement of the EU with Ukraine and the Republic of Moldova in mind, among others.

1. Political background of the discussion on treaty changes

The European Union is a specific structure (sui generis), which escapes traditional typology. Its uniqueness is best demonstrated by the fact that no analogous entity exists – all others brought up in this context (either the Hanseatic League or the Holy Roman Empire) had existed in the period preceding the emergence of modern nation states. The lack of a relevant development pattern makes attempts to discuss the future of the European Union even more intense.

At the dawn of integration, the above-mentioned problem did not exist in practice. In practice, the European Coal and Steel Community (ECSC) had one key, strictly political goal: mitigating the risk of a resurgence of German industrial power, and at the same time alleviate the post-war Franco-German tensions so deeply rooted in history. The economic aspect resulting from the 1951 Treaty of Paris, as well as from the name of the new entity itself, related to the creation of a common market for raw materials was rather secondary in this system, especially since the countries that made up the ECSC, as the future showed, did not abandon more or less direct forms of subsidising their own industries or controlling prices[1].

Apart from the practice of applying the Treaty establishing the ECSC, the adopted formula of maintaining relative political stability in Europe (at least in the West) proved successful. For this reason, it began to be developed relatively quickly with additional countries joining the community. These integration-related processes can be described as deepening and broadening. The former served in the long-term to achieve positive economic effects (and successfully so: while in 1960 over 60% of the foreign trade value of member states of the European Economic Community concerned relations with third-party countries, three decades later the proportions were reversed and over 60 % of the value of international trade originated from intra-EEC turnover[2]). With the accession of Spain and Portugal to the European Community in 1986, Western Europe in its entirety became united – the latter was therefore associated with a natural turn towards the centre of the continent. Following the 1989 Autumn of Nations, Central and Eastern European countries became openly interested in the deepest possible integration with Western structures. Among other things, geopolitical conditions secured reciprocity.

After the so-called the fifth enlargement of the EU as well as following the Maastricht Treaty and (above all) Treaty of Lisbon, the Union has found itself in a unique moment. The objective outlined at the very beginning of integration has generally been achieved and not only has Europe ceased to be ravaged by large-scale armed conflicts, but also the economic ties connecting individual countries making up the EU have become so strong that – in the spirit of the Schuman Declaration – any and all military tensions between them have simply become unprofitable. At the same time, following the post-Cold War period of the global unilateral model with a dominant role of the United States, the growing importance of China, but also of some southern countries such as India, and the preservation of a backward, inefficient, but nevertheless strong Russia, resulted in a certain adjustment in favour of multilateralism. This perspective certainly encourages some politicians to think of the European Union as a superpower sitting at the table with the others – especially since none of the European countries individually has as of present the necessary potential to achieve such a status on their own.

The prospect of a global reshuffle therefore determines (at least in narrative) a general direction of changes within the EU, i.e. towards an (at least) increasingly closer cooperation. There is another game taking place at the same time: who will play first fiddle in a potential European superpower. In spite of the numerous enlargements of the EU, the core of its power remains inclusive to a small degree.

No President of the European Commission in history, and no High Representative for Foreign and Security Policy have ever come from a country that joined the EU (the EC back in the day) later than 1986. While positions of commissioners are awarded with country-of-origin parity in mind, this principle does not apply to directorates-general, which are in fact EU equivalents of ministries that implement activities within specific portfolios which individual commissioners are responsible for. With respect to the current term and directorates key from the point of view of economy (AGRI, BUDG, CLIMA, Connect, COMP, ECFIN, EMPL, ENER, ENV, GROW, RTD, TAXUD, TRADE), the overrepresentation of the so-called “Old Union” is downright blatant. Out of 38 people in the management in the above-mentioned directorates, as many as 31 come from EU member states predating the 2004 enlargement. As many as ten people, over a quarter of the management, are citizens of Germany or France. An analogous situation can be observed amongst chairpersons of European Parliament committees. In key economic committees (DEVE, BUDG, ECON, EMPL, ENVI, ITRE, IMCO), out of 34 chairpersons, 25 represent countries of the “Old EU”, and as many as 20 come from just 6 countries: Germany, France, Italy, Belgium, Portugal and Spain.

The above phenomenon is by no means new. According to a ranking published by the Bruegel Institute in 2015, almost 50% of top ranked positions in EU institutions were then taken by Germans, Italians, the French, Spaniards and Belgians, with a distinctly higher representation of the first nation[3]. As of today, representatives of the above-mentioned nations constitute the majority of European Commission staff[4]. There are almost as many Belgians in the European Commission as representatives of all the countries that joined the EU in 2004 combined. Surely this has a completely natural justification from a geographical and logistical perspective, but the fact remains that in European structures (especially at higher administrative levels) the national composition has considerable political significance.

The evolution of the European project takes therefore place in two intersecting planes: one covering the changing role of Europe in the modern world, the other defining the dynamics of power and decision-making within the EU, also in the context of expanding the community with new members. One may wonder whether, in practice, the first plane is not only an external story justifying the push for solutions as part of the real interplay of interests within the second plane. Regardless of the actual situation, however, it is also a fully legitimate and necessary lens for assessing and forecasting the directions of the EU’s evolution.

The above-mentioned planes are purely political in nature, but they cannot be analysed in complete isolation from the contradictory sentiments of the European demos (total population). Changes in the distribution of competences between EU institutions and member states come across real tensions between two strong values: their sovereignty and scope of freedom on the one hand, and the need for effective creation and implementation of policies at the community level (which brings us to the sense of a union itself) on the other. Intuitively, we can assume (because there is no research on this matter) that, for example, most Poles are in favour of the so-called “Europe of homelands”, while some Western societies are with increasing frequency beginning to prefer a federal scenario (one of the ten priority changes proposed for the French contribution to the Conference on the Future of Europe by this country’s citizens was the pursuit of a federation of European states with “strong competences in areas of common interests”[5]).

A discussion covering all the above vectors has publicly re-emerged as a result of the report adopted in October by the European Parliament’s Committee on Constitutional Affairs regarding the proposals of the European Parliament to amend treaties[6].

In the context of the considerations above, it is not without significance that in the group of rapporteurs on this matter there are four Germans and one Belgian, whereas some of the key proposals contained in the report – in particular those regarding the issue of limiting the principle of unanimity in Council votes – correspond to the recommendations from the report “Sailing on High Seas: Reforming and Enlarging the EU for the 21^st Century” published this year by the Franco-German working group of experts[7]. Meanwhile, both the French president and the German chancellor, at a completely official level, are in favour of a more tightly integrated European Union. The concept of “European sovereignty” advocated by Emmanuel Macron (mainly boiling down to the fact that Europe as a continent could independently “choose its partners and shape its own fate”, independently from other global powers[8]) is perfectly aligned with Olaf Scholz’s “geopolitical Union” finding its place in a multipolar world[9].

As has already been observed, both France and Germany can count on a more than reliable representation in key EU institutions. If we add their obvious economic advantage (to illustrate the scale – both the Paris agglomeration and Bavaria individually have a higher GDP than Poland alone), it is hardly surprising that voices have reemerged in the public debate claiming that France and Germany dominate the European Union[10]. Examples are aplenty. It is symptomatic that of the EUR 672 billion[11] of public aid approved by the European Commission after the introduction of new rules in response to Russia’s full-scale military aggression against Ukraine, nearly 80% was allocated to French and German companies[12]. Germany has often ignored common EU provisions without major consequences (for instance when purchasing COVID-19 vaccines[13]) and has successfully managed to protect its own business against measures that curb its privileged position. For example, Deutsche Post has maintained a pricing policy that violates rules of competition within the EU since at least 2001[14].

2. Key directions of proposed amendments to treaties

The approximately one hundred and twenty pages-long document adopted by the European Parliament Committee contains a number of proposals of amendments to key provisions of the Treaty on European Union and the Treaty on the Functioning of the European Union – regarding both the division of competences between the EU and individual member states, as well as to some specific EU procedures, or the degree of harmonisation of regulations, e.g. taxation, between member states.

The relevant document is divided into two parts: the resolution itself, relatively short, containing a justification for the proposed amendments and their general description, and an extensive annexe containing specific proposals for amendments to the treaties. Before scrutinising these amendments and grouping them into broader blocks, it is worth having a closer look at the first part of the resolution. It almost perfectly corresponds to the discourse on the directions of evolution of the European Union outlined in previous paragraphs: changing the treaties is at least advisable, if not necessary, due to, among others, “unprecedented challenges and multiple crises”, and should result in “increasing the Union’s capacity to act” and “enabling the Union to address geopolitical challenges more effectively”. It is clear that this is an exact continuation of narratives described in the first section of this memorandum – the Union is no longer to be a platform for the coordination of policies and economic cooperation between European countries, but in fact a separate political entity.

Importantly, it is to be constructed differently than thus far, because the adopted document contains a number of changes in the structure of the Union itself. Sometimes they are limited to pure semantics, for example, the European Commission is to become the Executive Body; but in some cases, they are of a deeper nature, while in others they appear quite obscure. The text includes, for example, a previously unknown institution of the President of the European Union. It would seem that this is a meaningful change, because for the first time an individual presidency would concern the Union as such, and not one of its bodies. The logic behind the proposed changes suggests that in practice the President of the EU would replace the President of the Commission (in the updated version – the Executive Body). The description of the procedure for electing the President of the EU was replaced in the document by the description of the procedure for the President of the Commission. At the same time, however, the chairperson of the Executive Body is mentioned elsewhere, whose election procedure remains undescribed. It is difficult to draw conclusions from this structure regarding the real intentions of the authors – either the EU President is in fact simply the chairman of the Executive Body, and the inconsistency in the nomenclature is a clerical error, or the blankness of this office’s (the EU President’s) description is an intended effect. In any case, it is noteworthy that in the new structure, the EU President is to independently present the composition of the Executive Body, which would then have to be approved by the European Parliament. Until now, the composition of the European Commission was selected by the European Council, including suggestions made by member states. Therefore, the new model for selecting the composition of the Commission does not take into account any role of the member states. Furthermore, not all member states would be represented at the level of the Commission – the proposed regulations introduce a maximum number of fifteen Commissioners.

The procedure for electing the EU President (and/or the Executive Body) is also interesting. Until now, the candidate for the President of the European Commission was presented by the European Council (heads of individual member states) and approved by the European Parliament. In the amendment, the order is reversed: the candidate is selected by the Parliament and approved by the European Council. Thus, the actual decision-making burden is transferred from the level of representatives of nation states to the level of Parliament. Similarly, the decision on the composition of the European Parliament, which was previously made by the European Council (unanimously), would, because of the changes, be made by the EP itself by a simple majority of votes. In other words, while until now the division of the number of seats held by individual member states had to be the subject of an agreement between the heads of all countries, according to the proposed solution it would be made by the Parliament itself by a simple majority. Even if the general rules of degressive proportionality and the minimum and maximum number of seats are maintained, this solution creates room for changing the national composition of the EP.

In the above-mentioned scope, there is an obvious shift of competences from the European Council, formed directly by representatives of the member states, to the European Parliament and the President of the EU. This is one of the manifestations of the spirit of centralisation and separation of the decision-making process from representatives of individual countries, manifested in many places in the discussed document. Changes regarding the European Parliament are additionally important in that, according to the proposals presented, it would be equipped with a direct right of legislative initiative, as well as the right to submit to the European Council a request to convene a European referendum, which is another novelty, although described rather generally in the resolution. Changes in the scope of the possibility of using emergency measures by EU bodies can be read in a similar spirit. The procedure described in Art. 122 of the Treaty on the Functioning of the EU currently provides that the Council:

• on a proposal from the Commission, may decide, in a spirit of solidarity between Member States, upon the measures appropriate to the economic situation;
• where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned.

New article 222 section -1 provides for a completely different procedure: “In the event of an emergency affecting the European Union or one or more Member States”, the EP (by a simple majority) and the Council (by a qualified majority) would be able to grant the Executive Body “extraordinary powers, including those to enable it to mobilise all necessary instruments”. The obscure nature of this procedure is extremely worrying.

Structurally, attention should also be paid to changes in the European Commission/Executive Body enabling the appointment of undersecretaries who would be assigned specific portfolios or specific tasks. This creates room for further strengthening of the staff of the Executive Body. At the same time, the question arises about the (at least superficial) rationality of this proposal, if we take into account the fact that Directors General already play or could in fact play an analogous role. The document adopted by the committee also proposes expanding the composition of the Executive Body to include the Union Secretary for Economic Governance. This is a manifestation of another tendency visible in the text, i.e. the desire to expand the catalogue of EU competences in the field of universally understood economy.

In the above context, attention should be paid to several of the most important proposed changes. AFCO recommends, primarily, a far-reaching extension of the possibilities of harmonising tax regulations and rates within the Union, by amending Art. 113 of the Treaty on the Functioning of the European Union. As it currently stands, harmonisation of tax legislation requires unanimity of the EU Council, applies only to indirect taxes (including turnover and excise duties), and is limited only to cases where such harmonisation is necessary to ensure the establishment and functioning of the internal market and to avoid disruptions of competition. The possibilities of establishing common tax regulations are therefore strictly limited under the current regime. The presented proposal substantially modifies this regime, making harmonisation also possible in relation to direct taxes (such as income taxes) – it would not have to be necessary to become possible, and (most importantly) it would not require the consensus among all member states, because it would be decided on by means of an ordinary legislative procedure.

This last part is probably the most frequently elaborated on aspect of the proposed amendments. In many key areas, including not only the above-mentioned tax harmonisation, but also some provisions related to compliance with the rule of law, as well as defence and external policies of the EU, the presented document assumes a departure from the principle of unanimity in favour of majority voting. Changes to the formula for determining simple and qualified majority are also proposed – their broader description requires additional context and can be found later in the document.

The specific emphasis placed on the new proposals on issues related to labour law and social policies is also noteworthy. It is proposed, among others, that the Treaty on the Functioning of the EU should explicitly refer to the European Pillar of Social Rights (EPSR) in the case of certain provisions. Thus far, it has been a relatively soft (as in non-committal) document with no direct effects, containing a general description of the recommended directions of social development. Even though it was referred to during works on, among others, amendments to the regulations on the posting of workers or common rules for determining the minimum remuneration for work, in principle it remained a general declaration instead of a binding legal act. Meanwhile, the new wording of the TFEU provides that the guidelines of the EU Council regarding employment policies, which are currently being formulated, are intended to ensure the implementation of the principles and rights contained in the EPSR. This is a new element that makes the implementation of the provisions of the Pillar a kind of obligation arising from the treaty, which goes hand in hand with appeals of the Progressive Alliance of Socialists and Democrats (S&D), among others, thus making the issue of social rights one of EU’s priorities and the implementation of the principles of the Pillar subject to ongoing control and monitoring[15]. The described change is crucial, because the assumptions of the Pillar are relatively far-reaching and include, among others: provisions regarding social protection for self-employed persons, recommendations on shaping the level of wages in the economy, or even a reference to the concept of a minimum guaranteed income[16].

The resolution also includes important provisions in the field of climate policies – both in the context of EU competences and their rank on the European agenda. As a result of the proposed changes, protecting the environment and biodiversity, as well as making commitments as part of global negotiations on climate change, would become one of the so-called exclusive competences of the EU. This means that member states could undertake any activities in this field only within the framework of the delegation of powers granted to them by official bodies of the EU. Furthermore, the EU’s energy policy is to be, by treaty, aimed at designing the entire energy system in line with international agreements on mitigating climate change. Again, this means a commitment to pursue specific goals arising from international climate agreements. The common trade policy is also to be consistent with the goal of climate neutrality.

The changes proposed in the context of the European investment landscape are interesting too. According to the resolution, member states would be obliged, for example, to ensure the implementation of investments necessary to achieve European economic, social, environmental, and security goals. A permanent mechanism for monitoring and examining foreign direct investments (FDIs) in the EU is also to be established, which could be used to protect European interests. The resolution does not elaborate on the details of the functioning of such a mechanism, but in the context of its overall goals, it is difficult to avoid the impression that it could be an instrument used for decoupling purposes – not only in relations with China which tend to raise ethical doubts from time to time. In the wording of the treaty proposals, the desire to make Europe independent also from the US is clearly visible. In this context, one can interpret them as demands for the creation of a Defence Union with permanently stationed joint units under European command, an arms purchase system using the European Defence Agency, as well as the principle of mutual aid. One of the resolution’s rapporteurs, Helmut Scholz (incidentally, a graduate of MGIMO – the Moscow State Institute of International Relations), explicitly stated in his position that changing the treaty would have to be accompanied by steps towards independence from NATO.

3. Consequences of the proposed changes for Poland

The possible implementation of the described amendments to the treaties would have far-reaching consequences. These are obvious for the European Union, and potentially dangerous for Poland.

Increasing the scope of EU competences in the field of economy and setting a course for a harmonisation of direct taxes placed in the context of, among others, implementation of the EPSR should be considered primarily in terms of their impact on Poland’s competitiveness.

The sole rational objective of harmonising direct taxes – and potentially also social security systems and wage regulations – within the EU is to limit cost competition within the community. Already in 2005, France and Germany called for the harmonisation of corporate income tax, at least in a selected group of countries, for example members of the eurozone, for fear of “tax dumping”[17]. The current proposal goes further and applies to all direct taxes, but the arguments may remain the same.

Meanwhile, Poland has recently built an attractive system for taxpayers – at least terms of rates and the real burdens because the regulations remain one of the most complicated and unfriendly in Europe. The basic 12% PIT rate, income tax exemption for young people, an increase in the tax-free amount, as well as the indexation of the second tax threshold while maintaining the 32% rate – all these are solutions that make working in Poland more profitable (meaning there is lower taxation on work) than in Western European countries such as Germany (progressive tax scale 14-45%), Belgium (25-50%), Austria (20-55%), or Spain (19-47%)[18]. Already in 2021, before the changes described above were introduced, PIT revenues as a percentage of GDP in Poland were higher than in some countries in CEE, but significantly lower than in the wealthy countries of the “Old EU” as illustrated by the chart below.

[19]

In 2022, the share of PIT in GDP decreased in Poland by one percentage point to the level of approximately 4.4%[20]. This would mean that we are 5-6 percentage points away from the countries that collect the most income taxes from their citizens, and this value should be understood as the maximum ceiling for the potential convergence of PIT burdens, which in such an extreme scenario would involve the need to more than double the income tax burden.

The same applies to corporate income tax. The 9% rate introduced in Poland for small taxpayers, the so-called Estonian CIT, or a number of other reliefs in the form of measures stimulating investments are solutions that can be evaluated in various ways, but in practice they boil down to the fact that the amount of charges imposed on legal entities in Poland also remains highly competitive. The basic 19% CIT rate remains one of the lowest in Europe[21]. This obviously translates into Poland’s attractiveness for foreign investors – according to some rankings, we are in the top three best destinations for FDIs[22]. According to hard data, Poland in 2022 was ranked among the top ten EU countries with the highest number of foreign investment projects, recording a remarkably high 23% increase in this respect[23].

It is also worth pointing out that partial harmonisation of, for instance, the corporate income tax is already taking place through the directive implementing the second pillar of the OECD agreement on domestic tax base erosion and profit shifting (BEPS), which is only an additional argument in favour of the thesis that, apart from the current process initiated by AFCO, one should expect not only regular returns of harmonisation concepts within the economy, but also their enforcement by various methods that do not require changes to treaties.

One should also remember that arguments regarding an alleged “social dumping”[24] were in the past made use of in initiatives affecting Polish businesses – the best example of which is the dispute over the posting of workers, during which representatives of countries with high labour costs (and therefore, above all, wealthier “Old EU”) accused countries with lower labour costs (including Poland) of spoiling local labour markets and unfair competition by pushing forward the concept of “the same pay for the same work at the same place”[25]. There is a malicious theory according to which, together with the so-called mobility package, these regulations were aimed at inhibiting the importance of the Polish transport industry, which is still essential for intra-EU trade[26]. Introducing the assumptions of the European Pillar of Social Rights in the treaties would create an ideal space for a continuation of this type of practices. This, in turn, would generate further threats of loss of competitiveness for drivers of Polish economic growth. Two examples that ought to be mentioned in this context are business services and industry.

According to a report by Deloitte, Poland is the second most preferred place to locate shared services centres globally[27] and outclasses the whole of Europe in this respect (only Portugal and Spain are in the top ten). The key factor in this respect is, of course, cost reduction, which in turn is directly reflected in the employment costs in a specific country. Surely, it also helps that Polish workers are highly qualified and valued around the world. Meanwhile, the sector generates less than 4.5% of Poland’s GDP and employs half a million people[28], developing in recent years with exceptional dynamics.

As for industry, contrary to the European trend of deindustrialisation, the share of production in GDP in Poland remains relatively high. In 2004, Poland on par with Italy in this respect, significantly lagging behind Germany. As of today, we have reached the level of our western neighbour, significantly overtaking the Italians. At the same time, such economies as Spain and France have consistently been recording declines in the share of manufacturing in GDP. The chart below illustrates this trend since 2004[29].

[29]

In nominal values, the volume of Polish industrial production obviously lags significantly behind the analogous indicators for the above-mentioned economies. However, should we maintain our dynamics over the next two or three decades, we might have a substantial chance to become one of the European industrial leaders (although Germany would remain out of reach). Looking at the conversion rate per capita, this may happen even sooner. The increase in costs induced by the harmonisation of social security and taxes would clearly have a negative impact on this process.

Similar reservations should be made with regard to the provisions concerning climate policy and the energy market. Poland, to a higher or lower degree accepting the direction of the EU energy transformation, is fighting to have its specificity taken into account. Or rather: the specificity of its initial state, in which the economy inherited from the Polish People’s Republic was based on inefficient heavy industry that made use of energy from fossil fuels only – hard coal in particular. Suffice to say that 98% of electricity in Poland in 1990 was generated from coal combustion[30], while it was slightly less than 40% in the EU on average[31]. However, the Polish mix is consistently changing – today 21% of electricity in Poland comes from renewable energy sources (RES), and less than 70% from coal[32]. Therefore, it would be a false claim that Poland remains passive in the face of climate challenges. At the same time, further “tightening the screws” in the field of EU climate policy (and this is the direction in which the provisions included in the proposal to amend the treaties are heading), without taking into account the fact that over the last three decades we have had to build any an alternative to an energy sector based almost 100% on coal is, of course, against our national interest.

In terms of the economy, the proposed directions of amendments to the treaties are dangerous for Poland. It is therefore worth opposing both current and potential future proposals for harmonisation in tax and social areas, as well as even stricter enforcement of the assumptions of the EU’s climate and energy policies.

In a political sense, the elimination of the principle of unanimity in favour of a majority vote obviously limits the importance of Poland. From the point of view of countries outside the decision-making core of the Union that has the initiative (and Poland is such a country regardless of its size), the need to reach a compromise acceptable to all at the level of the EU Council and the European Council significantly determines the empowered position within the community. Of course, voting is an element of political bargaining, and this is completely normal. The ability to block certain decisions is one of the key assets for countries such as Poland, allowing them to enter the logic of quid pro quo and obtain specific benefits in return for supporting a certain cause. Depriving smaller countries (it is difficult to write about Poland in this context, as it is one of the most populous EU countries, but in any case Poland is among the countries with at most a limited influence on decisions made in Brussels and Strasbourg) of this asset means in practice depriving them of their trump cards – even if the new majority formula in a theoretical sense may weaken France and Germany, although this is not yet clear. While currently it is practically impossible to gather a qualified majority in the Council without the support of France and Germany (these countries constitute less than 34% of the EU’s population, co-opting at least two additional countries necessary to achieve a blocking minority is not only relatively easy, but essentially also guarantees that the threshold of the population represented by decision-making states required to obtain a qualified majority will not be reached), in the proposed model at the mathematical level the situation would be completely different due to the reduction of the required population percentage threshold to 50%. However, raw numbers are not enough to accurately assess the situation. The ability to build coalitions remains key in any system. Loose networks of likeminded countries functioning in parallel to official EU structures are becoming more and more important[33], and it so happens that of all the associated countries, France and Germany have the strongest coalition-building skills, which can be grouped into two key sets: the “Founding Six” together with Italy, the Netherlands, Luxembourg and Belgium, and the “Big Six”, or G6, together with Italy, Spain, Poland and, until recently, Great Britain. Or nowadays rather the “Big Five” in a post-Brexit Europe[34]. Changes in determining the majority may therefore be a fig leaf covering the actual deprivation of countries outside the very centre of the EU of the initiative and major influence on the decisions made. Of course, it is not the case – and we cannot ignore this – that France and Germany speak with one voice on every issue. On the contrary, there are differences of opinion in this coalition, for example regarding nuclear energy. Ultimately, the duumvirate is also not an optimal solution and, inevitably, at the end of the path there is the centuries old Franco-German dispute on hegemony in Europe. However, in the longer term, the maturity of these political systems and the consolidation of their elites in European structures mean that various current interferences are unable to affect the implementation of the common interest.

All the above arguments do not automatically mean that any interference in the wording of the treaties is against the Polish interest. First of all, some changes – including structural ones – may actually be justified in the context of potential accession of Ukraine, which would be, depending on the scale of the war-related exodus, a country in terms of population equal to Poland or even “weighing more”. Secondly, there are challenges whose nature means that they can only be effectively answered through a community response. Examples of such challenges include migration crises, which may become more frequent or more intense in the coming decades (fleeing the “global south” caused by climate change or economic factors, as well as political instability and wars). Shared external borders require a common approach established, however, by consensus and agreement of all member states. Thirdly and finally, not all of the Union’s components, even those that are absolutely fundamental, function perfectly. One should mention in this place for instance the free movement of goods, services, and labour, as well as equal conditions for mutual participation in the markets of individual countries. In spite of the directions clearly defined in the treaties, a number of countries continue to apply protectionist practices, to the detriment of, among others, Polish companies.

To sum up: the presented proposal of amendments to the treaties is clearly unfavourable for Poland, although fortunately there is an exceedingly small chance of it being pushed through (more on this later). This does not mean that:

• the concepts contained therein will disappear – they will most probably return in subsequent iterations and proposals, perhaps as part of a transaction related to the new enlargement of the EU, perhaps in the form of activities that do not require amendments to the treaties;
• Poland should oppose any modifications to the European Union’s primary law – there are areas that require correction and adjustment to new conditions, but one must remain vigilant of the trap constituting a return to ideas of federalisation with the leading roles of France and Germany remaining unchanged.

4. Next steps

Contrary to the sensational tone of some reports, there is an exceptionally long road from the document being adopted by AFCO to the actual amendment of the treaties, and its effective conclusion is virtually improbable. First, the European Parliament must approve the proposal. Then, the EP submits it to the Council of the EU, from which the document is later sent to the European Council. The European Council decides by a simple majority whether to consider the amendments. If such a decision is made, the President of the European Council convenes a meeting of heads of state, delegations of national parliaments, as well as representatives of the European Parliament and the European Commission. The meeting develops recommendations for a conference of representatives of the governments of individual member states. It is this conference that decides by collective agreement to make any changes to the treaties. At the end of the process, the changes must be ratified by all member states.

If the discussed proposal has a future ahead of it, Europe is in for a lengthy process that will take at least several years, and which will also require the consent of each of the member state. The proposals as presented will, in all likelihood, not be adopted. However, as has been mentioned numerous times, the ideas contained in the document will certainly come back, and one must be fully prepared for when that happens.

***

[1] Confer e.g. “The Theory and Reality of the European Coal and Steel Community”, K.J. Alter, D. Steinberg

[2] https://www.econlib.org/library/Enc/EuropeanEconomicCommunity.html

[3] https://www.bruegel.org/blog-post/measuring-political-muscle-european-union-institutions

[4] https://commission.europa.eu/system/files/2023-04/HR-Key-Figures-2023-fr_en.pdf

[5] https://wayback.archive-it.org/12090/20230115155855/https://prod-cofe-platform.s3.eu-central-1.amazonaws.com/gi6tv2ypo5kir3dz4jos479obl4a?response-content-disposition=inline%3B%20filename%3D%222022.2472_PL_05.pdf%22%3B%20filename%2A%3DUTF-8%27%272022.2472_PL_05.pdf&response-content-type=application%2Fpdf&X-Amz-Algorithm=AWS4-HMAC-SHA256&X-Amz-Credential=AKIA3LJJXGZPDFYVOW5V%2F20230115%2Feu-central-1%2Fs3%2Faws4_request&X-Amz-Date=20230115T155842Z&X-Amz-Expires=300&X-Amz-SignedHeaders=host&X-Amz-Signature=7b6d71b572d4a326ee6c8d710c997ce662f51170ac389ff64d93d2567191f35b

[6] https://www.europarl.europa.eu/meetdocs/2014_2019/plmrep/COMMITTEES/AFCO/PR/2023/10-25/1276737PL.pdf

[7] https://www.auswaertiges-amt.de/blob/2617322/4d0e0010ffcd8c0079e21329bbbb3332/230919-rfaa-deu-fra-bericht-data.pdf

[8] https://www.france24.com/en/europe/20230411-president-macron-to-visit-netherlands-amid-row-over-china-comments

[9] https://www.europarl.europa.eu/news/en/press-room/20230505IPR85002/olaf-scholz-we-need-a-geopolitical-larger-reformed-eu-open-to-the-future

[10] Confer e.g. https://sites.lsa.umich.edu/mje/2023/01/02/why-did-the-eu-change-to-a-france-germany-game/

[11] As of January 2023

[12] https://www.euronews.com/my-europe/2023/01/17/germany-france-account-for-most-eu-state-aid-heres-why-its-a-concern

[13] https://www.politico.eu/article/germanys-coronavirus-vaccine-side-deal-at-odds-with-legally-binding-eu-pact/

[14] In 2001, the European Commission imposed a fine of EUR 24 million on Deutsche Post for abuse of a dominant position. Three years later, the Commission found German postal regulations to be in breach of intra-EU rules of competence and in abuse of its dominant position. In 2015, the Federal Cartel Office ruled that Deutsche Post was abusing its dominant position. All proceedings concerned, in practice, the use of dumped prices. In October 2023, the German postal market regulator considered forcing Deutsche Post to increase prices.

[15] https://www.socialistsanddemocrats.eu/pl/newsroom/europejski-filar-praw-socjalnych-powinien-byc-tarcza-chroniaca-ludzi-przed-polityka

[16] According to the Pillar: “Everyone lacking sufficient resources has the right to adequate minimum income benefits ensuring a life in dignity at all stages of life (…)”.

[17] https://www.politico.eu/article/france-and-germany-in-plot-to-harmonize-taxation/

[18] Data from: https://taxsummaries.pwc.com/quick-charts/personal-income-tax-pit-rates

[19] Chart generated using the OECD database: https://data.oecd.org/tax/tax-on-personal-income.htm

[20] https://www.gov.pl/attachment/23782ae6-20e1-4955-8b91-a519f9607298

[21] https://taxsummaries.pwc.com/quick-charts/corporate-income-tax-cit-rates

[22] https://www.fdiintelligence.com/content/analysis/the-story-behind-polands-fdi-success-72245

[23] https://www.ey.com/pl_pl/news/2023/05/atrakcyjnosc-inwestycyjna-europy-2023

[24] https://home-affairs.ec.europa.eu/networks/european-migration-network-emn/emn-asylum-and-migration-glossary/glossary/social-dumping_en

[25] A broader description can be found e.g. here: https://www.mobilelabour.eu/wp-content/uploads/2017/06/Bruegel-Social-dumping-and-posted-workers.pdf

[26] https://tlp.org.pl/jaka-jest-prawdziwa-rola-polski-na-europem-rynku-uslug-transportowych/

[27] https://www2.deloitte.com/us/en/pages/operations/articles/shared-services-survey.html

[28] https://absl.pl/en/news/p/record-growth-business-services-exports

[29] Chart generated using the World Bank database: https://data.worldbank.org/indicator/NV.IND.MANF.ZS?end=2022&locations=PL-DE-FR-ES-IT&name_desc=false&start=2004&view= greyhound

[30] https://wysokienapiecie.pl/8002-udzial_wegla_w_produkcji_energii_elektryczna_w_polsce/

[31] https://www.eea.europa.eu/data-and-maps/figures/share-of-electricity-production-by-4

[32] https://globenergia.pl/ponad-21-energii-pochodzilo-z-oze-miks-energetyczny-i-struktura-produkcji-energii-w-polsce-w-2022-r/

[33] According to experts of the London School of Economics, amongst others: https://blogs.lse.ac.uk/europpblog/2019/08/07/how-informal-groupings-of-like-minded-states-are-coming-to-dominate-eu- foreign-policy-governance/

[34] https://ecfr.eu/article/commentary_eu28survey_coalitions_like_mindedness_among_eu_member_states/

 

See more: 20.11.2023 Memorandum of the Union of Entrepreneurs and Employers on proposals of amendments to European Treaties: A blow to Poland’s competitiveness and while a step towards a European state, the road ahead is still very long

Warsaw, 9^th October 2023

 

Memorandum of the Union of Entrepreneurs and Employers:
Making use of the potential of Ukrainian and Polish digitalisation in the healthcare sector

 

• Cooperation between Poland and Ukraine can bring mutual benefits in the field of healthcare digitalisation.
• Regarding this cooperation, there are opportunities and threats alike. Both countries can exchange knowledge and experience, which will contribute to an increased healthcare efficiency and quality.
• Varying degrees of advancement and differences in infrastructure may create challenges for a harmonious partnership. It is essential to focus on overcoming these obstacles and making use of both countries’ potential in the field of health digitalisation.
• Advanced public-private partnerships guarantee the development of digital services in Ukraine.
• Lack of sufficient know-how may become an obstacle to further development of the digitalisation of the Ukrainian state.

Objectives of a Polish-Ukrainian healthcare cooperation

One of the most important objectives of Polish-Ukrainian cooperation should be, above all, a partnership at the educational level in order to support future entrepreneurs from Ukraine by equipping them with adequate knowledge. In the face of the ongoing armed conflict, prewar conditions for development do not exist any longer. The pace of progress in creating innovative solutions related to data transmission technology along with the knowledge that there is no possibility of returning to the pre-war world conceive the potential in Ukraine to build a modern healthcare system based largely or completely on digitalisation. Ukraine can and may become a country of experiments in the field of digitalisation of the health sector, and Poland is able to aid Ukraine in endeavour.

Where does Ukraine presently stand in terms of its healthcare system?

Ukrainian healthcare is a system that for many years had suffered from inadequate financing. To make matters worse, current budgets do not allow its restoration. We are dealing with a quite significant outflow of citizens – medical staff, the youth, and wealthy people in particular. This situation affects in turn not only the condition of medical care, but also the country’s economic potential. Ukraine’s population is aging and access to healthcare varies greatly, especially in scattered rural areas. Private health insurance has low penetration. The ongoing war leads to economic instability yet attracts at the same time new patients with health problems, both of a physical and mental nature. We are observing a lacking transparency in certain aspects of the health system. Although apparently there are no fees for anything, there are reports of cases in which patients must provide their own surgical tools or wound dressings. Citizens are very open to adopting digital solutions. We also see that the war, although a tragic event, contributed to the acceleration of services’ digitisation. Healthcare in Ukraine, while slightly lagging, is gradually following other industries. It is important to understand that those industries shape consumer habits, for example modern digital banks that offer different payment channels and systems. Worthy of a mention is the Ukrainian online bank Monobank, which is more modern and advanced than many banks in Poland. This is an institution considering expansion to Western Europe. Furthermore, during the war in Ukraine, applications emerged to make life easier in other areas, for example the Ukrainian Railways app, which offers not only ticket sales, but also access to various information. Due to the numerous events surrounding the war, citizens find this information extremely useful. Interestingly, if we look at the scope of functionality of the Ukrainian equivalent of the Polish mObywatel app, we will notice that the Ukrainian state portal offers at least the same, and sometimes even greater possibilities than its Polish counterpart. There is also a mobile app on the private market that integrates medical care with access to pharmacies. Such a modern solution is on par with certain European innovations, and ahead of others. All this shows that Ukraine has the potential to further digitally develop its healthcare and can draw inspiration from other sectors of the economy as well as from foreign solutions. As for the public healthcare market, the level of digitalisation in Ukraine is still relatively low. However, if we look at the private market, we will observe the creation of applications that come close to the standards offered by companies such as LUX MED, Medicover or Enel-Med. In spite of this fact, the share of private medical care in Ukraine comes up to only about 5%, which is a relatively small value. If we compare certain indicators, for example teleconsultations, in Poland they constitute over 30% of the share, while in Ukraine a mere 10%, albeit growing. Now, when it comes to opportunities to improve the situation in Ukraine and to make better use of existing apps, it all boils down to data and digital standards of information exchange in medical environments, as well as standards of working with patients. Currently, there are no uniform standards, which leads to the lack of standardisation, within Ukraine and in international exchange alike. Ukrainians saw the benefits of standardisation during the COVID-19 pandemic, as Ukrainian certificates were recognised in the European Union and vice versa. Therefore, Ukraine should strive to adopt standards applicable in other countries, as this creates the potential for various forms of cross-border healthcare. We can envision a policy that would allow treatment both in Poland and Ukraine. There is a large community of Ukrainians living in Poland, who are professionally active and travel frequently. Having a service that would work not only in Ukraine but also in Poland and other countries would be incredibly attractive. However, the key issue is collecting consistent medical data. From the point of view of Ukrainian society, but also of societies in which Ukrainians live, this would be highly beneficial as it would affect the effectiveness of treatment and patient safety.

Due to favourable legislation, Ukraine is becoming a leader in international IT

Ukraine has the potential necessary to become a leading force in digital transformation of healthcare, as everything is being built virtually from scratch. The market for IT and digital services in Ukraine is large and growing, accounting for approximately 5% of the country’s GDP. Moreover, services sector exports constitute about 50% of the country’s total exports. This is a dynamically developing sector that includes over 2,300 companies that employ over 360,000 specialists. It is an important part of the Ukrainian economy making it an important player on the international market. Importantly, the current legislation in Ukraine favours IT sector development. However, to achieve its full potential, it is important that the private sector operates both domestically and abroad. Public-private cooperation (between private companies and state institutions) is also important. The partnership between Poland and Ukraine in the field of digitalisation can bring mutual benefits, especially if both sides use their experience and potential in the field of digital technologies and jointly face the challenges related to the development of the sector. The role of the Ministry of Digitisation in managing the digitisation process is crucial, and its coordinated approach to various areas of government activities can bring positive results. What is important is that this Ministry can help other ministries in developing digital competences and creating favourable conditions for innovation. When it comes to cooperation between Poland and Ukraine in the area of digitalisation, such relations can bring many benefits. Both sides can learn from each other and jointly solve problems related to the development of the digital sector. It is also worth paying attention to how many Polish companies operate in Ukraine and cooperate with Ukrainian companies. This can be an important source of exchange of both knowledge and experience. The important thing is that the digitisation process can be implemented in diverse ways, and each country can choose the solutions that best suit its own needs and conditions. It is also worth remembering that digitisation is a dynamic process that is constantly evolving. There are many areas with room for improvement to achieve better results. Regarding cybersecurity, this is a globally key area that requires constant attention. International cybersec-cooperation is critical, because threats are often of an international character and require a common approach to properly address them. Poland and Ukraine can also use technological solutions in the area of cybersecurity, such as platforms for attack detection and prevention. Indeed, developing digital technologies in the military area can also find numerous applications in civilian areas. Ukraine, due to the vastness of its territory and particular challenges, has the potential to give birth to solutions that can be adapted to various civilian needs. Companies that identify and monitor threats in military situations can transform their technologies for the needs of the post-war civilian market. Mental health and psychological support are also pivotal, in particular for those suffering from war-related PTSD. Companies offering psychological support can develop their services and help not only veterans, but also others who experience mental difficulties. AI-powered technologies have wide applications in civil fields such as healthcare and industry too. Their development may contribute to improving the efficiency and quality of medical care along with other aspects of life. Developing technologies related to prostheses and support for injured people are another example of how technologies developed for the military can be used in civilian areas, such as healthcare or rehabilitation.

Digitalisation as a way to combat logistics problems and communication exclusion

The availability of medical services, especially in large countries with dispersed populations, is an important aspect. Using medical data to better diagnose and refer patients to the right specialists can improve the healthcare quality. Moreover, an aging population and deficiencies in the health system are challenges that can be solved through digitalisation. However, the key is to ensure that patients experience the benefits of these changes, such as better access to medical care and a more personalised approach to treatment. Clinical trials, health data analysis, and tracking health trends in the population are areas that can also be beneficially used in the process of digitalising healthcare. It is important to use these tools effectively to prevent diseases and improve patients’ quality of life. Another issue to take into consideration is what should be done after diagnosing patients and identifying problems at the population level. We focus on delivering medicines and services, which in turn brings challenges related to logistics and ensuring availability. In Europe, including Ukraine, there are major problems in this area. Digital tools allow for a more effective management of these processes, which is extremely important. The problem is the lack of coherence in health systems. Patients use different healthcare facilities and medical devices, which makes data scattered and inconsistent. Our goal is to enable data to move with the patient, but communication between different devices and systems can be problematic. An example of this is the individual patient account, which has worked well for vaccinations, but we still have many challenges to face in terms of data access and processing. Another important aspect includes data analysis and subsequent conclusions from this data. Having diagnosed patients, it is necessary to adjust appropriate therapies, exclude ineffective solutions, and implement self-help.

Visions of a Polish-Ukrainian cooperation

It is important to understand the processes and systems on both the Polish and Ukrainian side – and to educate about them. Each side has tried different solutions, and the mistakes of others can become valuable lessons. Education at the level of relations between countries is crucial. Furthermore, there are issues related to regulations and standards. Poland can learn from Ukraine in terms of implementation and operationality, while Ukraine has much to gain from Poland’s experience in dealing with different standards and regulations, especially in the context of Ukraine’s aspirations to join the EU. It is worth emphasising that both sides can also benefit from the exchange of know-how in the field of cybersecurity and adapting regulations to European standards, while ensuring flexibility of the country’s development. One must remember that adaptation to new regulatory standards as well as introduction of systemic changes are operational challenges. Poland and Ukraine can exchange experiences and best practices in these areas to achieve consistency with European standards while maintaining flexibility in the development process. Poland and Ukraine can benefit from mutual support, especially since they are each other’s closest neighbours. Apart from education, regulation, and knowledge exchange, there is also potential for medical and other services. Both countries can provide services in both mental health and other medical areas. Cooperation and opening the market can both benefit patients and stimulate competition. Qualified medical and IT staff are vital, because both parties have different competences in these areas. Creating joint projects and working groups at various levels, including government, business, health system participants, physicians, and app users, can accelerate the implementation of digital solutions. Successful examples of cooperation and the effectiveness of the implemented solutions should also be actively promoted. As we continue to do this, there is a huge opportunity to help rebuild the healthcare system and transform it into a moderner and more effective version of itself that meets future challenges.

 

See more: 09.10.2023 Memorandum of the Union of Entrepreneurs and Employers: Making use of the potential of Ukrainian and Polish digitalisation in the healthcare sector

Warsaw, 25^th August 2023

 

Memorandum of the Union of Entrepreneurs and Employers: pro-demographic policy should not be abandoned, but without economic immigration, Poland will not maintain the pace of development

 

• Poland is one of the countries with the lowest fertility rate not only in Europe but also in the world. Demographic problems lead to problems on the labour market and with the social security system.
• Currently, migrants from Ukraine are helping Poland in its fight against labour market problems. However, many of them choose other Western European countries and Canada. Moreover, one should be aware that after the end of the war in Ukraine, many of them will return to their homes.
• Poland must pursue a prudent migration policy, open to foreigners from various parts of the world, especially from areas that are culturally close to us.
• It is also necessary to ensure safety. Foreigners who commit crimes and people who entered our country illegally should be deprived of the right to reside in Poland.

Introduction

Poland is currently facing one of the greatest challenges in terms of society, the labour market, social security, and the economy as a whole. This problem concerns the country’s constantly and significantly worsening demographic prospects. The fertility rate among Polish women in 2022, according to the latest Statistics Poland report “Poland in numbers 2023”, amounted to 1,261. To achieve simple generation replacement, this ratio would have to come up to 2.1. This report indicates that the Polish birthrate last year was already -3.8 per 1,000 inhabitants[1]. This is the worst result in the post-war history of our country and puts us not only among the countries with the greatest demographic problems in Europe, but also in the entire world.

Demography directly affects the labour market. As the ManpowerGroup report “Talent Shortage 2023” shows, as many as 72% of organisations in Poland have problems with filling job positions with new employees with required skills and competences[2]. In practice, this translates into hundreds of thousands of job vacancies that could contribute to economic growth in our country. Staff shortages therefore translate into lost benefits for all of us.

So how shall we counteract demographic problems? A reasonable pro-family policy is certainly necessary, which will provide real support and encouragement for Polish families in decision-making with regard to children. However, even with a particularly good policy in this field, its effects will be noticeable on the labour market in 20 years at the earliest. Another way is to use one’s own resources, i.e. increasing the professional activity of, for example, women who often stay off the labour market for a long time due to caring for children and the elderly. Finally, labour shortages on the market can be filled very quickly and effectively thanks to migration policy. As indicated by the Polish Economic Institute, the total impact of labour migration in 2022 contributed to a one percentage point growth of the Polish GDP[3], and the labour market was able to handle migrants from Ukraine very well. According to the Ministry of Labour and Social Policy, there are approximately 1.4 million of them in total in our country (mainly women and children)[4].

Migration today

Current unemployment in Poland is at a record low. According to Eurostat, it amounted to 2.7% in April 2023 and was the lowest in the entire European Union (the Czech Republic achieved the same level of unemployment). It may seem that this is great news, because usually only high unemployment is associated with problems. Unfortunately, such a low level of unemployment means for the economy that there are problems with unfilled positions. This is what is happening in Poland.

More than 30 years have passed since the Polish transformation. Our country has put those three decades to effective use and has become one of the largest economies in the European Union. Just as Poles once emigrated en masse to Western European countries, today our country has become a place where foreigners come to look for work. In many industries (such as transportation or construction), foreigners make up a significant share of employees, and they form the vast majority of staff in many companies. Moreover, despite the influx of migrants, the unemployment rate has not been increasing for a long time and remains relatively stable and very low. This means that our labour market is still very receptive, and migrants are usually employed in positions that cannot be filled by employees from Poland.

The Russian invasion of Ukraine was certainly an opportunity to supply our labour market with refugees who are culturally close to us and want to integrate with our society. Unfortunately, they are increasingly choosing other Western European countries, mainly Germany and Canada. These countries accepted hundreds of thousands of migrants, offering them very favourable social programs, training and language courses. Furthermore, they largely attract specialists, people with the highest competences, who are very much in demand on the labour market of these countries.

Poland certainly benefits from the good image we have managed to create in connection with helping refugees since the beginning of the war in Ukraine. Cultural and geographical proximity and similarity of languages also work to our advantage. However, in the long term, this is not enough.

Migration tomorrow

If there are no migrants on our market, who currently constitute a huge added value for our economy, Poland will have to consider profoundly grave consequences. Already two years ago, the Statistics Poland did forecast that with current demographic trends, the population in Poland will decrease by 4.4 million[5]. Unfortunately, the latest data shows that it may be even worse. In April 2023, only 21,000 children were born in Poland[6]. This is an inglorious record in the history of the central statistical office’s measurements. Today, such a difficult demographic situation translates not only into problems on the labour market, but also in the entire social security system. The migration of Ukrainian citizens has been a kind of lifeline.

Nevertheless, one should be aware that when the war in Ukraine is over, many of the country’s citizens will return to their homes. Moreover, many countries have already noticed an opportunity to attract Ukrainians to their labour market and offer them much better conditions than Poland (Germany and Canada mentioned earlier). To prevent the very serious consequences of the depopulation of our country and the aging of our society, we must act today to introduce a long-term and systematised migration policy.

Sensible migration policy

Today, the main sources of migration to Poland are our closest eastern neighbours – Ukraine and Belarus. These are people who are culturally close to us, perfectly assimilate into society, and are willing to work. That is why other countries tempt them with increasingly attractive offers. Taking into account the risk of a decrease in the number of migrants from beyond our eastern border, we should look for other directions today. We cannot view every migrant as a potential threat. However, we should focus on attracting people who will add value to our economy and society. People who want to work, learn, integrate and start families. People who see going to Poland as a chance for a better life.

Poland should be open to migrants from various parts of the world, although of course it should not forget about security. Therefore, illegal migration should be firmly prevented, as it could result in people arriving in our country whose activation on the labour market would be extremely difficult and who could constitute a significant burden on the social system.

Certainly, with refugees from Ukraine increasingly choosing Western Europe or other Western countries such as Canada, Poland must focus on attracting citizens of other countries that are culturally closest to us. Therefore, greater openness to Belarusian citizens seems to be a logical solution. Many of them have Polish roots, and a significant part of society is against the policy of the Belarusian authorities and is looking for a chance for a better life. Migration to Poland, a culturally close country with a similar language, but a lot better economically developed, may certainly be such an opportunity. Belarusian citizens currently do not have the freedom to move within the European Union and take up employment like Ukrainians, so it may be easier for Poland to keep such migrants on the market and encourage them to settle permanently. Poland should therefore consider introducing mechanisms to ease obtaining the right of residence and work permits, similar to those introduced for Ukrainian citizens. The simplified method of reporting the employment of a Ukrainian citizen works particularly well in practice and can be successfully used in the case of Belarusian citizens. Of course, we must take into account matters related to security arising from the fact that the Belarusian authorities are not favourably disposed towards our country. Therefore, certain security considerations must be kept regarding migration from this country.

These issues should be reflected in migration regulations, which should provide a chance for foreigners to start working easily, without many of the existing complicated procedures. Although it should be emphasised that Poland has made noteworthy progress in this area in recent years, many entrepreneurs and foreign workers still stress the fact that obtaining a work permit is excessively burdensome.

It should be highlighted that migrants who are culturally close to us are certainly of the greatest value to our society and the labour market. The experience Poland has had in recent years clearly shows that people from Ukraine and Belarus find their place in our society and on the labour market very well. Taking them in does not add significant social costs, and at the same time allows us to effectively combat labour market and demographic problems.

Nevertheless, as shown in the earlier point, it is necessary to be open to other directions of migration. However, this may create certain social and security risks that must be counteracted. Certainly, every person wishing to move to Poland should undergo a thorough verification, including their criminal record. Moreover, if such a person, while already in Poland, breaks the law (commits either a crime or a misdemeanour in accordance with the provisions of the Penal Code), in particular any crime against life and health or a crime of a hooligan nature and as part of recidivism, they should be deported without any possibility of return to Poland.

Another issue is allowing only legal migrants into our society. Any person who crosses our border illegally should be at once turned back and deprived of the opportunity to return to Poland, also legally.

Many countries currently offer very extensive social programmes for migrants, which are intended to encourage foreigners to settle in this country. This approach makes it possible to attract both people who want to work and settle in a given country, but it also encourages people who only care about obtaining social benefits. Therefore, any social incentives should focus on providing a chance for development on the market and quick assimilation, and not on offering an extensive social system – according to the principle of giving a fishing rod instead of a fish.

It is also important that migrants have easy access to language courses and vocational training. For the vast majority of them, their first job involves performing so-called “simple jobs”, but in order for them to be motivated to stay in Poland, they should have the opportunity to develop professional competences to have a chance for a better job in the future.

Finally, it is important to focus on attracting and keeping highly skilled professionals. For this to happen, it is necessary to ensure their qualifications obtained in their country of origin are easily recognized in Poland. Many industries in Poland urgently need to fill staff shortages with such specialists. Health care is but one example of an industry that has been struggling with personnel shortages: doctors, nurses, paramedics etc. for years.

Summary

The demographic problems of our country translate into many aspects of life of our society, especially the labour market and the social security system. One of the ways to counteract the effects of depopulation is to shape a prudent and effective migration policy. A policy that, on the one hand, will be open to migrants and give them a chance for professional development, and on the other hand, will ensure the security of our borders and citizens.

 

[1] https://stat.gov.pl/obszary-tematyczne/inne-opracowania/inne-opracowania-zbiorcze/polska-w-liczbach-2023,14,16.html

[2] https://raportyhr.manpowergroup.pl/niedobor-talentow-2023

[3] https://pie.net.pl/wp-content/uploads/2022/08/Miesiecznik-Makro_8-22.pdf

[4] https://www.gov.pl/web/udsc/obywatele-ukrainy-w-polsce–aktualne-dane-migracyjne

[5] https://stat.gov.pl/obszary-tematyczne/ludnosc/ludnosc/sytuacja-demograficzna-polski-do-roku-2021,40,2.html

[6] https://stat.gov.pl/obszary-tematyczne/inne-opracowania/informacje-o-sytuacji-spoleczno-gospodarczej/biuletyn-statystyczny-nr-52023,4,138.html

 

Find out more: 2023.08.25 Memorandum of the Union of Entrepreneurs and Employers: pro-demographic policy should not be abandoned, but without economic immigration, Poland will not maintain the pace of development

Warsaw, 6^th July 2023

 

Memorandum of the Union of Entrepreneurs and Employers:
SMR – Modular Atom for Business

 

• According to experts, small nuclear power reactors have the potential to give Polish economy leverage in the future.
• The first power plant in Poland with a BWRX300 reactor is to begin commercial operations in 2029.
• For Poland to have a chance to become a European incubator of SMR technology, it is necessary to implement a number of recommendations listed at the bottom of the document.

SMR, which stands for a Small Modular Reactor, is a type of modern nuclear technology that meets the needs of large energy-intensive enterprises as well as local communities. Such solutions may in the future determine their safety and energy independence. In recent months, this technology has been emerging from the shadow of large-scale nuclear facilities and attracting investors due to several advantages.

Nuclear power in Poland is no longer a question of “if”, but “how fast and how much”. Large-scale nuclear and SMR projects will therefore be developed in our country in parallel and will become complementary.

What do we know about small nuclear reactors today? What the technologies are available on the market? What is the stage of development of Polish projects? What legislative solutions do we need? How do Polish plans compare to European ones? Have we got a chance to become a leading force in the development of SMR technology on the so-called Old Continent? All of these questions were answered during the first Polish conference entirely dedicated to modular reactors.

On 12^th June 2023, the “SMR – Modular Atom for Business” conference took place organised in Warsaw by the Energy and Climate Forum of the Union of Entrepreneurs and Employers. Representatives of central administration, industry experts, technology providers, investors and scientists took part in the event. PKN ORLEN was the Main Partner of the conference, EDF was its Partner, and the Honorary Patrons included: the Ministry of Climate and Environment, the Ministry of Development and Technology, the Ministry of State Assets, as well as the National Atomic Energy Agency, the National Centre for Nuclear Research and the National Fund for Environmental Protection and Water Management.

Atomic Law and Nuclear Special Act in Poland

In the opinion of Adam Guibourgé-Czetwertyński, Undersecretary of State at the Ministry of Climate and Environment, who was one of the invited guests at the conference, the Polish Nuclear Special Act and Atomic Law were sufficient for SMR investments to be developed based on their provisions, while the national regulations were based on technological neutrality and the desire to streamline processes related to obtaining the necessary permits. In spite of this, seeing the growing interest in small nuclear reactors, the Ministry is currently working on making the regulations regarding smaller, modular atomic units more specific.

The Act of 9^th March 2023 amending the Act on the preparation and implementation of investments in nuclear power facilities and accompanying investments and certain other acts introduced directional provisions to five different legal acts: the Nuclear Special Act, the Atomic Law, the Special Act on strategic transmission networks, the Environmental Protection Act, and the Act on the structuring of the Agrarian System.

The amendment of the Nuclear Special Act and the Atomic Law entered into force on 13^th April 2023. The purpose of the changes was to streamline the investment process in the construction of nuclear power facilities at all stages, including decreasing the time necessary to obtain individual permits – most importantly, without departing from the nuclear safety standard.

Along with the amendment, the position of the fundamental decision was changed and now starts the licencing process, which is justified, since it is an expression of the state’s acceptance of a given facility. The basic decision entitles the holder to apply for a decision on location of an investment in the construction of a nuclear power facility and other decisions necessary for the nuclear power facility’s preparation, implementation, and operations.

[grafika]
Source: Ministry of Climate and Environment

Amendments to the law introduced the possibility of parallel proceedings for issuing environmental and location decisions. The period of validity of a location decision was also extended from 5 to 10 years. Furthermore, before obtaining a permit for the construction of a nuclear power facility, the investor may apply for a permit for preparatory work, which should positively impact the pace of implementation of the investment. The new provisions also allow for the possibility of attaching selected documents and decisions during the process of obtaining a building permit, instead of having to submit them together with the motions for a decision as it used to be before. As a result, some of the permitting processes can be carried out simultaneously and in an overall shorter time.

Does the Polish legal framework, which does not provide for separate requirements for investments in large-scale nuclear energy and those in SMR, need a special act on modular nuclear reactors? It seems that while a dedicated legal act should not be expected, analytical work is underway at the Ministry of Climate and Environment related to possible further adaptation of the regulations to the specificity of investments in modular reactors.

Nuclear safety and supervision

The President of the National Atomic Energy Agency (NAEA) is the central authority of the government administration competent in matters of nuclear safety and radiological protection. Its activity is regulated by the Act of 29^th November 2000 – Atomic Law and executive acts to this Act. The minister responsible for climate issues supervises the NAEA President.

Numerous aspects of SMR projects were elaborated on during the conference, such as safety considerations and the important role of NAEA, which will evaluate the “small atom” on the same basis as full-scale nuclear investments. The National Atomic Energy Agency is involved in licencing the construction of a nuclear power plant at all stages of the investment, issuing permits for construction, commissioning, operation, and decommissioning. At the initial stage, the NAEA President issues a general opinion, an opinion on the preliminary site report, and participates in the evaluation of the Environmental Impact Assessment Report for a nuclear power plant.

It is obvious that the NAEA approached the new tasks related to investments in SMRs very seriously. The Polish nuclear regulator was already a party to about 10 agreements with international regulatory authorities, but on 13^th February 2023, the Polish and Canadian nuclear regulators signed an agreement regarding small modular reactors, particularly the BWRX-300. Polish and Canadian supervision authorities will exchange information on best practices and technical reviews in the field of this technology. The parties also agreed to share the results of independent analyses and assessments conducted as part of the licencing process. The memorandum also provides for joint operations in the above-mentioned areas and in the field of training and development of regulatory solutions to ensure the safety of this technology.

Financing investments in SMRs

Presently, it seems that the technology of light-water nuclear reactors, of which there are approx. 150 operating worldwide, is not really the main challenge, but their power and size need to be scaled up – otherwise, costs may prove to be a barrier. Experts agree that two aspects can aid investors in this respect. On the one hand, appropriate government guarantees and a refined financial model, so that the involvement in SMRs is associated with an acceptable risk for banks. On the other hand, the scale effect brought about by a fleet-oriented investment campaign and regional scope, which will allow to reduce unit costs and build local competencies, service facilities, and structures necessary for the new sector.

In accordance with the declarations of ORLEN Synthos Green Energy and basing on the example of the BWRX-300 SMRs, which are to be built in the largest number in Poland, it is the scale effect of the investment that is to contribute to the development of the market, services, and personnel available directly in our country. The agreement with the National Fund for Environmental Protection and Water Management signed in March this year, which provides that the parties – as part of a capital investment – will lead to the preparation, construction, and commercialisation of the BWRX300 fleet, will help in this matter. In the next steps, the parties to the agreement will agree on the environmental goals to be achieved, the economic model of the project and the schedule for its implementation, the business plan, and the provisions of the investment agreement.

It seems, however, that without external financial support, this undertaking may be difficult to carry out anyway. Therefore, OSGE assumed the involvement of EXIM Bank and U.S. International Development Finance Corporation (DFC). The aforementioned American government institutions announced the possibility of supporting the project of building the first BWRX-300 reactors in Poland with a total amount of up to USD 4 billion. An agreement in this regard had already been signed.

Almost at the same time, ORLEN Synthos Green Energy also concluded a cooperation agreement with the largest banks in Poland: PKO BP, Pekao SA, Santander Bank and BGK – a bank whose mission is to support domestic economic growth. The purpose of the agreement is to jointly develop a financial model for the project to build a fleet of BWRX-300 reactors, it also provides for the possible participation of banks in financing. And although it is difficult at this stage to provide details (even approximate cost estimates of investing in SMRs were not specified), the practice of executing nuclear investments shows that the greatest threat to them is exceeding the assumed deadline and schedule. This is certainly a key aspect that requires appropriate supervision and control, especially in a country that is just building its nuclear competence.

Available technologies

As specialists emphasise, there is no shortage of ideas for small nuclear reactors around the globe today, as there are already about 80 projects in the “early design” phase, including high-temperature reactors using other types of fuel or gas-cooled, i.e. HTRs (including a Polish concept!), or nuclear batteries that can work for 20 years without human intervention or the need for fuel supply (ARIS data, end of 2022).

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Source: Polish Economic Institute

Most projects are developed in the USA and Russia. The Polish Economic Institute estimates the value of the global SMR market in a positive scenario to come up to EUR 450 billion by 2035. Over 100 SMRs are planned in Poland, based on declarations of potential investors.

The most prominent SMR technologies include (in alphabetical order):

• BWRX-300 (GE-Hitachi, USA) – BWR, 300 MWe,
• Nuscale (Nuscale, USA) – PWR, 77 MWe x 4-12,
• Nuward (EDF, France) – PWR, 2x 170 MWe,
• SMART/iSMR (KHNP, South Korea) – PWR, 110=>170 MWe x 4,
• SMR-160 (Holtec, USA) – PWR, 160 MWe,
• UK SMR (Roll-Royce, UK) – PWR, 470 MWe,
• WEC SMR (Westinghouse, USA) – PWR, 300 MWe.

The first three designs were discussed during the conference “SMR – Modular Atom for Business” by direct representatives of technology suppliers and investors. We devoted an entire chapter of this memorandum to the BWRX-300 reactor concept, it is, however, worth outlining the concepts of EDF and Nuscale as well.

The French EDF technology is thus far the only SMR from a European country already in the pre-licensing process. It is also very promising in terms of use on the EU market due to EDF’s unparalleled experience in the design and operations of nuclear reactors compared to other countries of the so-called Old Continent. Moreover, EDF would not be solely responsible for the implementation of the SMR Nuward investment, but an entire consortium consisting of European cooperators with immense experience on the nuclear market:

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Source: EDF

As the suppliers of the SMR technology Nuward themselves emphasise, that project will constitute intellectual property belonging to the EU, will make use of the European supply chain and will be adapted to the needs of the European market – not to mention EDF’s plan to obtain a license valid all across the European Union, which would certainly speed up the investment process in individual Member States.

The nominal power of SMR Nuward is 340 MWe (consisting of two integrated reactors of 170 MWe each). The planned capacity utilisation factor is supposed to exceed 90%, it also guarantees compliance with the requirements of ENTSO-E (the European Network of Transmission System Operators for Electricity represents 39 electricity transmission system operators from 35 countries throughout Europe, including countries beyond the EU borders). SMR Nuward is expected to operate for 60 years. At the core of the assumptions for the French modular reactor are nuclear, radiological, and general safety as well as minimising the impact on the environment, including responsibly blending in with the landscape. EDF plans to build NOAK reactors, that is to say, the next ones after the prototype, in about 40 months. FOAK is in plans to be built in France, currently for the year 2030. Although the first SMR Nuward will be built in France, it is a technology designed with exports in mind and implementation at the client’s target location. Among the possible roles that SMR Nuward could play are H₂ production, district heating, water desalination, thermal cogeneration, electricity generation and CO₂ capture.

***

Nuscale’s flagship SMR, distributed under the name VOYGR-12, is a pressurised water reactor in which all steam generation and heat exchange installations are integrated into one device capable of generating 77 MW of electrical power per generator. VOYGR-12 will consist of twelve NuScale modules with a total gross capacity of 924 MWe. NuScale also offers a four-module version VOYGR-4 with a net capacity of 308 MWe and a six-module version of the VOYGR-6 with a net capacity of 462 MWe.

In September 2020, VOYGR Nuscale became the first and so far only SMR for which the US Nuclear Regulatory Commission completed the technical evaluation and design approval process. In February 2023, the project was certified. Therefore, it seems to be the closest one to be physical completed. Especially since in April 2023, Doosan Enerbility began the process of forging the first modules for the VOYGR™ SMR. According to Nuscale’s declarations, the implementation of the investment in this case does not seem to be at risk, as the preparatory and decision-making processes in individual countries currently take longer than Nuscale’s ability to deliver the VOYGR installation to the agreed location. This makes it of interest to KGHM or Unimot. Currently, the company has signed nearly 20 Memoranda of Understanding with entities from 11 countries.

***

An interesting concept was also presented by Andrzej Piotrowski, Vice-President for Strategic Relations in CEE, representing the American company Ultra Safe Nuclear (USN), who discussed the 4^th generation Modular Micro Reactor (MMR), which may turn out to be a breakthrough in how we look at nuclear energy. One of the most obvious uses for USN’s MMR is electricity generation, and depending on the model, an MMR can provide up to 15 MW of energy, enough to power around 15,000 homes locally. MMRs can also provide power to hotels, office and apartment complexes, or shopping malls with associated infrastructure such as lighting, elevators, refrigerators, video surveillance systems, telecommunications, air conditioning, water and sewage pumps, as well as spas and swimming pools. What is equally important, an MMR can provide enough energy to simultaneously charge several electric vehicles for apartment occupants, hotel guests and office workers, which is still a challenge in many places today. According to the presentation by the technology supplier, an MMR can also provide high-temperature heat for various industrial processes such as drying, sterilisation, baking, melting, and refining. Thanks to locating the source in the immediate vicinity of an energy-intensive industrial process, it is characterised by full availability, even in a crisis or emergency. Moreover, there are neither transmission losses nor emissions. Thanks to its molten salt heat storage system, an MMR can adapt to dynamic demand by storing excess heat for later use in power generation. By default, the heat buffer allows for a change in the use of energy for up to 12 hours. Among the potential uses of MMRs, USN also indicates seawater desalination, drinking water purification, electricity supply in the process of wastewater treatment, hydrogen production, heating and cooling, and stabilising the operations of a hybrid system or power grid. The assumption is that a Micro Modular Reactor will operate without human intervention for about 20 years – the fuel stored in the unit is sufficient for such a period. The container construction, in turn, is to enable easy transportation and location even in difficult terrain and urban conditions.

Case study: BWRX-300 – the largest Polish investment in SMRs

BWRX-300 was designed by GE Hitachi Nuclear Energy – a company from the US specialising in nuclear technology. This technology was chosen by Synthos Green Energy and PKN ORLEN, which established a joint venture “ORLEN Synthos Green Energy” with the goal to implement the BWRX-300 technology in Poland and develop other zero-emission energy sources.

Several analyses of SMR technologies developed worldwide preceded the choice of BWRX-300 technology by ORLEN Synthos Green Energy. Such arguments as the maturity of the project, adaptation to Polish needs, credibility of the supplier or basing the technology on already licenced solutions tipped the scales in favour of the BWRX-300 reactor.

The first BWRX-300 in the world is under construction in Canada (the so-called FOAK which stands for “first of a kind”). OSGE claims the first power plant in Poland with a BWRX300 reactor will begin its commercial operations in 2029 (the so-called NOAK or “n^th of a kind”), and it will draw from Canadian experience. This technology is also planned to be implemented in other locations in North America and Europe.

The power capacity of BWRX-300 is similar to the majority of currently operating conventional units that must be phased out due to their age and emissivity. As a result, it will be possible to make use of the existing network infrastructure (in Poland, mainly PSE) in a fairly optimal way, but also to use SMRs in the heating sector, which as of today is largely based on coal.

GE Hitachi Nuclear Energy is an American company with 70 years of experience in nuclear energy and 67 reactors licenced in 10 countries in its portfolio. Furthermore, GE has experience in the global energy industry (both conventional and nuclear) and an extensive supply chain in which Polish entities can play a significant role.

BWRX-300 is a 3^rd+ generation reactor, based largely on solutions licenced by the American nuclear regulator (the ESBWR reactor). It will also use existing and licenced GNF2 fuel. The BWR is a boiling water reactor with an expected 60-year-long operational lifespan. Its power utilisation factor is 95%, and it is suitable for synchronisation with 50 or 60 Hz networks. The expected construction time comes up to 24-36 months, and the area necessary for the investment amounts to 10 ha. The BWRX-300 reactor should also be suitable for cooperation with RES, as it allows a 50%power change – 0.50% of power per minute (twice a day).

On 17^th April, ORLEN Synthos Green Energy announced seven optimal locations for the first power plants with BWRX-300 reactors. These include Włocławek, Ostrołęka, the vicinity of Warsaw, Stawy Monowskie, Kraków-Nowa Huta, Tarnobrzeg Special Economic Zone (Tarnobrzeg/Stalowa Wola) and Dąbrowa Górnicza.

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Source: OSGE

As reported by Nuclear.pl, in April 2023, companies whose names indicate planned but not yet announced locations where ORLEN Synthos Green Energy would build BWRX-300 reactors were entered into the Register of Entrepreneurs of the National Court Register. In addition to the initial 7 locations announced in April 2023, the following are also probable: Poznań, Bełchatów, Grudziądz, Łódź, Kozienice, Kujawy, Łaziska, Rybnik, Pomorze, Warta and Połaniec.

All selected sites are preliminary locations that have been pre-screened and require additional detailed environmental and location studies to confirm their suitability. The research will take about 2 years. Once their potential is confirmed, inviting local communities in each of these locations to dialogue will become a priority. Only after reaching an agreement, a decision regarding the implementation of an investment will be made in each location individually.

At the end of April, OSGE submitted motions to the Ministry of Climate and Environment for the issuance of basic decisions for the first six locations of nuclear power plants with BWRX-300 reactors. In June 2023, the General Director for Environmental Protection initiated proceedings to issue an environmental decision for the construction of BWRX-300 at the Stawy Monowskie location near the city of Oświęcim.

One could say that the first half of 2023 abounded in events related to the implementation of the SMR project by ORLEN and Synthos Green Energy. The latter, on 23^rd March in Washington, signed a Technical Collaboration Agreement (TCA) with GE Hitachi, Tennessee Valley Authority and Ontario Power Generation. This document assumes support for the development of the BWRX-300 technology. Thus, for the first time in history, a Polish company became a party to the contract for the development of a nuclear reactor. The contract is worth USD 400 million. Thanks to the agreement, a project of a power plant with a BWRX-300 reactor is already being prepared, taking into account European and Polish requirements. The project will enable a more efficient and cheaper implementation of OSGE’s plans to build a fleet of BWRX-300 reactors in Poland. At the same time, it is presumed that the project can be used for the implementation of investments in numerous locations.

On 23^rd May, ORLEN Synthos Green Energy received a general opinion from the NAEA President on the technological solutions used in the BWRX-300 reactor. The National Atomic Energy Agency confirmed compliance with the legal provisions in force in Poland in this field.

More than two months earlier, on 15^th March 2023, the Canadian Nuclear Safety Commission (CNSC) submitted the final report on BWRX-300 as part of the Vendor Design Review process. The BWRX-300 reactor is the first SMR in the world to successfully pass this process. CNSC also cooperates with the American supervision authority Nuclear Regulatory Commission by implementing joint assessment procedures. Evaluation processes for the BWRX-300 reactor have also begun in the US and UK.

Unveiling of the concept of a Polish high-temperature reactor

HTGR-POLA will be the name of the research reactor, the conceptual design of which was developed by a team headed by Mariusz Dąbrowski, Ph.D. at the National Centre for Nuclear Research. The project was prepared in cooperation with the Japan Atomic Energy Agency (JAEA), which has its own HTGR gas-cooled high-temperature reactor. The concept was presented publicly for the first time on 12^th June 2023 at our conference “SMR – Modular Atom for Business” by Józef Sobolewski, Ph.D., the plenipotentiary of the NCBJ Director for the Development of High Temperature Reactors.

NCBJ’s work on the high-temperature reactor is financed by the Ministry of Education and Science under the project to be implemented in the years 2021-2024 “Technical description of the High-Temperature Gas-cooled Reactor (HTGR) for research purposes”. Total funding amounts to PLN 60 million gross (contract No. 1/HTGR/2021/14).

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Fig.: Cross-section of the designed reactor; Source: National Centre for Nuclear Research (NCBJ)

Research and development, and education

There will be no Polish technological thought, there will be no conscious participation in the value chain, and there will be no appropriate staff for the sector without research and development. In January 2023, at the initiative of OSGE, the Ministry of Education and Science along with six Polish universities of technology signed a letter of intent for the creation of the “nuclear energy” field of study. The agreement provides for the training of nuclear engineers. At the end of May, three more universities joined the agreement. This is an important step, but consistent follow-up action will be required.

One of them is certainly the concept of launching the European Personnel Training Centre for Nuclear Energy jointly by OSGE and the Łukasiewicz Research Network. The cooperation would cover both the launch of the Centre itself and its further development, including by means of support from research and development institutes that are part of the Łukasiewicz Research Network. The project assumes that a full-scale reactor model will be created within the training space, with the only difference from the real one being the lack of nuclear fuel. This would allow for personnel training in real conditions – an initiative that ought to be commended.

Regional and European contexts

During the conference, Adam Guibourgé-Czetwertyński, Undersecretary of State at the Ministry of Climate and Environment, also encouraged joint efforts on the international arena to promote nuclear technologies from a secondary player to the avant-garde of energy transformation activities as complementary solutions to investments in RES and hydrogen.

The coalition of countries interested in extending the role of nuclear power in Europe is becoming stronger, and Poland is naturally among them. The activity in the topic of dissemination of SMRs on the part of France, Finland and the Czech Republic should be appreciated. The French Nuclear Safety Authority (ASN), the Czech State Nuclear Safety Authority (SÚJB) and the Finnish Radiation and Nuclear Safety Authority (STUK) chose the design of the French NUWARD Small Modular Reactor as a test model for a joint regulatory project dedicated to SMRs. The goal is to standardise practices and to harmonise licensing processes along with SMR regulations across the region. These three national nuclear regulators will together analyse the current sets of national regulations, international safety regulations, and knowledge, and recommend on that basis relevant good practices. It can be said that this process is a kind of pre-licencing dialogue, thanks to which it will be easier for SMR Nuward suppliers to anticipate the challenges of international licencing processes and to meet future market needs. It seems important that Poland also engages in the process of harmonisation of European regulations, so that they also address the requirements and specificity of our market. Even more so because the Czech example shows that although the local government had adopted a roadmap for the development of SMRs and declared interest in this technology (mainly from the state-owned entity CEZ), Poland is acting so quickly in this area that in a few months it will definitely have overtaken its neighbours and has a real chance to become the first country where modular reactors will actually be built.

For industry, for heating, for the environment – for everyone

As Jarosław Dybowski, Executive Director for Energy at PKN ORLEN and Vice-President of the Management Board at ORLEN Synthos Green Energy, pointed out during the conference “SMR – Modular Atom for Business”: “We cannot nowadays think of atomic facilities as classically understood power plants, which in the past were only supposed to provide electricity. The use of SMRs in domestic conditions naturally means replacing worn-out coal-fired units, but modular reactors will also work in combined heat and power economics as well as will be used in numerous industrial processes”. Heating and energy-intensive industries are indicated as the main beneficiaries of SMR technologies, and the number of entities declaring interest in these solutions is growing.

This is directly linked to the transformation of the Polish economy towards zero-emissions, and at the same time to the specificity of energy consumption in the industry, which needs stable sources. Concurrently, there are plans to phase out Polish coal-fired power plants in the years to come:

• 2 GW in the years 2022-2025,
• 0 GW in the years 2026-2030,
• 8 GW in the years 2031-2035,
• 0 GW in the years 2036-2040.

In total, approx. 20 GW of the capacity installed in large-scale coal-fired power plants will be shut down by 2040, which could be replaced at least in part by SMRs located in places of former coal units. It would also be optimal for a power system that is designed for flows from existing conventional generation units.

On the other hand, more than 16 million Poles (40% of the population) are connected to heating networks. Warsaw has the largest heating network in the EU (3 SMR units with a capacity of approx. 300 MWe could in the cogeneration model satisfy up to 81% of Warsaw’s forecast demand for heat in 2040 – 14 TWh). The installed capacity for heat production in our country amounts to 55,200 MW. Heating in Poland is produced by 399 companies, out of which 11 are responsible for 33% of total production. Approx. 51% of units working for the heating sector have a capacity of over 100 MW. Unfortunately, about 82% of the heat generated in Poland still comes from coal. In the nearest future, the heating sector will face a deep transformation towards zero emissions. It seems that natural gas has ceased to be considered as a full-fledged alternative – because prior to Russia’s aggression against Ukraine, it was perceived as a fuel that would bridge the gap, a transitional solution on the way to sources that are fully CO₂-free. Then again, the announcement of the PEP2040 update clearly shows a lower assumed share of gas in the generation mix and the assumption that only those gas investments are to be completed that are already underway. It seems, therefore, that SMRs may be the solution that will answer the unfulfilled hopes that a few years ago were associated with gas.

According to Kamila Król, Undersecretary of State at the Ministry of Development and Technology, who was present at the conference “SMR – Modular Atom for Business”, small nuclear power reactors have the potential to give Polish economy leverage in the future. SMRs can be a remedy for the growing costs related to CO₂ emission allowances and provide Poland with an appropriate mix of a low-emission energy on the one hand, and on the other hand guarantee stable and secure energy supplies. Achieving these goals should translate into environmental benefits as well as lower electricity bills for end users.

Supply chain and local content

Another topic raised by the participants of the discussion was the possibility of involving Polish companies in the development of the European sector of small nuclear reactors, in which experts see significant potential due to the pace of development of SMR projects in our country.

The supply chain for the BWRX-300 technology was presented by ORLEN Synthos Green Energy, noting at the same time that the existing supply chain will be used in the initial phase of the programme to maximise the Polish potential in the future.

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Source: OSGE

There are currently about 3,000 Polish suppliers in the GE Power Supplier Database. GE Hitachi has declared that it has identified 300 Polish suppliers as potential partners for the construction of nuclear power plants. The expected outlays incurred for Polish companies are related to industries such as construction / site preparation, engineering services, mechanical equipment (heat exchangers), structural modules, and craft works.

In turn, the French EDF has indicates that as part of the implementation of existing nuclear projects, it has relations with 46 subcontractors from Poland, which are ready to smoothly engage in investments in SMRs. EDF estimates its entire subcontracting chain in Europe at around 2,700 entities, the majority of which are British and French companies:

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Source: EDF

Certainly, Polish experience in creating a value chain for the newly emerging industry of offshore wind energy can be an invaluable clue as to how the share of the so-called local content in nuclear projects can be animated directly by investors – for whom, in turn, the regional supply and service chain increases the likelihood of project implementation on schedule and on budget.

Social perception

According to experts, despite the already clear support for nuclear power in Poland today, properly conducted communication will be an extremely important aspect determining the success of SMR investments due to a unique social perception of risks arising from nuclear facilities.

According to a survey carried out by IBRiS for PKN ORLEN, conducted on 4^th May 2023 on a sample of more than 2,000 respondents, more than half of the respondents support nuclear investments, even if they were to be implemented in their town, commune, or province.

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Source: ORLEN

The authors of the study probably wanted to assess how strong the effects of the NIMBY (Not In My Backyard) syndrome can be, that is, the paradox according to which we generally support some activity, provided it is not carried out in the immediate vicinity of our home. Importantly, as the study has shown, on average, every fifth inhabitant of locations selected by ORLEN Synthos Green Energy as of potential value for SMRs would oppose locating such an investment in their neighbourhood.

Social resistance at this level should certainly not be underestimated. While the thesis about the majority of Poles supporting nuclear power plants is legitimate and true, investors should pay special attention to social dialogue in order to convince the unconvinced by the time SMRs are created.

A similar recommendation was presented during the conference by Adam Juszczak, an expert of the Polish Economic Institute, who presented during the conference the results of a study conducted using the Delphi method on several dozen market experts. According to 67% of them, SMRs will in the future satisfy at least 20% demand of the 10 largest Polish agglomerations for heat. Furthermore, 42% of experts were of the opinion that the capacity installed in SMRs in Poland would exceed 5 GWe only between 2041 and 2045. In turn, 88% believe that social acceptance for SMR installations will be at a similar or higher level compared to large-scale nuclear energy. The biggest challenges of investing in SMRs that experts point to are potential project delays, regulatory issues, and rising prices.

Summary and recommendations

Rising energy prices, restrictions on access to its sources, the need to decarbonise the global energy sector have all resulted in a growing interest in new technologies, such as SMR, in recent years. Energy transformation and decarbonisation are a huge investment and development project, which is why they are on the agenda of both politicians and management boards of the largest companies. In July 2022, the European Union classified nuclear energy as sustainable. Also in Poland, nuclear energy is nowadays treated as complementary to RES.

The need to build energy sovereignty has gained additional importance in connection with the Russian aggression against Ukraine. This has prompted decision-makers and investors to look for new energy sources, with the objective of independence from eastern sources, but also with stabilisation and predictability of energy prices over time in mind. The dissemination of SMR technology can be the perfect bonus to the green energy mix. On 3^rd April, the Ministry of Climate and Environment presented the assumptions for updating Poland’s Energy Policy until 2040. The draft is currently awaiting adoption by the Council of Ministers. According to the announcements of Minister Anna Moskwa, generation from nuclear power plants (both large-scale and SMR) is to cover 23% of electricity demand in 2040, with an installed capacity of 7.8 GW.

However, in order to implement these assumptions, what is required is consistency. The organisers of the conference diagnosed several areas for which recommendations were made. “Having listened to the participants of the discussion, several recommendations come to mind, such as the involvement of Polish regulators in the work on harmonisation of regulations in the field of nuclear power and standardisation of SMR certification in Europe, the need to consider establishing a TSO unit (Technical Support Organization) within the structured of the National Centre for Nuclear Research, or finally, starting a debate on the European forum regarding the future of the atom in the EU taxonomy, which assumes support for nuclear investments only until 2045,” thus Jakub Bińkowski, Member of the Management Board of the Union of Entrepreneurs and Employers, summarised the discussion.

It also seems necessary to strengthen the staff and systematically improve the competences of employees of the National Atomic Energy Agency and Office of Technical Inspection in the scope of the specificity of investments in SMRs. An extremely important aspect in this context is the pre-licensing dialogue with investors, but also amendments of selected regulations to the latest IAEA standards and the exchange of experience with foreign nuclear regulators.

When it comes to provisions of the law, one ought to remember that not only national regulations, but also international ones, such as conventions on liability for nuclear damage, must be taken into account. The challenge here is the lack of structuring legal norms over time – basically, regulations on nuclear investments were basically being “added” to existing regulations.

Investors will also need to be active in the area of encouraging the process of value chain creation for the industry and building a constructive and reliable social dialogue so that support for nuclear investments is sustainable.

More than 150 participants attended the event. The conference organised by the Energy and Climate Forum of the Union of Entrepreneurs and Employers gathered in one place both legislators and regulators responsible for atomic law, several American and European SMR manufacturers, recipients declaring interest in small reactors of various power, as well as nuclear specialists who tried to sum up and structure the current state of knowledge about modular nuclear power plants and outline the prospects for the development of this type of investments in Poland and the CEE region, which we have presented in this memorandum.

Link to the event page: https://zpp.net.pl/events/event/konferencja-pt-smr-modulowy-atom-dla-biznesu.

Below are the links to all presentations displayed by speakers during the “SMR – MODULAR ATOM FOR BUSINESS (Poland as an incubator of SMR technology in Europe?)” conference:

Kamil Adamczyk, Chief legislation specialist, Department of Nuclear Energy, Ministry of Climate and Environment: Nowelizacja tzw. specustawy jądrowej oraz ustawy – Prawo atomowe. Procedury administracyjne związane z budową elektrowni jądrowych (The amendment of the Nuclear Special Act and the Atomic Law. Administrative procedures related to the construction of nuclear power plants)

Ernest Staroń, Ph.D. Eng. & Joanna Furtak, National Atomic Energy Agency (NAEA), Department of Nuclear Safety: Ocena technologii SMR (SMR technology assessment)

Patrycja Wysocka, Attorney-at-law, Partner and Co-leader of the Energy & Natural Resources Practice, & Partycja Nowakowska, Attorney-at-law, Senior Associate, Expert of the Energy & Natural Resources Practice: Otoczenie regulacyjne dla SMR – Aktualne wyzwania i wizja przyszłości (Regulatory environment for SMR – Current challenges and vision for the future)

Dawid Jackiewicz, Vice President of the Board at OSGE: BWRX-300 – najlepszy SMR dla Polski Technologia | Zaawansowanie projektu (BWRX-300 – the best SMR for Poland Technology | Project progress)

Scott Rasmussen, Director of Sales, NuScale Power: Small Reactors for Business Conference – Is Poland the SMR Technology Incubator in Europe?

Sandro Baldi, NUWARD Commercial Director: SMR – The Modular Atom For Business

Józef Sobolewski, Ph.D., Plenipotentiary of the Director of the National Centre for Nuclear Research for the Development of High Temperature Reactors: Research and development in SMR technologies – HTGR, a promising technology

Adam Juszczak, Advisor, Polish Economic Institute: Perspektywy wykorzystania reaktorów SMR w polskiej transformacji energetycznej (Prospects for the use of SMR reactors in the Polish energy transformation)

Michal Mareš, Energy Consulting: Czech national plan for the development of SMR technologies

Andrzej J. Piotrowski, Vice President for Strategic Relations in CEE, Ultra Safe Nuclear Corporation: Znacznie więcej niż energia elektryczna. Modularny Mikro Reaktor – IV generacji przełom w koncepcji energetyki (Much more than just electricity. Modular Micro Reactor – 4^th generation breakthrough in power engineering)

We hope that these presentations will provide you with valuable additional information on the prospects for the use of SMR technology in Poland and the region.

The entire recorded event can be found on our YouTube channel: https://www.youtube.com/playlist?list=PLcUoUDPRMlSXe4wROjpe-PNGnY_UFSf-L

 

See more: 06.07.2023 Memorandum of the Union of Entrepreneurs and Employers: SMR – Modular Atom for Business

Warsaw, 17 July, 2023

 

Memorandum ZPP: “Ukraine’s Resource Policy – Strategic Resources and Rare Earth Metals”

 

• Without strategic resources, it will be difficult to achieve the climate goals of EU countries, as they are essential for the production of photovoltaic panels, wind turbines, and electric vehicles.
• China supplies 98% of rare earth metals.
• 21 out of the 34 critical elements (identified by the EU) are found in Ukraine, where, simultaneously, 117 out of the 120 globally used materials are being extracted.
• The World Bank predicts a 500% increase in demand for rare earth metals by 2050.
• In 2021, the EU and Ukraine entered into an alliance to enhance technological and industrial cooperation in the field of rare earth metal extraction.
• It is assumed that the rare earth resources were one of the reasons for Russia’s aggression against Ukraine.

We present a memorandum summarizing the discussion during the IV roundtable of the ZPP Energy and Climate Forum, dedicated to Ukrainian energy, and conducted within the EUROPE-POLAND-UKRAINE REBUILT TOGETHER 2023 project in collaboration with the Embassy of Ukraine in Poland.

The participants of the debate were:

Anna Burkowicz, Specialist at the Department of Mineral Resource Management, Raw Materials Policy Laboratory, Polish Academy of Sciences
Roman Dryps, Chief Operating Officer, Center for Business Consulting, Polish-Ukrainian Chamber of Commerce
Roman Opimakh, President, State Geological and Subsoil Survey of Ukraine
Dr. Jarosław Szlugaj, Assistant Professor at the Department of Mineral Resource Management, Raw Materials Policy Laboratory, Polish Academy of Sciences
Seweryn Szwarocki, Director of Strategy and Sustainable Development, LW Bogdanka SA

Moderator:

Dominika Taranko, Director of the ZPP Energy and Climate Forum

Rare Earth Metal Resources in Ukraine

Roman Opimakh, President of the State Geological and Subsoil Survey of Ukraine, pointed out that Ukraine signed a memorandum of strategic partnership regarding rare earth metals with the European Union in 2021. At the same time, the EU outlined the EU Critical Raw Material Act until 2030, defining joint actions of the member states and necessary regulations that need to be implemented under EU law. Ukraine is currently a candidate for EU membership, and Ukrainians perceive themselves as Europeans, adhering to the same principles, values, and strategic goals. Therefore, Ukraine’s objectives in the field of rare earth metals align with the goals of the European Union’s policy. Ukrainians intend to remain a reliable and stable trading partner in terms of extraction, processing, and supply of rare earth metals, as well as components for the battery industry, as well as the disposal of used equipment with recovery of raw materials. Consequently, a concept of establishing an entire value chain within Ukraine for supplying the EU is being developed.

Extraction and production potential of Ukraine regarding critical raw materials is among the highest in the world. Ukraine is among the top 10 global producers of titanium, kaolin, manganese, iron ore, graphite, zirconium, uranium, as well as raw materials essential for modern technologies such as beryllium, aluminum, nickel, and cobalt. Ukraine holds resources for 21 out of the 34 minerals identified by the EU as critical. Therefore, the Ukrainian government has implemented an open-door policy for foreign investments, preparing a list of 100 regions in which licensing and acquisition of exploration and production concessions will be available. Another way to enter the Ukrainian market today could be through acquiring existing concessions through agreements with local companies, thus fostering cooperation within consortia. Cooperation within greenfield and brownfield investment types is being considered. For future investment needs, 1,200 deposits of rare earth minerals have been identified, and conceptual maps have been developed. There are locations where operations can already be conducted.

Titanium – Ukraine is among the top 10 countries with documented titanium deposits worldwide and provides 7% of global production (data from 2021). Currently, titanium is extracted in Ukraine along with ilmenite, rutile, and zirconium in six deposits, yielding 900,000 tons of concentrate containing 350,000 tons of titanium annually. Currently, the largest producer and processor of titanium in Europe, JSC United Mining & Chemical Company, is being privatized.

Lithium – Currently not mined in Ukraine, but its resources constitute 1/3 of Europe’s deposits. Three lithium oxide deposits have been identified for future development. One of the deposits is already under the concession of UkrLithiumMining LLC.

Other metals such as tantalum, niobium, and beryllium – have been identified in six deposits, with tantalum and niobium also occurring as by-products of titanium deposits. Beryllium is found in the Perzhanske deposit, where 15.3 thousand tons of beryllium oxide are located, along with tantalum, niobium, zirconium, tin, molybdenum, lithium, and zinc, among others. The concession for this deposit has been held by BGV Group since 2019.

Cobalt – It is found in 12 deposits containing 9 thousand tons of this element. Ukraine processes significant amounts of imported cobalt and nickel, which is handled by Pobuzhsky Ferronickel company.

Graphite – Ukraine possesses some of the world’s five largest graphite deposits, amounting to 19 million tons of ore with concentrations ranging from 5% to 8%. Currently, 5 thousand tons of graphite concentrate are extracted annually from six deposits. The concession for these deposits is currently held by the Australian company Volt Resources.

Ukraine has favorable geological conditions for the occurrence of rare earth metals. As part of the mentioned strategic partnership with the EU, a Roadmap for 2023-2024 has been defined, which incorporates environmental protection and “green mining” (low emissions in the mining industry) as priorities in the envisioned methods of resource extraction. Ukraine has also been involved in the process of creating EU regulations regarding the use of rare earth metals until 2030. In terms of cooperation, the Ukrainian Geological Survey has developed a geological map highlighting the extraction potential and has devised incentives for investors interested in the mining industry, including the extraction of rare earth metals.

Abundance of Rare Earth Metals in Poland

Dr. Eng. Jarosław Szlugaj, Assistant Professor at the Department of Mineral Resource Management in the Laboratory of Raw Materials Policy at the Polish Academy of Sciences, emphasized that his unit has been monitoring the management process of mineral resources for almost 30 years. They oversee all mineral resources located in Poland that are subject to trade and are simultaneously produced or consumed. A thematic publication titled “Balance of Poland’s Mineral Resource Management,” which covers over 100 types of resources, is being issued on the topic. The list of critical resources for the European Union continues to expand. Over the past 10 to 20 years, their utilization has become widespread, and today we are facing a new situation in which Poland, the European Union, and the world consume vast amounts of resources, many times greater than in past decades and centuries.

Poland consumes significant amounts of rare earth metals imported from abroad. Unfortunately, it does not have its own sources or deposits of rare earth metals, so reliance must be placed solely on imports. However, there is resource potential, especially in terms of resource recovery. With the dismantling of the Wizów Chemical Plants (where phosphoric acid was produced from apatite from the Kola Peninsula, enriched with rare earth elements), there is a repository of post-production waste from which rare earth metals can still be extracted. Currently, no recovery is being carried out because none of the tested technologies allow for it on an industrial scale.

As a result, Poland imports increasing amounts of rare earth metals (mostly in the form of oxides, not necessarily in separated form). They are mainly used as glass colorants, polishing agents, but also in batteries, electric motors, or permanent magnets. Poland only imports finished products, especially when it comes to permanent magnets.

The situation is similar with lithium. Thanks to foreign investments, Poland has become a significant producer of lithium-ion batteries, primarily used in the automotive industry. The entire process involves importing raw materials, processed in the source country of imported product. Semi-finished products reach Poland, where they are assembled to create finished batteries. Currently, Poland does not have domestic facilities utilizing these advanced technological processes and production methods. Everything relies on enterprises owned by foreign investors.

Strategic resources (according to the list of 34 identified by the EU) possessed by Poland.

Poland essentially possesses only two strategic resources that it independently processes on a larger scale. The first is coking coal, which is used to produce coke, a crucial component in steel production processes. The second is copper, recently added to the list.

On March 16, 2023, the European Commission published the announced draft regulation on critical and strategic raw materials for the European Union’s economy. The document also includes a new, updated list of critical raw materials (CRM). The CRM Act aims to stimulate the production of strategic resources by intensifying new activities related to extraction and recycling within the European Union. Furthermore, it seeks to increase awareness of potential threats related to raw material supplies, supply chains, and related opportunities among EU countries, enterprises, and investors.

The published new list of critical raw materials (CRM) in the document COM(2023) 160 final titled “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a framework for ensuring a secure and sustainable supply of critical raw materials and amending Regulations” expands the list of critical raw materials for the EU (available in Annex II, Section 1).

Antimony	Fluorite	Helium	Nickel	Strontium
Arsenic	Phosphorites	Cobalt	Niobium	Tantalum
Bauxite / Aluminum	Phosphorus	Silicon metal	PGM – platinoids	Titanium
Barite	Gallium	Lithium	Heavy REE	Vanadium
Beryllium	Germanium	Magnesium	Light REE	Coke coal
Bismuth	Graphite	Manganese	Spodumene	Tungsten
Boron / Borates	Hafnium	Copper	Scandium

Table description: Critical raw materials for the European Union according to the European Commission (2023). New CRMs compared to the 2020 list are marked in red. Strategic raw materials for the European Union are indicated in italics.

Source of compilation: PIG-BIP.

In the process of preparing the document, 70 different substances were analyzed, assessing their economic importance and estimating supply risks. Ultimately, the number of identified elements was increased from 30 to 34. Although the document refers to “34 critical raw materials,” there are actually more, as rare earth metals are presented as two resources: HREE (heavy rare earth elements) and LREE (light rare earth elements), aside from which, PGM (platinum group metals) account for an additional 5 noble metals. The highest level of supply risk applies to heavy rare earth metals.

It is also worth comparing the proposed European list (2023) with the American list, which includes 50 items (2022 – https://www.usgs.gov/news/national-news-release/us-geological-survey-releases-2022-list-critical-minerals ).

In 2023, helium reappeared in the European register after being absent for the past three years, and the newly designated critical raw materials are copper, nickel, spodumene and arsenic. An interesting case is copper and nickel, which, although they do not meet the CRM thresholds, are included in the list according to the Critical Raw Materials Act. Conversely, indium and natural rubber have been removed from this year’s compilation. A novelty is the identification of several strategic raw materials within the critical raw materials (16 out of 34). The list is updated every 3 years. The strategic importance is determined based on the material’s significance for green transformation, digital technologies, defense applications and space exploration.

Among the newly added CRMs, Poland has mineral deposits and prospects for further documentation for the following resources:

• Raw spodumene materials (mostly in Lower Silesia, but also in Lesser Poland)
• Helium (Wielkopolska) – recovery from natural gas
• Polymetallic deposits, primarily copper (Lower Silesia and Lubusz Land)
• Arsenic (Lower Silesia and as a co-occurring element in other deposits in Upper Silesia)
• Nickel (Lower Silesia)

The CRM Act document should help develop activities in the field of scientific research and innovation, negotiate trade agreements, and implement new projects related to the exploration and exploitation of critical raw materials.

Unfortunately, Poland does not possess resources for most strategic raw materials necessary for the production of devices related to “new energy,” such as wind turbines or photovoltaics. In the past, crystalline silicon, which is the basis for every photovoltaic cell, was produced in the country. However, production ceased after privatization and foreign acquisition.

Participation of foreign investors in the mining industry of Ukraine

In Europe today, the mining industry is no longer common, which is why Ukraine’s focus on the development of this sector has attracted the interest of foreign investors. Ukraine invites foreign investors to increase extraction activities on its territory due to its rich mineral deposits and the industry’s long-standing history. The State Geological Survey conducts concession procedures, concludes cooperation agreements, and possesses other instruments to encourage investors. Several major Polish companies operate in Ukraine, including Cersanit, which mines kaolin and conducts wide-scale market sales of ceramic products. Before the war, there were discussions with KGHM Polska Miedź SA regarding investments, and the Ukrainian authorities are ready to resume these discussions. The Ukrainian government seeks to provide comprehensive assistance to investors by conducting webinars, providing maps, mostly in an online format today. Additionally, a memorandum has been signed with the Polish Geological Institute, which is evidence of the development of a strategic Polish-Ukrainian partnership.

Ukraine can prove to be an attractive market for LW Bogdanka SA, which is seeking future directions for business diversification. Seweryn Szwarocki, Director of Strategy and Sustainable Development at LW Bogdanka SA, emphasized that Lubelski Węgiel Bogdanka SA is the most efficient coal mine in Poland. In the face of the armed conflict in Ukraine, the demand for coal has increased, but the Management Board of LW Bogdanka SA, aware of the need for energy transformation associated with the new climate goals set by the European Union, has committed to phasing out coal production by 2049. The company is preparing for these plans to ensure the continuity of its operations.

As a result of conducted analyses regarding the possibility of mining other resources, on May 17th, the company published a new strategy. Its main objectives are to maintain production capacity, sustain high profitability indicators, selectively extract type 34 coal, diversify revenues by expanding the areas of operation, and identify, assess and document new reserves of type 35 coking coal.

The main goal of LW Bogdanka’s new strategy for the years 2023-2030 is to create an innovative multi-commodity corporation that drives green transformation and secures the economic development of the Lublin region and, more broadly, central-eastern Poland. Through business diversification, LW Bogdanka can potentially engage in the extraction of selected critical resources for the EU, including possibly in the Ukrainian market.

Given that the mining industry is capital-intensive and involves complex processes, Bogdanka SA has an advantage over its competitors due to its extensive mining experience. While the company’s current activities are focused on the Lublin region, new mining projects are being sought. The western lands of Ukraine stand out as a potential area, considering their rich mineral deposits, especially those utilized in the energy transformation process. However, due to the ongoing armed conflict on Poland’s eastern border, the current opportunities for cooperation are limited. Investments in a war-torn country carry the risk of uncontrolled destruction in the areas where the company operates.

Nevertheless, Bogdanka SA confirms that it is conducting analyses regarding the extraction of several potential resources, with the criterion being their inclusion on the list of critical raw materials for the European Union. LW Bogdanka also sees the prospect of cooperation with the existing mining industry in Ukraine, given the lower level of digitalization compared to its Ukrainian counterparts. The Polish company is also willing to engage in technological exchange. However, due to the nature of the company as a publicly traded entity, all planned investments have a long-term perspective, and the process of selecting investment locations can be time-consuming.

Considering the existing legislative difficulties related to the mining  of critical resources, there is a need for legal acceleration of investment processes. Additionally, an important aspect for deciding on the exploration, assessment and mining of a specific resource is the size of the deposit and the estimated level of extraction difficulty.

Adapting Ukrainian Geological Law for Mining Investments

Recently, the Ukrainian government has introduced a package of numerous legal changes regarding the regulation of the mining industry. The practices of European countries served as a model for the legislative amendments. The experts knowledgeable in this field were also consulted. Many outdated regulations have been removed from Ukraine’s legal system, which should facilitate business operations. In some cases, it will no longer be necessary to participate in tenders to start activities. The mining process can commence as early as one and a half years after obtaining an environmental impact assessment. Investment opportunities have been increased, among other things, by introducing electronic deposit maps. Upon selecting an area for investment, all necessary information about the area of interest can be obtained both online and in person.

The State Service of Geology and Subsoil of Ukraine expects increased international cooperation, especially with the EU, regarding planned initiatives. A cooperation agreement has been signed within the framework of a memorandum with the European Bank for Reconstruction and Development regarding a three-year program for the digitalization of services, particularly those related to geological information. Another important task for the project is to adapt Ukrainian counterparts of government portals to the English language version, aiming to professionalize international cooperation (as all information desired by investors is currently available only in Ukrainian).

Goals of the Industrial Alliance between Ukraine and the European Union

Anna Burkowicz, an expert from the Department of Mineral Resources Economy at the State Academy of Sciences’ Policy Laboratory, explained that Ukraine’s plans for cooperation with the European Union also involve rare earth metals, which have extensive potential applications. Rare earth metals, also called rare earth elements (REE) are a family of 17 chemical elements, including two scandium group elements (scandium and yttrium) and all lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium). They occur in minerals and possess similar chemical properties. Due to their catalytic properties, they have numerous applications, including the petrochemical industry. Lanthanum and cerium, in particular, are widely used in the refining of crude oil for gasoline production.

Examples of applications for rare-earth elements (according to Wikipedia):

Scandium: alloys for aerospace and space industry

Yttrium: phosphors, ceramics, alloys

Lanthanum: batteries, X-ray films, catalysts in oil refining processes

Cerium: catalysts, alloys

Praseodymium: minor component in alloys used for magnets (corrosion prevention)

Neodymium: strong neodymium magnets, lasers

Promethium: beta radiation source

Samarium: magnets for high-temperature operation, control rods in reactors

Europium: liquid crystal displays, fluorescent lighting

Gadolinium: production of green phosphors in CRT screens and scintillators in X-ray imaging

Terbium: phosphors for lamps and displays

Dysprosium: strong magnets, lasers

Holmium: strong magnets

Erbium: lasers, optical amplifiers

Thulium: ceramic magnetic materials

Ytterbium: optical fibers, solar cell plates

Lutetium: x-ray-luminophores

In the United States, approximately 60% of lanthanides are used in refining, but REEs are utilized in a wide range of industries. These include ceramics, glazes, metallurgical alloys, rocketry, aviation, modern technologies, the IT sector, screens, lasers, diodes, the energy industry, and permanent magnets. The People’s Republic of China is responsible for 93% of the world’s production of all permanent magnets using rare earth metals, while Japan accounts for 6%, and the European Union for 1%.

The possibility of ending China’s monopoly for the moment is not realistic. According to participants in the roundtable discussion, unfortunately, the world’s economies themselves are responsible for the current state of the raw material market division, since the Chinese have built their current advantage de facto over the past several years. China naturally also has a huge raw material potential. In this context, the chance to return to European production may be provided by the very beginning of exploration of deposits in Ukraine.

Polish-Ukrainian Cooperation in the mining industry?

According to the opinion of Roman Dryps, the Chief Operating Officer of the Business Advisory Center of the Polish-Ukrainian Chamber of Commerce, which has been operating as a bilateral chamber for 30 years, the Polish government or Polish companies are unlikely to be Ukraine’s partners in the mining and processing of rare earth metals. Poland lacks the technology and the deposits themselves. There are only a few domestic enterprises that could be significant players in this area, including the already mentioned KGHM Polska Miedź SA and LW Bogdanka. According to the expert, Polish entrepreneurs working in the mining industry have had success in the field of new technologies, but mainly in the market of coal, liquid fuels, or gas extraction. Two main minerals, that were extracted in Ukraine until 2014 are coal and iron ore. The cycle of operation was simple – they were used for steel production or for energy purposes. At that time, most coal mines operated on a concession basis. The concessionaires of these mines were mostly owners of private machinery industry plants for mining machinery construction. Profit was simply the absolute priority at that time, and new technologies in the mining industry were not developed. The Polish-Ukrainian Chamber of Commerce actively collaborates with the Ukrainian Ministry of Energy, and based on unofficial information from “first-hand sources,” it is known that the coal mining industry will not be restored in the classic sense after the war. Furthermore, based on data presenting the resources on the territory of Ukraine, it can be learned that as of spring 2023, 63% of coal deposits, 11% of oil deposits, 20% of natural gas, 42% of metals, and 33% of rare earth metals were under the occupation of the Russian aggressor. Their overall value, according to geological studies, is estimated at 12.5 trillion US dollars. Therefore, it is difficult to avoid the impression that Ukraine’s natural resources could be a dominant factor that prompted Russia to launch a military attack.

Sources of financing of mining industry in Ukraine

The European Union (EU) has only recently begun working on support programs for investors to encourage them to invest capital in the development of advanced extractive and processing industries, particularly in the context of critical raw materials. So far, only recommendations have been issued at the EU level, regarding environmental decision-making related to the assessment of projects and concessions for the mining of rare earth metals. At the same time, it is likely that whether with the participation of EU programs, or even if there were none, or if they were insufficient, (assuming that the demand for these raw materials will grow, and thus, in the absence of supply), the price of these raw materials will increase and the profitability of these projects will also increase exponentially. This opens up the opportunity to obtain bank financing from European institutions in a situation where the elements in question are identified by the EU as key in the green transition and fit in with the requirements of sustainable development, or ESG strategies.

The Ukrainian public administration is currently undergoing a period of increased digitization, with a significant portion of public affairs being handled electronically. This will undoubtedly facilitate dialogue regarding potential financing and project cooperation as well.

Collaboration with the world of science

Scientists from the Polish Academy of Sciences utilize a wide range of literature in their studies on rare earth metals and stay up to date with the geopolitical situation regarding mineral resource economy worldwide. There is a possibility of assisting entrepreneurs in market research and identifying potential avenues of operation. So far, no Polish company has applied for a concession to operate in the Ukrainian market, which holds immense potential. In Poland, there are universities that educate mining engineers, metallurgists, and technologists.

By observing the specific nature of the mineral resource market, one can notice a decline in the trade of low-processed raw materials. For example, in the case of iron ore, concentrates are produced, and there are also technological changes occurring, with developed sintering and granulation processes for these ores. It is no longer bulk ore that would be transported over significant distances. With the next generation of resources, processing is increasingly concentrated in one place. In the case of rare earth metals, Chinese companies generate approximately 60% of global production, but their real advantage lies in processing, specifically separation. The ore is complex, consisting of several coexisting elements, usually around 7 to 8 types. China has specialized in individually extracting 7 to 8 minerals, rather than processing them comprehensively. In this situation, China has a monopoly in production, offering separated oxides and specific metals in the form of powders or semi-finished products worldwide. Recognizing the potential associated with deposit extraction in Ukraine, it can be observed that its owner, the State, should endeavor to establish comprehensive processing and ore extraction plants. However, this would not have significant implications due to China’s dominant position in the market. In Europe, at best, a concentrate could be produced, which would still need to be sent to China for further processing. China also holds a monopoly in battery and photovoltaic production due to low production costs. This has been the main reason for relocating facilities from the United States and Western Europe to China. Twenty years ago, the People’s Republic of China specialized in only a few resources. Now there are dozens, including those considered critical. Therefore, Ukraine certainly has potential, but parallel planning for the local processing and production market should be considered. In this context, collaboration with research and development is necessary.

Would synthetic elements be a solution?

Synthetic crystals such as silicon, sapphires, or synthetic diamonds are produced using the method developed by the Polish scientist, Professor Jan Czochralski. Synthetic products can serve as substitutes for natural ones. Synthetic diamonds, for example, are widely used in the abrasive and drilling industries. Materials engineering is rapidly advancing, and in this field, there is a vast potential for collaborative research that can contribute to the future reduction in the use of natural resources. Mining production may be minimized in the future. New composite materials are being discovered that have comparable strength to steel, but do not contain metal in their structure. One such example is the indium tin oxide alloy (ITO) used in touch screens. Indium used in production is not sourced from its own deposits. Therefore, if there is a forecasted increase in demand for this material, the mining process will need to be accelerated and expanded from the ore it is derived from. Forecasts related to the implementation of the Fit for 55 program suggest that demand for certain minerals may increase 50-fold. Some deposits will be depleted, making it impossible to meet the demand for certain elements. This opens up opportunities for the development of alternatives.

 

See more: 17.07.2023 Memorandum ZPP: “Ukraine’s Resource Policy – Strategic Resources and Rare Earth Metals”

 

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

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

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

Warsaw, 1st March 2023

 

Nuclear energy – Ukrainian experience Poland can draw from

 

A memorandum summarising the discussion dedicated to the Ukrainian power industry that took place during the second roundtable of the Energy and Climate Forum of the Union of Entrepreneurs and Employers.

• In pre-war Ukraine, there were four nuclear power plants with a total capacity of nearly 14 GW,
• In January 2023, a decision was made to build two new AP 1000 reactors, and Ukraine plans to build a total of 9 new blocks,
• Technically, it is possible to replace Russian nuclear fuel with alternative sources, and would take approx. 4-5 years, therefore the discussion concerning sanctions for Rosatom should primarily be seen as political,
• Ukraine has developed competencies and advanced infrastructure enabling it to transfer its know-how to Poland, where the nuclear industry is currently picking up momentum.

On 7^th February 2023, the second debate in the “Energy in the context of Ukraine’s reconstruction” series took place as part of the Union’s project “Europe-Poland-Ukraine. Rebuild Together. 2023”. The discussion titled “Nuclear energy – Ukrainian experience Poland can draw from” was chaired by Dominika Taranko, Director of the Energy and Climate Forum of the Union of Entrepreneurs and Employers.

The discussion aimed to illustrate the current state of Ukrainian nuclear energy and the country’s plans in this area for the coming years. During the meeting, participants elaborated on such issues as:

• What kind of cooperation can we plan between Poland and Ukraine in the field of nuclear energy?
• Can the nuclear energy developed in Ukraine over decades be an example for Poland?
• How was the atomic energy sector organised prior to the war and what changes have the military operations brought about?
• In spite of military threats, is this infrastructure still operational and to what extent?
• Is it realistic to export Ukrainian atomic energy as of today and in the future, including its imports to Poland and other EU member states?
• Should we expect a transfer of knowledge from Ukraine to Poland, which is currently working on nuclear projects? Which experiences will investors benefit from?

The following guests were invited to the debate:

• Andrzej Chmielewski, Professor at the Warsaw University of Technology, Director of the Institute of Nuclear Chemistry and Technology, Vice-Chairman of the Programme Council for Nuclear Safety and Radiation Protection at the National Atomic Energy Agency
• Robert Jankowski, President of the Board at the Polish Climate Forum
• Adam Juszczak, Advisor in the Climate and Energy Department at the Polish Economic Institute
• Oleh Kazanishchev, Counsellor at the Embassy of Ukraine in Poland
• Olga Kosharna, Independent Expert on Nuclear Energy and Safety
• Bogdan Pilch, General Director at the Polish Chamber of Power Industry and Environmental Protection
• Hennadii Radchenko, Advisor at the Ukraine Business Center
• Ivan Grygoruk, Vice President at the Energy Club, who submitted his position in writing due to internet disruptions during the debate.

Ivan Hryhoruk who spoke on behalf of the Energy Club presented the current state of Ukrainian energy. Prior to the full-scale military aggression in Ukraine, there was a surplus of generated power, including that from renewable energy sources. Energy demand in recent years reached 19-20 GWh, with close to 15,5 GWh during the pandemic.

As for the energy balance, before the war, nuclear power production accounted for 50-60% of the electricity generated in Ukraine. There were four nuclear power plants (NPPs) in Ukraine, producing electricity in as many as 13 PWR-1000 nuclear reactors and two PWR-440 reactors with a total capacity of 13.8 GW. The nuclear industry in Ukraine also includes nuclear waste storage facilities, research reactors, uranium production facilities, and the Chernobyl Nuclear Power Plant Zone of Alienation. The remaining 40% of pre-war electricity produced in Ukraine was generated by hydroelectric, thermal, and pumped-storage power plants, and wind farms

Currently, electricity production and consumption have significantly decreased as a result of the Russian aggression. The damage to the energy infrastructure is enormous, and Ukrainian power plants, including the Zaporizhzhia NPP, are also occupied by Russian terrorists. The exploitation of seized power plants violates all safety standards, which could lead to a global nuclear disaster and serious consequences for the entire region.

In Europe on the other hand, on average, 25% of energy consumption comes from nuclear power. Some countries, like Poland, are only at the beginning of their journey towards nuclear energy, and Ukraine’s experience and resources can play a significant role in the region.

Olga Kosharna and Ivan Grygoruk discussed the history of Ukraine’s nuclear energy and the industry’s current state of affairs. After the collapse of the Soviet Union, Ukraine inherited 12 nuclear power blocks, significant mechanical infrastructure, and the ability to construct technical equipment. During Ukraine’s independence, all reactors were modernized, and three new blocks were added: No. 6 in the Zaporizhzhia NPP, No. 2 in the Khmelnytskyi NPP, and No. 4 in the Rivne NPP.

Understanding the need for full independence from Russia in the nuclear industry and the associated significant risks, Ukraine had already negotiated with American companies General Atomics and Westinghouse in 1992 and 1993, respectively. As a result, in 1994, a decision was made to enter into a protocol of cooperation with Westinghouse – a considerable event that in fact gave rise to the programme for nuclear power plants transition from old Russian nuclear fuel to a new fuel produced with Westinghouse technology.

In 2005, Westinghouse’s nuclear fuel was loaded into power blocks at the South Ukraine NPP and partially in the Zaporizhzhia NPP, whose block No. 5 became the second in Ukraine to operate solely on Westinghouse nuclear fuel in 2019.

Beginning in 2014, when the threat of a full-scale war with Russia first arose, Ukraine would systematically reduce the supply of goods and services from the Russian Federation. Before the invasion a year ago, Ukraine was already receiving almost 50% of its nuclear fuel from a non-Russian producer, the US-based company Westinghouse. Therefore, while Ukraine remains partially dependent on fresh nuclear fuel supplies from the Russian Federation, Westinghouse according to their contract with Ukraine is able to compensate for losses in the Russian market by producing fuel for PWR-1000 and PWR-440 reactors in No. 1 and No. 2 power blocks of the Rivne NPP.

Incidentally, Ukraine in 2019 became the first country in the world to successfully implement a nuclear fuel diversification project for PWR-1000 reactors. In 2020, the Rivne NPP was also in line to use Westinghouse nuclear fuel for PWR-440 reactors. At the same time, accompanying programs were being developed and implemented to introduce spent fuel management technology and build a central repository for spent nuclear fuel.

Ukraine has unique enterprises that have modernised all of its nuclear power plant blocks through their own efforts. A prominent example of such a company is “Impuls” from Sievierodonetsk, which produces automatic systems for controlling technological processes as well as devices controlling the flow of neutrons inside a reactor. Other enterprises producing IT-and-control systems include “Radii” from Kropyvnytskyi, and Kharkiv-based “Vestron”, a Ukrainian company cooperating with Westinghouse, and “Khartron”. This means that all control panels in every Ukrainian NPP are currently Ukrainian-made.

Ukraine has competitive enterprises that produce dosimetric instruments and radiation control systems, such as “Ekotest”, the scientific and production enterprise “AtomKompleksPrylad”, the joint enterprise “Atomprylad Design Bureau”, and the “Ukrainian Devices and Atomic Systems” corporation. Everyone knows “Turboatom” from Kharkiv, which has just merged with the Kharkiv Machine-Building Plant and “Elektrovazhmash”. Ukraine has enormous potential when it comes to production of goods and services for the development of its own nuclear power industry, including new construction projects. Even as much as 70% of goods and services, excluding ready-made nuclear fuel, can be provided independently by Ukraine.

Due to the Russian invasion, “Impuls” relocated to Kiev. Sievierodonetsk, where the company had been founded, was completely destroyed following the second occupation of the city since 2014. “Radii” from Kropyvnytskyi is operating as usual, along with all other enterprises. However, the war is still raging, and Kharkiv-based “Turboatom” came under fire – its facilities were partially damaged, but the company remains operational.

Prof. Andrzej Chmielewski reflected on his Ukrainian professional relationships and personal memories: “On one of my early projects, I was involved with IBOGEM, a company from Kharkiv. Currently, my colleagues who worked with me had to move to Germany because of the war and destruction of the city. We signed an agreement with Mrs. Olga Kosharna and her institute, and we hosted Ukrainian professors for lectures, while our students from Warsaw University of Technology visited Chernobyl to see the devil’s not so black as he is painted on the one hand, and on the other to see the well-organised radioactive waste processing and storage facility located there. Polish-Ukrainian cooperation has solid foundations. Later, the pandemic interrupted these academic trips, but virtual conferences were held in their stead.”

The Institute of Nuclear Chemistry and Technology, headed by Professor Chmielewski, offers support to Ukrainian doctoral students. More specifically, it has funds at its disposal allowing it to host doctoral students for a half-year period. The students need not to change their research topic and can continue their doctoral studies in a peaceful environment in Poland. Given the shortage of personnel for planned nuclear investments in Poland, strengthening scientific cooperation can be valuable for both sides.

Uranium and sanctions

According to data from 2021, Russia supplied around 20% of uranium to the European Union for use in nuclear power plants. Kazakhstan supplied even more, approx. 23%, whereas Niger came in the first place with deliveries in the ballpark of 24%. Even the French, with their developed nuclear industry, imported 20% of their uranium from Russia.

This year, due to Russia’s unacceptable policies, a discussion regarding the import of nuclear fuel from Russia began at the European Parliament, where several countries, including Poland, Lithuania, Latvia and Estonia, called in September of last year for a complete severance of all contacts with Russia in the field of nuclear technology. Germany came in support of this this cause. However, unanimous agreement was required for sanctions to be put in place, and two countries, Bulgaria and Hungary, refused to agree to them. Especially since the Hungarians had already begun the construction of two new nuclear blocks using Russian loans. Making these commitments null and void would be difficult for them.

In Europe, there are 18 Russian-made reactors in operation, mainly in CEE, including the Czech Republic, Hungary, Bulgaria, Slovenia and Slovakia. In the event of sanctions being imposed on Russian uranium, these countries would need to switch to alternative fuel sources. Romania, however, does not have this problem, as it produces its own fuel for CANDU reactors, which run on natural uranium. Westinghouse already supplies fuel to eight different blocks in Ukraine, and this will eventually be possible for all 15 blocks. Finland no longer imports fuel from Russia, and Vattenfall in Sweden stopped importing Russian fuel on 24^th January. Canada and Australia also previously relied on Russian fuel, but are determined to cut these ties.

In Poland, the Maria research reactor, located in Świerk – more or less 25-30 km from Warsaw, initially used highly enriched fuel, with a concentration of 60%. The reactor was built by Poles, which proves that Poland is capable of working with nuclear technologies. The first fuel was of Russian origin. Later, when the United States imposed restrictions on the level of uranium enrichment, it was gradually reduced in the Polish reactor to 28%, then to 22%, and now it is at 19%. As of now due to economic factors, Poland still uses Russian fuel. For many years, Poland was also a member of the Joint Institute for Nuclear Research in Dubna, but withdrew last year in the fall.

The reactor in Świerk has already switched to the French fuel supply. It is decidedly more difficult to develop a transition to a different fuel for smaller reactors than for larger ones, where certain standards apply. In Świerk, a neutron flux is used, meaning a flow of neutrons on the order of 10¹⁴. It is used to irradiate uranium for molybdenum plates in order to obtain technetium-99m, which is then used for thyroid and other organ scans. When one of the Canadian reactors was temporarily shut down, Świerk provided approx. 18% of the total global supply of these plates. However, the plates were not processed locally and were sent further to Belgium.

Currently, it seems that from a technical point of view, switching nuclear installations to fuels other than Russian is not a major problem. However, it remains unknown whether all the factories that produce enriched uranium are prepared for this change. They would have to supply larger quantities of fuel to the market at a rapid pace.

As Professor Andrzej Chmielewski emphasised: “When it comes to fuel, the Warsaw Institute, which was founded in 1956, was mainly established to process nuclear fuel, including to obtain uranium oxide or metallic uranium. When I saw the nuclear fuel factory in Wilmington, USA, it was not in fact a huge facility, like a petrochemical or a large power plant. Some of these facilities are not much bigger than what we have had in the research hall at the Institute. Nonetheless, the enrichment process is difficult, very expensive, and characterised by high energy consumption. For example, the French have two enrichment stations, and their two nuclear power plants basically work solely for this enrichment system.”

The competences to restore the nuclear industry in Europe, including uranium enrichment, exist because modern technologies are already available. These are cascade installations. The enrichment ratios are very low, so the process must be repeated multiple times. Therefore, it is quite a complex installation. And in order to make a decision to build a uranium enrichment facility, someone must want to buy such a product later on. In other words, enrichment stations are built in response to specific demand, and such installations are not built speculatively.

Technology is constantly evolving, for example in the direction of laser processing. In the United States, there is already a system for uranium enrichment using laser methods. This involves “hitting” uranium using a laser in a precise manner, ionising it, which then makes it very easy to separate uranium isotopes. It is possible, therefore, that we will be taking this direction in terms of uranium enrichment.

On the other hand, some nuclear power plants are already worn out and close to being shut down. In light of the collective departure from Russian fuel, it would be worthwhile to assess which atomic units will still be used and how long. Perhaps natural replacement of old nuclear blocks with new ones would also smoothly introduce change in fuel in power plants.

Increasingly often, it is said that the uranium enrichment stage is the bottleneck, because obtaining hydrogen and uranium is not a complicated process. However, the problem of political influence from Russia remains actual. Production in Kazakhstan is largely controlled by Rosatom. Currently, the Western world is looking for new ways of transporting uranium, as previously about 40% of fuel passed through St. Petersburg. Recently, a connection was established over the Caspian Sea, which could transport materials to Europe by planes. China is considered an alternative, but would de facto bypass enforced sanctions.

The time horizon for moving away from Russian fuel is estimated to be circa 5 years. This is more or less how long power plants can store fuel. This is possible thanks to the efficiency of nuclear fuel. From one gram of uranium, we obtain roughly the same amount of energy as from 2-3 tonnes of coal. So, for a 1000-megawatt power plant, such as APE1000, approx. 25 tonnes of fuel are needed annually. A coal-fired power plant would require 3 million tonnes of coal for that same amount of power. In this case, storing fuel would not be possible. But in the case of nuclear power, it is a customary practice.

Ukraine has long been building nuclear independence

In 2005, Ukraine began a project to replace Russian nuclear fuel with fuel from another producer. The fuel exchange occurs in cycles, taking four years for the entire reactor core to be loaded with fuel from a single supplier, in this case, Westinghouse. This process was started by Ukraine many years ago, and considering the current 4-year cycle, now is a good time to exclude Rosatom from the process of delivering fresh nuclear fuel to 18 reactors in Central Europe. If this were to happen, almost all of Europe could use uranium from other sources in 4-5 years.

Regarding the expected operating period of Ukrainian nuclear power plants, there is an inspection of these facilities every ten years, and a safety analysis report is then prepared, based on which the operating term is extended for another 10 years.

In the United States, the operating term of nuclear power blocks has been extended to 80 years. In Europe, countries that have nuclear power today are also planning to extend it (with the exception of Germany). Currently undergoing the aforementioned analyses in Ukraine are blocks No. 1 and No. 2 of the Rivne NPP, and it is likely that their operation will be extended for another ten years, until the mid-2030s. Therefore, nuclear fuel for Soviet-designed reactors will still be needed until around the 2050s.

Before the full-scale invasion in 2022, Ukraine had reserves of nuclear fuel produced by the Russian company “TVEL”. However, since 2014, Ukraine has had a contract with Westinghouse, which includes a provision that if Russia refuses to supply nuclear fuel (which was a real risk), Westinghouse would try to fill that gap by using an additional assembly line for fuel rods constructed using technology that is suitable for PWR-1000 reactors. In Sweden, there are possibilities for producing fuel for PWR-1000 units currently present in Europe. Moreover, until 2007, the Czech Republic was receiving fuel from Westinghouse for their PWR-440 post-Soviet reactors, and the Temelin Nuclear Power Station launched its operations with nuclear fuel produced by Westinghouse. However, Rosatom used corrupt mechanisms and unfair competition to push Westinghouse out of the market in the Czech Republic and Finland.

In spite of these experiences, the licensing process for Westinghouse’s improved fuel (for Ukrainian Soviet-era reactors) is expected to be most efficient and fastest in the Czech Republic and Finland, as these countries already have experience in using American nuclear fuel.

To summarise, from a technical perspective, there are no obstacles to imposing sanctions on Rosatom. It is a political and partly economic issue. Entities like Rosatom or Gazprom should be perceived as directly supporting military actions. Until 2022, many decision-makers believed that we could not survive without Russian gas or oil. However, Europe survived the winter quite smoothly. Today, we must understand that even if Russian nuclear fuel or services for the nuclear industry are cheaper, it is a price paid in blood. The Russians, by occupying Ukrainian NPPs, behaved with their staff in a barbaric manner. Attempts by Russians to take over installations that will not operate according to their schemes, on their fuel, are less likely in the future. Hence, the consistent pursuit of establishing sanctions for Rosatom seems to be the only right direction.

The Polish-Ukrainian Cooperation

During the discussion, Oleh Kazanishchev, Counsellor at the Ukrainian Embassy in Poland, informed that while there is no special unit for nuclear affairs at the embassy, there is a commercial department that operates with professionals representing various industries, including nuclear energy as part of the broad energy sector. Currently, there are no plans to create a dedicated position responsible solely for the nuclear affairs.

However, the Embassy in Poland is the largest Ukrainian diplomatic mission in the world, which proves how a significant partner Poland it to its eastern neighbour. Particularly after 24^th February of last year, Poland has become a partner of strategic importance. Ukrainian employees are very grateful to the Polish government and people of Poland for their support and assistance to Ukraine.

In the area of energy cooperation and plans in this field, everything changed after the start of the war. As a diplomatic mission, the Embassy is responsible for developing cooperation in various areas, including the energy sector. The Embassy is involved in several joint projects in different segments of this industry, such as gas, oil, and nuclear energy. Its employees participate in conferences and monitor the development of the nuclear industry in Poland. The Embassy is open to further cooperation, including combining the competencies of Ukrainian and Polish companies.

Even before the announcement of the construction of the third nuclear power plant in Poland, a report by the Polish Economic Institute authored by Adam Juszczak was published, which addressed the economic aspects of nuclear investments in Poland, their impact on business, the labour market, and local communities. Even then, it was evident that the economic and social potential of building a nuclear power plant was significant. The first two nuclear power plants planned in the Polish nuclear energy programme will require about PLN 200 billion in total. This is the average cost estimate for both units combined. This means that really big money is at stake in Poland, and businesses will compete for it. Participation of “local content”, according to announcements and examples from other countries, can reach between 50 and 70%. The money that can go to domestic businesses from these two investments might come up to PLN 130-140 billion.

Despite the fact that there has thus far been no market for nuclear energy in Poland, there are companies interested in nuclear activities. Some of them have until now provided their services outside Poland. However, there are of course also certain areas to catch up on, because some competencies could not be developed without such investments in Poland. And this is a potentially good opportunity for cooperation between the Polish and Ukrainian communities.

According to the catalogue created by the Ministry of Climate and Environment in Poland, over 300 companies in Poland are interested in nuclear energy. Only a small fraction of them have experience in previous nuclear investments anywhere in the world. The reason is simple – these are not easy investment projects. A number of different certificates are required. Some companies, despite their interest in the nuclear industry, will certainly be concerned about whether they will be able to meet these requirements. Therefore, it would be necessary to build an appropriate climate around these investments, enable cooperation with qualified entities, and encourage the entire community to develop.

And there is much to strive for. Just take a look at France, for example, which has a developed nuclear industry. The nuclear sector, both energy production and companies offering services for nuclear power plants or manufacturing components for NPPs, employs approx. 400,000 people. It is a really big piece of cake to share. If we were to look at individual sectors where development is most likely, these would be the machine industry and services related to the machine industry, as well as electrical and automation engineering, and metalworking. There is potential there. There are companies in Poland that have already worked on foreign investments, so this transfer of know-how is very much possible.

In the context of cooperation with Ukraine, it should be noted that there is currently a shortage and will be a long-term shortage of personnel in the nuclear energy sector in Poland. The personnel gap results from the fact that such investments could not start for a long time, and some qualified specialists were unable to find employment in the country. So they went abroad, and only a few remained in scientific research institutions. Today, most students choose to specialise in RES, as it is already an existing market with potential for development. In the case of nuclear energy, there is still a lot of uncertainty, which may discourage young people from choosing such a career path. Ukrainian personnel, on the other hand, exist and have broad experience, and their involvement in the construction of Polish nuclear power plants would certainly be of high value. Polish-Ukrainian cooperation could then lead to Ukrainian investments: asset modernisation, reconstruction, and construction. Over the next few decades, a lot of new investments will be made in Ukraine. Circa 90% of Ukrainian wind turbines and as many as 50% of photovoltaic panels were destroyed as a result of military operations, and all this infrastructure will need to be restored.

The presence of the atom in Ukraine’s recovery

Currently, experts and officials at the Ukrainian Ministry of Energy and the National Regulation Commission for the Ukrenergo system are discussing what kind of energy system should be Ukraine built after the war has been won. As Ukraine is a party to the Paris Agreement on climate action, and nuclear power, along with renewable energy, is low-emission and – above all else – something that Ukraine already has, its role in the post-war energy mix should be significant. Many voices advocate for the development of decentralised energy generation, including the use of small and medium modular nuclear reactors. Ukraine also declares that it will pay more attention to wind power than before.

Before the war, the breakdown of renewable energy generation amounted to more or less 75% photovoltaic energy and 25% wind farms. Experts argue that these proportions should be reversed and supplemented by biogas. The symbiosis between stable nuclear power generation and emerging decentralised RES could prove very effective. According to Olga Kosharna, one of the Union’s roundtable discussion panellists, even the construction of additional 1000 MW blocks in the Khmelnytskyi NPP using Westinghouse technology may not be as good a solution as building small and medium-sized modular reactors. This opinion is shared by the private Ukrainian business. DETEK, one of the interested companies, is currently looking into the construction of small and medium modular reactors. From the perspective of reconstruction of the energy sector and point of view of achieving a complementary energy system in Ukraine, this direction seems highly desirable.

The business and the Atom

The Polish Chamber of Power Industry and Environmental Protection, chaired by Bogdan Pilch, brings together over 100 entities from the universally understood energy sector. The Chamber represents both large energy groups and construction companies, and representatives of foreign companies in Poland along with construction companies. The organisation covers the entire Polish sector – from conventional energy through RES and hydrogen industry to nuclear power. In the field of nuclear investments, we focus on maximising the participation of the Polish industry, the so-called “local content”. In the Chamber’s opinion, this participation might potentially reach 50%, up to even 60%. However, the path to achieving this goal is long, as obtaining the qualifications to become a certified contractor or subcontractor is a very lengthy and costly process. Currently, there are about 80 companies in Poland that have any experience whatsoever in building or operating nuclear facilities.

Following the thread of Polish-Ukrainian cooperation, the Chamber’s General Director drew attention to the issues of fuel and its disposal as potential areas for joint action. Then again, during the construction phase, the experience of seasoned professional from Ukraine might come in handy. However, since this will be an American technology, and Ukrainians are experienced in Russian technology, knowledge transfer will naturally not be 1:1. However, some processes are very convergent, so the participation of Ukrainian companies or professionals is highly likely. If the Ukrainian-Polish nuclear marriage succeeds, then these entities would not only have the potential to build one power plant, but also the potential to export their services. Since last year, we have been observing a kind of renaissance in nuclear energy. MMR and SMR are compatible technologies. They complement each other next to full-scale atom facilities, rather than compete.

Interest of Polish companies in cooperation with Ukraine in the energy sector is increasing, as reported by the Chamber, which receives inquiries from numerous entities. Previously, those that approached the Chamber were directed to the Ministry of State Assets, which has already created a database of around a thousand companies. Unfortunately, little is heard on this topic whether it is actively pursued or not. A business approach to this cooperation would be optimal to take advantage of this opportunity, meaning entrepreneurs instead of politicians would take the initiative. The Polish-Ukrainian Chamber of Commerce is also ready to provide support.

The Polish Chamber of Power Industry and Environmental Protection also provides training for companies with regard to execution of nuclear projects, and participates in various industry meetings and conferences, prepares field study trips, and has a good relationship with active technology suppliers on the Polish market, such as Westinghouse, as well as EDF and KHNP. In its activities, the Chamber tries above all to make those interested aware that the process of becoming a subcontractor is very difficult, complex, lengthy and costly. It does not of course go equally for everyone, as each company is at a different stage of development. In 2022, under a ministerial grant, the Chamber conducted an intensive training programme, providing 60 hours of training per participant. Around 180 people from approx. 150 companies were trained, and technologies and requirements related to becoming a subcontractor, sub-supplier, or supplier in the field of technology were presented during this training. Technologies from the US-based Westinghouse as well as those from EDF and KHMP were discussed. The trainings will continue in 2023. It is also possible to organise “supplier days”, during which technology suppliers would show a clear roadmap on how to become a part of the nuclear investment supply chain.

Until now, not many people believed in the success of the nuclear project, and this scepticism among companies was a consequence of so many failed attempts to implement such a project in Poland that few believed that these investments would eventually pick up pace. The choice of a technological partner does not yet determine the success of the project, but it greatly increases its likelihood. Today, it seems already certain that nuclear power plants will be constructed in Poland. However, whether this will be done on time and within budget is a completely different issue and requires a separate discussion. Nuclear energy as the basis and renewable energy sources as a supplement, and in the future also the use of hydrogen – this is currently recognised as a certain standard, a model to which it is worth striving for in many countries.

Energy cooperatives and SMRs

According to Robert Jankowski, another round table panellist, the old energy system that was invented in the 19^th century and established in Poland in the 1950s has expired. The new technical means and modern technologies that have appeared are causing the decomposition of the old system right before our eyes. Therefore, the Union guest believes we should now work on creating an entirely new system that reflects the energy industry worthy of the 21^st century.

It would be a system of autonomous areas the size of a municipality or two municipalities, or a parish, which balance energy consumption internally. The concept would be based on a cooperative system. After all, it was the cooperative system that won the great war against the Prussians in Greater Poland in the 19^th century. According to Robert Jankowski, the best way to reduce corruption (for instance, Ukrainian oligarchs) would be to build a system where the cooperatives themselves are the owners of what they have.

Within this system of autonomous areas, we should from the very beginning integrate electricity with heat and electromobility. Lately, there has also been talk of adding healthy food and local individual construction to the system. An essential element of such a system is a stabiliser, that is, a source of electricity generating between 15 and 25% of energy. The Polish Climate Forum estimates that there is room in Poland for about a thousand SMRs that would operate as such a stabiliser. The remaining energy needs would be secured by biogas plants, geothermal energy, hydroelectric power, or thermal biomass processing facilities. Energy supply security and low prices are the overriding goal.

And although these goals are also a priority throughout the European Union, particularly at the level of the European Commission and the Parliament, there are also many conflicting interests at play. To limit the influence of various interest groups, it is necessary to build local citizen energy initiatives. Neither Poles nor Ukrainians have any social objections to nuclear power. From a climate neutrality perspective, this is a very clean, zero-emission energy source.

The aspect of communication is also important, reaching directly to communities with the message about the European “Green Deal”. It is not possible to join the European Union if a candidate state does not have a clear plan to achieve climate neutrality. Polish companies could certainly help in developing the energy transformation concept in Ukraine. On the other hand, there are many nuclear energy specialists in Ukraine and, above all, there is infrastructure in place. Despite the ongoing conflict, there are still factories developing equipment. If we were to develop SMR systems on a large scale in Poland, there is also potential for cooperation in this area.

Educating nuclear energy personnel

In Ukraine, even some high schools specialise in nuclear energy. In Poland, there used to be a nuclear technical school in Otwock. However, to train personnel for the entire industry, a comprehensive approach is needed. On the other hand, the nuclear sector is a highly regulated field. Every gram of uranium or plutonium must be reported to the European Union, even when it is transferred from one laboratory to another. In Poland, we have research universities, but there are only 10 of them. Without research and practice, we cannot teach or guarantee development. Our students must learn from practitioners. Simply sending an intern to the United States for a month is not enough. A comprehensive educational programme is necessary.

Participation in European projects is must-have, such as cooperation with renowned universities and the French EDF. It is worth taking advantage of experiences and training in other countries. In the context of Polish-Ukrainian cooperation in the field of nuclear energy, the most important thing is that nuclear energy has been operating in Ukraine for many years. Combining the efforts of both Ukrainian universities, Polish research institutes, and industrial training organisations would be highly desirable. For example, one of the first accelerators in the world was built in Kharkiv. Ukraine has very good physicists, including those involved in the work of the International Atomic Energy Agency.

We also have a well-organised National Atomic Energy Agency in Poland, which also cooperates closely with the IAEA as well as nuclear energy centres in Europe and North America. Many trainings are taking place, and we can hear Polish names among the world’s nuclear industry personnel.

Safety

Politically, we observe today in Poland the unification of both the government and opposition parties, all of whom are in favour of nuclear energy, including green parties. Local authorities are counting on job creation, a boost of funds from investments, and the development of local entrepreneurship. However, the safety rules in the nuclear industry have changed dramatically.

Nuclear energy has become so expensive because many installations, even chemical ones, must now be secured like nuclear power plants. The more modern generation 3+ systems have passive safety systems. The problem with the Fukushima disaster was that the reactor defended itself for 8 hours during cooling. However, after 8 hours, in case cooling is not restored, the fuel may melt. In Fukushima, there were also hydrogen explosions. Hydrogen and oxygen are an explosive mixture. Today, most power plants have different safety systems. In the mentioned 3+ system, even if there is no electricity supply, the safety systems are still active. In the American Westinghouse AP 1000, when water boils, it takes heat away and there is also a metal shield that condenses the water. Unfortunately, in Fukushima, the generators were located in the basement, and the tsunami wave was thirteen metres high. Another power plant also had a similar safety system problem, but a power cable was pulled to the power plant in time to restore cooling.

It is important for nuclear investment supervision to have a national “technical support organisation” with a panel of experts in construction, steel, chemistry, and other relevant fields. Finland has a system called STUK, which is the equivalent of Poland’s National Atomic Energy Agency, and has various institutions at its disposal to conduct research at STUK’s request. Meanwhile, Hungary has a strong Institute and 32 specialised units that perform tasks within the nuclear sector. Poland must develop such a system. The National Atomic Energy Agency has already established an authorisation certificate that can be applied for not only by Polish companies, but also those from Ukraine. Any and all authorised entities will have the right to participate in nuclear safety projects, research, development, and consulting. It is crucial not to allow entities without the necessary qualifications, know-how, or personnel to participate. All of this must be refined to ensure the safety of Poland’s nuclear sector. The experience of Ukrainian nuclear supervision and how it was organised could be very interesting.

An impulse for the economy

According to OECD calculations, only 2 nuclear power plants in Poland would create up to 40,000 direct and indirect jobs, as well as jobs in the surrounding area. The benefits are also enormous for local communities, who must of course be informed about the plans. There is often a question in the public space about the cannibalisation of RES and nuclear power, competition of power generation – what if we end up with excess power? Nothing like that will happen. The reason is simple: we will be decarbonising the Polish economy for decades to come. To achieve EU climate goals, we will need significantly more electricity than before. Whether we want to electrify transport or use hydrogen, whether it is purple energy from nuclear sources or green from renewables, it will require more electricity production. Heat pumps and a range of other innovations within households and industry will increase our demand for electricity. There is no reason to suspect that the Ukrainian economy, especially considering that a large part of their RES were destroyed during the war, will not need energy or new generating capacity during recovery and reconstruction.

Especially since we are considering the gradual decommissioning of coal units or limiting gas units. We should plan for enough reactors to meet our future demand in both Poland and Ukraine, of course in the right synergy with RES. Therefore, SMR projects should not be presented as competition for large NPPs. SMRs can become additional sources and they have several very interesting applications, such as district heating systems, particularly in smaller regions, or energy production facilities for large industrial plants. However, they will not in any way constitute major competition for full-scale NPPs, which primarily must power the national power system.

Rebuilding the Ukrainian economy and the future of nuclear power

The war is still raging, but discussions on the post-war reconstruction of Ukraine’s energy infrastructure, which is a major component of the economy of a country that strives for EU membership, take place at the very same time. There is a predicted possibility of a significant increase in demand for electricity by various industries.

Just as the price of gas, oil, refining products, and therefore electricity has significantly skyrocketed globally due to the pandemic in the years 2020-2022 and the Russo-Ukrainian war, production in the EU industry has become very costly due to the significant increase in costs and ecological requirements.

The modernisation of production facilities in existing plants always involves a temporary limitation of production or even a halt in production, which carries the risks of significant loss of a competitive position on the global market and financial losses.

The phenomenon of relocating businesses to Poland, Romania, Hungary, and even Balkan countries or Ukraine is not out of the question. These countries offer predictable conditions for business operations and offer a skilled workforce. In Ukraine, migration of industry can be observed: in times of war, many state-owned enterprises have already moved their production to central or western regions of Ukraine, and in the post-war period, this trend might only increase. According to Ivan Grygoruk, electricity consumption after the war will not only return to pre-war levels, but will increase by at least 30%. However, there will be a certain shift in the generation and consumption of energy – the entire infrastructure will physically and technologically move closer to Europe.

In January of this year, the Cabinet of Ministers of Ukraine approved the construction of two new AP 1000 reactors. The blocks will be installed in the Khmelnytskyi NPP, with Westinghouse as the supplier. Ukraine has ambitious plans for the development of its nuclear industry, with the construction of as many as nine new AP 1000 blocks across the country in the pipeline.

The first reason for the construction of new reactors is of a more political nature. It is a strategy for building independence through diversification of nuclear supplies and technologies in Ukraine.

The second reason is to increase the level of safety and security in the operation of existing nuclear reactors by using new nuclear fuel, building new third- and, in the future, fourth-generation reactors with the ultimate goal to further decommission outdated AES power blocks and introduce technology to manage spent nuclear fuel.

The oldest working nuclear reactor in Ukraine was put into operation in 1980, and the newest two power blocks in 2004, with the end of the term of operation of the newest scheduled for 2035. Ukrainian reactors, both PWR-440 and PWR-1000, belong to the second generation, which has long been considered outdated worldwide.

It is worth noting that AP 1000 nuclear reactors differ significantly from PWR-1000 in the following basic characteristics:

• reduction in overall costs and shorter construction time;
• higher utilisation rate and longer operating period;
• more reliable design that is simpler to operate during the exploitation process and less prone to operational risks;
• low probability of accidents related to the melting of the active zone;
• increased fuel burn-up providing higher efficiency and reduces the amount of waste;
• use of burnable absorbers to extend the life of fuel cells;
• smaller environmental impact.

Ukraine has everything except peace that is necessary for further development of its nuclear industry. It has scientific potential, almost 50 years of experience in operating NPPs, developed material and technical infrastructure. Ukraine ranks 12^th in terms of uranium resources and 11^th in uranium production in the world. It has organised logistics for nuclear fuel supply and actively introduces strategies related to the safe handling of spent nuclear fuel from power reactors. It is also characterised by a huge capital of talents within the nuclear industry.

For the past 30 years, Ukraine has been fighting for the possibility to construct modern nuclear reactors. It is a very difficult, but well justified path. This way, it gains invaluable experience which it will gladly share with such partners as Poland.

 

See more: 01.03.2023 Nuclear energy – Ukrainian experience Poland can draw from

Warsaw, 9^th February 2023

 

Memorandum of the Union of Entrepreneurs and Employers:
in light of the dramatic increase in operating costs, we need a set of laws for micro-enterprises

 

Overview:

• Polish entrepreneurs have been struggling with numerous crises and skyrocketing operating costs since 2020. This impacts directly their financial situation. In 1Q 2022, 161 thousand companies suspended business activity, while 104.3 thousand shut it down.
• This year, Polish companies await further increases in energy prices and other operating costs, as well as a further, second in a row, minimum wage increase.
• The smallest companies run by micro-entrepreneurs have found themselves in a particularly difficult situation. If we want to avoid a wave of bankruptcies, we need a package of solutions to improve the financial situation of micro-enterprises.
• The problem of flat-rate social security premiums excessively burdening the smallest of companies can be solved by eliminating the time restrictions on the so -called “little ZUS plus”. Indexation of the income threshold entitling to take advantage of preferential conditions should also be taken into consideration (presently it amounts to PLN 120,000).
• In order to reduce non-wage labour costs for micro-enterprises, we suggest exempting them from the obligation to pay premiums to the Labour Fund, as well as a reduction by half of the amount of pension premiums paid by micro-enterprises for their employees.
• Further changes in the regulations introduced with the “Polish Deal” ought to be considered. We suggest the health premium micro-enterprises be reduced from 9% to 6%, while the limits and amounts of deductible contributions from income in the case of taxpayers settling with flat tax and a lump sum on registered revenues be increased.
• We also suggest that in the case of employees employed by micro-enterprises, the sick leave be paid from the first day the employee’s inability to work.

Introduction – a hard time for Polish companies

Recent years have not been easy for Polish entrepreneurs, the smallest companies of the SME sector in particular. The COVID-19 pandemic was first to pose a serious threat, along with the restrictions that followed. It led to numerous enterprises being shut down, while those that survived oftentimes struggled with financial liquidity. The situation was further aggravated with the largest tax law amendment in years: the new Polish Deal. The provisions therein were ill-considered and harmful, and thus led to immense chaos among entrepreneurs, accountants, and the tax authorities alike. Despite the fact they were largely improved over the fiscal year, 1Q 2022 was a period of high uncertainty for Polish businesses, and even now plenty of tax norms raise questions – and for good reason. Moreover, 2022 was a time of skyrocketing gas, electricity, and fuel prices. In many cases, there were multiple increases for entrepreneurs. This, of course, was associated with considerable inflation, especially after the Russian invasion of Ukraine in February 2022. The war was also meant disrupted supply chains (a problem already since the pandemic). The inflationary spiral also translated into an increase in wages, and thus in 2023 we are dealing with a record-high increase in minimum wages and social security premiums for entrepreneurs. All this converts into a substantial increase in operating costs. Recent years have undoubtedly been extremely difficult for Polish entrepreneurs, for SMEs in particular.

Statistics reflect the problems signalled above. The Ministry of Development and Technology stated that 161 thousand companies suspended business activity in 1Q 2022, whereas 104.3 thousand shut it down (nearly 29% more than in the same period in 2021). Furthermore, as many as 69% of entrepreneurs believe that the conditions for doing business deteriorated in 1Q 2022 [1]. The data also indicate a highly disturbing fact: presently close to one in seven companies, one in six among micro-enterprises, have suspended operations[2]. Many companies will never return to the market and will be removed “ex officio” from the registry of CEIDG (the Polish Central Registration and Information on Business).

Other data suggest that from the beginning of January 2022 until the end of October last year, CEIDG received 157.7 thousand motions to terminate sole proprietorship – 17.1% more than in the same period in 2021[3]. At the same time, CEIDG received 278.1 thousand motions to suspend sole proprietorship – 31.1% more than in the same period a year before[4]. Polish companies are ever more often forced to shut down operations and urgently need help, not through direct subsidies, but systemic changes that will help reduce the costs incurred by the smallest entities operating on the market.

An aid package for the Polish SME sector

1. “Relief to start” & “Small ZUS”

Among benefits for new enterprises, there are three of major importance: “Relief to start”, “Small ZUS” and “Small ZUS+”. New entrepreneurs (or resuming operations after 60 calendar months from their last suspension or shutdown) can benefit from a relief for starting the company for 6 full calendar months. During this period, they do not pay social security contributions (however, they still have to pay health insurance).

The second solution is called “Small ZUS”. It allows new entrepreneurs in a full period of 24 months from starting their business or making use of the “Relief to start” to pay social security contributions in a preferential amount. By default, contributions are paid from a declared base not lower than 60% of the forecast average gross salary, whereas in the case of “Small ZUS”, the basis may be an amount not lower than 30% of the minimum remuneration. The amount of the premium for individual insurance is an appropriate percentage of the declared basis, for instance: pension insurance in the case of “Small ZUS” in the lowest amount will amount to 19.52% multiplied by 30% of the minimum wage.

It is possible to make use of preferential ZUS contributions as part of the “Small ZUS+” programme aimed at companies that obtained revenues maximum PLN 120,000 the year before. They can make use of the same benefits as in the case of “Small ZUS” for a maximum of 36 months in the next 60 calendar months of conducting business activity. Importantly, the time of using the small ZUS is also included in this period. Therefore, in most cases, this program allows you to extend the small ZUS by an additional year.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to eliminate time restrictions for the possibility of taking advantage of the “Small ZUS” programme.

JUSTIFICATION

The “Small ZUS” programme helps new companies in their initial period of operations, when most of them try to scale up, build a customer base and capital necessary for further functioning. This is a very beneficial solution that facilitates difficult beginnings. Nevertheless, there is a very large group of companies on the market that even at a later stage do not get high revenues. These are usually sole proprietorships, craftsmen or small commercial companies. Many of these people value independence and do not want to work “full-time”. They are devoted to their passions, making them their profession. Moreover, many companies that usually obtain higher revenue have temporary financial difficulties, caused, for example, by a decrease in the number of projects. Unfortunately, these entities can only benefit from preferential conditions for a limited time according to the rules of “Small ZUS” and “Small ZUS+”. When they have to start paying insurance contributions in full, it often turns out to be impossible, because after paying fees and taxes from the revenues obtained, only a small amount remains, which does not allow them to support themselves and their families.

This problem has become particularly evident in recent years. Initially, the COVID-19 pandemic was a considerable blow in a major way to the smallest entrepreneurs, who had no sufficient capital to survive trying times, let alone pay public levies and taxes. The previous year, on the other hand, was characterised by inflation and massive increases in operating costs in the form of prices of gas and electricity or rental costs to name a few. In 2023, there has also been a record increase in social security premiums, which are, after all, related to average salaries and wages. Therefore, in order to enable economic activity also for these entities, we propose that the “Small ZUS” programme have no time constrictions. We postulate that entrepreneurs ought to be able to decide each month whether they can afford to pay premiums only from the base amounting to 30% of the minimum wage, or whether they can afford to pay a higher contribution.

2. Reduction of the disability pension paid by micro-enterprises

One of the social insurances that is a heavy burden for employers is disability insurance. The premium amounts to a total of 8% of the base and is paid by employees in the amount of 1.5% and by employers in the amount of as much as 6.5%.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to reduce the disability pension premium paid by micro-entrepreneurs for themselves and for their employees by half (to the level of 3.25%). The other half of this premium could be reimbursed from public funds.

JUSTIFICATION

Employers pay 6.5% of the disability pension premium on behalf of their employees. For the smallest companies, this is a very large amount, which considerably increases labour costs. Considering the amount of the minimum salary in February 2023, a monthly premium per single employee amounts to approx. PLN 225. In the case of the average salary in the enterprise sector in December 2022 (PLN 7,329.96), the disability pension premium paid by entrepreneurs for their employees comes up to as much as PLN 475. Lowering the disability pension premium will significantly reduce employment costs. Especially since in the case of even the lowest salary, which currently amounts to PLN 3,490, the employee receives a net amount slightly above PLN 2,700, while the employer’s total cost exceeds PLN 4,200. Therefore, in the case of even the minimum wage, the state receives approx. PLN 1,500 per month in the form of various premiums and taxes.

3. Premiums to the Labour Fund and the Solidarity Fund

In recent years, operating costs have been growing drastically. In 2023, entrepreneurs’ social security contributions increased at a record-breaking level, payments for utilities, such as gas and electricity, are rising as well, as are rental costs. Both the minimum and the average wage are on the rise. All this translates into ever larger difficulties with maintaining financial liquidity by the smallest entities. A solution partially mitigating the increase in costs may be to waive the collection of premiums to the Labour Fund and the Solidarity Fund from micro-enterprises.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes to abolish the obligation to contribute to the Labour Fund and the Solidarity Fund for micro-enterprises.

JUSTIFICATION

Operating costs, which are growing year-to-year, make it impossible for many of the smallest enterprises to stay on the market. Others require capital so that they can carry out further investments and consequently develop. Relieving entrepreneurs of costs related to premiums to the Labour Fund and the Solidarity Fund will allow the smallest companies to develop and, as a result, will stimulate the Polish economy. We emphasise that this proposal of ours applies solely to the smallest micro-enterprises. This solution is therefore designed with the most vulnerable entities in our economy in mind. One should also stress that contributions to the aforementioned funds are paid only by entrepreneurs, and not the employees.

4. Lowering the health insurance premium for the self-employed and micro-enterprises

One of the most controversial changes introduced in the Polish Deal regarded health insurance regulations. The new solutions do not allow companies to deduct health insurance premiums according to the same rules as in 2021. Therefore, a significant part of the benefits resulting from the introduction of a higher tax-free amount or the increased tax threshold is squandered.

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes that in the case of micro-enterprises and people who are self-employed, the health insurance premium be reduced from 9% to 6% if using tax scale. We also propose to increase the limit of reducing the tax base in the registered lump sum to 75% and to increase the amount that can be deducted from the tax base (income) to PLN 14,000 of the value of paid health insurance premiums in the case of flat-rate tax.

JUSTIFICATION

Costs related to health insurance for the self-employed and the smallest enterprises constitute often a rather large part of their budgets. During times of very high inflation and operating costs going up, it seems reasonable to enable the smallest entrepreneurs to reduce these costs.

5. A change in the rules for paying sickness benefits

Employees who are unable to work are entitled for the first 33 days to a so-called “sick pay” paid by their employers. It is only from the 34^th day onwards that “sickness benefits” are covered by the Social Insurance Institution (ZUS).

PROPOSED SOLUTION

The Union of Entrepreneurs and Employers proposes that from the very first day of inability to work, people employed in a micro-enterprise be entitled to sickness benefits.

JUSTIFICATION

Since the vast majority of employees’ absence from work takes place due to illnesses that last less than 33 days, the costs of sickness benefits are mostly charged to entrepreneurs, and not the Social Insurance Institution. This is despite the fact that employees pay appropriate sickness insurance amounting to as much as 2.45% of the contribution assessment base. Many of them will never take advantage of sickness benefits throughout their professional careers, but only of sick pay.

Summary

The Union of Entrepreneurs and Employers presents these proposals in the hope of starting a broad public debate on the current social and health insurance system, which inhibits entrepreneurship and impacts the smallest companies on our market. The economic situation of our country, which has been struggling with constant crises over the past three years, significantly affects the SME sector, micro-enterprises in particular. Countless statistical data confirm this argument indicating that growing numbers of entrepreneurs are forced to suspend or shut down business operations. The total cost of implementing all the postulates listed in this document is estimated at approx. PLN 20-25 billion annually. This would be real help for the smallest companies in Poland. We fear that the lack of decisive action may result in streets full of empty shop windows and abandoned premises, and thus a serious crisis in Polish micro-entrepreneurship.

***

[1] https://www.money.pl/gospodarka/firmy-zwijaja-zagiel-dramatyczne-dane-6835208485485248a.html (accessed on 1^st February 2023)

[2] https://forsal.pl/biznes/firma/artykuly/8641001,jednoosobowa-dzialalnosc-gospodarcza-koszty-prowadzenia-w-polsce-raport.html (accessed on 1^st February 2023)

[3] https://www.money.pl/gospodarka/kryzys-uderzyl-w-male-firmy-masowo-sie-zamykaja-z-miesiaca-na-miesiac-jest-gorzej-6850203369155392a.html (accessed on 1st February 2023)

[4] https://www.infor.pl/prawo/gmina/dzialalnosc-gospodarcza/5638794,jednoosobowe-firmy-likwidacja-2022-prognozy-2023.html (accessed on 1^st February 2023)

 

See more: 09.02.2023 Memorandum of the Union of Entrepreneurs and Employers in light of the dramatic increase in operating costs, we need a set of laws for micro-enterprises