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

Warsaw, 18 January 2023

 

Memorandum of the Union of Entrepreneurs and Employers:
Ukrainian energy infrastructure in the face of Polish-Ukrainian cooperation

Since October 2022, Russia has systematically and methodically been destroying Ukraine’s critical infrastructure. The percentage of heavily damaged energy infrastructure is continuously growing and, according to partners of the Union of Entrepreneurs and Employers, already exceeded 60% before Christmas 2022. Thus, Russia is trying to take the entire Ukrainian nation hostage, including entrepreneurs who are still trying to run their businesses, notwithstanding the ongoing war. In mid-December 2022, as part of the “Europe-Poland-Ukraine. Rebuild Together” project headed by our Union, the Union’s Energy Forum organised a round table meeting “Energy in the context of reconstruction of Ukraine”.

Representatives of energy companies, organisations actively supporting Ukraine, as well as industry experts representing both Ukraine and Poland attended the round table, and among special guests were the following dignitaries:

• Mateusz Domian, acting Director of the Representative Office of PKN ORLEN in Ukraine and Director of ORLEN Lietuva
• Sławomir Gładykowski, Vice-President of the Electric Networks Department at MEGAPOL S.A.
• Oleksandr Kharchenko, Managing Director at Energy Industry Research Center
• Wojciech Tabiś, Director at the Polish Power Transmission and Distribution Association (PTPiREE)
• Tomasz Tomasiak, Head of Energy Transition Department at the Polish Development Fund
• Vadim Utkin, Innovation Manager and Energy Storage Lead at DTEK Group

Dominika Taranko, the Union’s Energy Forum Director and the round table’s host, at the beginning of the event asked about the current state of affairs in Ukraine. The participants of the meeting were told, among other things, that Russians were methodically damaging the country’s energy resources by consciously targeting the power grid with missile strikes so as to prevent its uninterrupted functioning. While the authorities and emergency services were trying to mitigate the effects of the bombings and were conducting repairs round the clock, in many cases, it would become impossible to repair energy facilities and restore power. This situation is a result, among others, of a growing deficiency of spare parts. Due to the lack of standardisation of network solutions in Ukraine, some components are difficult to obtain, even on a global scale. In cases like these, it is not price that is key, but time. For example, a declaration of delivery of a given transformer several weeks to several months from now is not really an option considering the upcoming cold winter months. And while the weather has thus far been rather mild (average air temperatures higher than in previous years), the situation is nonetheless dramatic.

As a consequence of no steady electricity supply, Ukrainian businesses and production have suffered severely, which constitutes a major blow to national economy. Oleksandr Kharchenko, Managing Director at Energy Industry Research Center, assured: “We keep a register of all damages caused by missile strikes and we will demand full compensation from Russia”. However, before this may happen, people and their companies must somehow survive. Our guests acknowledged that businesses have been very flexible. The country’s capital Kyiv is a perfectly exemplifies the fact that, even in a district where there is no electricity whatsoever, one can find restaurants, shops, and service facilities powered by small generators. This equipment ensures operations of cash registers making it possible to sell goods or of coffee machines making it possible to brew coffee in cafés, while customers get the chance to charge their mobile devices and phones.

“Businesses of all sizes reach out to people, supporting and supplying them with small power generators. We adapted to the situation as much as possible in order to keep jobs and help people earn a living. I am impressed with how well Kyiv is dealing with power outages, how Odesa is doing, how quickly entrepreneurs in Dnipro joined forces and ordered a huge number of generators to supply SMEs with electricity. In the city, there is now no shortage of these devices, which are able to provide a small private house with light,” commented Oleksandr Kharchenko.

The situation is very dynamic. When Ukrainians are in need of anything that is not readily available at a given moment, sales offers appear within a week or two. When there is considerable demand for certain products and they are relatively easily available abroad, they quickly reach Ukraine. Companies, especially smaller ones, swiftly organise themselves and deliver goods to Ukraine en masse.

Nevertheless, when it comes to medium and large enterprises, their situation is undoubtedly extremely difficult, as ensuring production continuity or their normal functioning under current conditions is impossible.

“What has been said about small businesses is absolutely true. Kyiv and other cities are ‘alive’. We shall not surrender. You can still drink fantastic coffee in a café. Yet speaking of big business, here’s an example. We produce transformers in Ukraine, for instance, at the Zaporozhtransformer plant. It’s a rather large enterprise and we ordered several transformers from them. They can even repair broken devices, but the problem is that they don’t have energy either. Look how it is all interconnected. We cannot get our equipment back up and running quickly despite a local supply chain in Ukraine, because there’s no power. A large business cannot function on a small power generator. Big business required megawatts of power. And for now, that is out of the question,” added Vadim Utkin, Innovation Manager and Energy Storage Lead at DTEK Group.

Our guests, when asked about their vision of the future, that is the reconstruction of Ukraine’s energy infrastructure, emphasised it would certainly not be restored one-to-one for a number of reasons. First and foremost, the post-war map of consumption will certainly be different. For example, the city of Mariupol was completely levelled along with all the production facilities that had operated there. All major energy consumers that used to operate there were destroyed. Is it then possible to restore the supply chain as it was before the war? Surely not.

Furthermore, industry experts are convinced that Ukraine’s energy infrastructure will be rebuilt coal-free. Reconstruction of power generation units as well as the distribution and transmission networks will be carried out in accordance with the principles of the European Green Deal and in line with European standards of energy network development. Virtually everyone who works in the energy sector in Ukraine shares this conviction.

Another aspect one must take into account while rebuilding Ukraine’s critical infrastructure is the constant looming threat from the country’s northern neighbour. The risk of a terrorist attack by Moscow will forever remain with Ukrainians. Therefore, the energy network must be rebuilt in a way that guarantees the security of future supply.

Ukrainians are not, however, considering an island mode of operations comprised of local transmission and distribution systems. They are convinced that the system must be cohesive and connected. Still, what is most important is that all links of this system should be as dependable and as resistant to possible future attacks as possible. Discussions on the subject are already being conducted at the country’s highest levels. The goal is to rebuild the system so that it is not susceptible to outside interference.

The general vision of infrastructure reconstruction in Ukraine is of dual nature. On the one hand, traditional nuclear energy will be developed. The country has expertise in this field, human capital, and an existing structure ready for further post-war development. Energoatom employs a large number of qualified, certified specialists and engineers who have everything it takes to take nuclear power generation to another level.

On the other hand, it is clear that renewable energy sources will also be in the centre of attention of the Ukrainian energy system. This applies primarily to energy from wind farms and biomass combustion.

Ukraine has also for some time been working on concepts of systemic electricity storage, including those based on battery systems.

Moreover, experts expect that energy generation from water will gain significance in the form of pumped storage power plants that might be built after the war in Ukraine has ended.

“Ukraine has a vision how to rebuild its energy infrastructure. Of course, we’ll know more when the war is over, because right now we have no idea what will outlast the war. To precisely determine what we should rebuild, we first need to see our post-war shape and which infrastructure survived,” remarked Oleksandr Kharchenko.

According to our guests, both state-owned energy companies and private Ukrainian companies should now strive for the best possible conditions to restore the energy sector on the following principles: independence from carbon, innovation, energy security, full integration with the European energy network, and maximum cooperation with partners in the EU. Efforts are already being made in this direction.

Polish and Ukrainian energy sectors have much in common. Both in Poland and Ukraine, coal-fired power plants have had until this day a rather large share in the energy sector. An extensive energy transformation has already begun in Poland, and over time, coal-fired heat and power plants will be phased out. In this context, Ukrainian specialists focus not only on the domestic, but also on the Polish market for energy storage systems, including battery energy storage systems, which Ukraine is working on.

Vadim Utkin, Innovation Manager and Energy Storage Lead at DTEK Group, stressed: “Every energy system is characterised by two indices: sufficiency, or how many energy generators we have, and flexibility, whether our generators can address the demand for electricity with no hiccups. In terms of sufficiency, before the war, everything in Ukraine was fine. Our country had numerous nuclear power plants, but flexibility had always been a problem.”

Before the war, Ukraine was of course developing renewable energy, but its share was quite low – approx. 10% of all power. In other countries, problems with flexibility are observed only after reaching a share of at least 30% of RES in the energy mix. Ukraine struggled with grid flexibility with a 10% share of renewable energy in the power grid. As a result, renewable sources were often disconnected from the power grid, what translated directly into inflated costs. This was very disappointing for the green energy supporters, because the efforts and financial resources devoted to increasing the share of RES in the system did not translate into Ukraine actually consuming more clean energy.

For this reason, projects involving the creation of energy storage systems were so necessary in Ukraine. The war became, in a sense, a catalyst for these activities. Currently, Ukrainians are developing several scenarios how to expand the Energy Storage System project. A large part of the infrastructure is planned in the west, close to the Polish border. A major challenge in this project is to guarantee its physical security. Looking at the energy storage system, a seaport comes to mind, as there are numerous containers visible on the surface, which are potential targets for missile strikes.

In this context, ideas of cooperation between Poland and Ukraine are quite obvious. As our Ukrainian experts remarked, there are many municipalities on both sides of the border. Poland also experiences periods of energy deficiency, during which it starts looking closely at foreign exports. But it has also identified challenges on its territory related to the flexibility of the system. Therefore, deploying battery systems in Poland seems like a worthwhile idea, while operators on both sides of the border, working under an agreement, could provide system balancing services. This could prove to be a smart and quite unexpected solution to the problem, effective even in wartime. The issue of the physical protection of such facilities becomes irrelevant in this scenario, since Poland is a member of NATO and its situation is far different from the position of Ukraine.

Ukrainian experts believe that ideas of building underground infrastructure are misplaced. On the one hand, the cost of such projects is exorbitant, because issues related to drainage or temperature control are major problems in such systems. This also applies to energy storage systems and substations. On the other hand, all protection systems have their weaknesses, and the first question should be what we are protecting ourselves from. Are we protecting ourselves from X55-class drones and missiles, which are widely used by the Russians? Or are we protecting ourselves from ballistic missiles? These are vastly distinct levels of protection. And this should also be considered.

Energy storage systems are now extremely sought after in Ukraine, because energy reserves are very scarce. Power reserves and energy storage systems help a lot in such demanding situations when the frequency in the grid drops by 50%, as it did happen on 23^rd October 2022.

During the meeting in December, Mateusz Domian representing the ORLEN Group described the company’s pre-war involvement in the Ukrainian market, and concerned, among others, the fuel market. Presently, one of the problems in Ukraine is the lack of continuity of electricity supply, which is why energy from generators that run on fuel has become a natural substitute. Small business, by using low-power devices such as cash registers or company lights, have the ability to cope with power outages. However, in order to maintain the operation of activities with higher power consumption, such as petrol stations, the waiting time for the appropriate generators equals as much as even 2 months.

Currently, there is no fuel production in Ukraine, and all fuels are imported. The availability of engine fuels in Ukraine has become problematic, there is no indication, however, that they would run out. Not everyone can afford it, but it is available. Generally, in previous years, the period between autumn and winter was characterised by lower fuel supply both in Europe and in Ukraine. However, during the war period, in particular in autumn 2022, the demand for fuels in Ukraine increased by 30%. Due to the greater interest in fuels on the part of our south-eastern neighbour, the price of fuels in Poland and Lithuania also increased, which, however, is not a factor limiting supplies, as the most important thing is to ensure the availability of fuels on all these markets.

Mateusz Domian claimed: “The Ukrainian fuel industry is extremely efficient and there are no serious problems with the availability of fuels”. In fact, the first quarter of last year in Ukraine was difficult and it was hard to come by fuel, for example in Kyiv. At the outbreak of the war, more than 60% of Ukrainian diesel fuel was imported from Russia or Belarus. However, these import channels were rapidly replaced. Currently, fuel reaches Ukraine from many directions, such as Poland, Romania and Hungary. Nevertheless, it is Ukraine itself that must ensure that the channels remain available. The main logistic connections in fuel transport are operated by rail, which requires improvement, for instance on the Polish-Ukrainian border. As of now, half of fuel transports are carried out by fuel trucks, which are currently lacking on the market. Thinking about substitutes for grid power, which is non-operational during the war due to damages, the most important thing is to develop logistics of liquid fuel supply.

This situation will only improve following the restoration of infrastructure (if the Russian shelling stops) or with the beginning of warmer months in March 2023 and a reduced demand for power.

The representative of the ORLEN Group also did not want to elaborate due to the ongoing conflict on the company’s current plans for Ukraine. However, Ukraine has always been of interest to Poland’s domestic multi-energy concern, also in terms of acquisitions. As our guests emphasised, all plans would be implementation-ready when the country become stable again – a problem since 2014. It is expected that the challenges related to economic stability in Ukraine will change from month to month, along with the cessation of hostilities. Only then companies will be able to return investment negotiations and to resume their broad involvement activities on the Ukrainian market. The ORLEN Group sees immense potential in Ukraine, if only because of its population size that is comparable to Poland. The Ukrainian side has also asked the Polish market leader to work hand in hand in fuel market development. However, it is currently difficult to discuss restoring fuel production in Ukraine. Any business can see that in the face of active military aggression by Russia, it is difficult to develop an infrastructure that can be destroyed in the blink of an eye.

Polish Power Transmission and Distribution Association Director Wojciech Tabiś highlighted the fact that cooperation in the field of power engineering with the Ukrainian side had taken place for many years. He pointed out that Poland changed its power system in 1995 to a UCTE standardised one, while Ukraine looked into this process for its own needs before the war broke out. The hitherto long-term cooperation between the two parties resulted in the creation of the so-called Khmelnytskyi Island, which operated in Ukraine within the UCTE system. The current cooperation with Ukraine consists of, among other things, analyses of operations on a voltage of 230V. Before the war, activities were carried out over a long period of time aimed at Ukraine joining the standards of the European Union. The war certainly accelerated these changes.

Currently, the Polish side is receiving lists materials required to reconstruct the power grid in Ukraine on an ongoing basis. The power grid is highly fragmented. The cooperation of Polskie Sieci Elektroenergetyczne (Polish Power Grids) with UKRENERGO and DETEK requires coordinated efforts based on an agreement between the ministries of both countries – the Polish Ministry of Climate and Environment and the Ukrainian Ministry of Energy. What constitutes a challenge is the structure of the Ukrainian energy sector, which is technologically different from the Polish energy sector. In Poland, we have other voltage levels than the Ukrainian power industry and we are therefore unable to provide either equipment or spare parts. The Polish side has already transferred almost all the equipment of the Widełka 750 kW substation (autotransformers, circuit breakers, disconnectors), because it could be applied in Ukraine due to the right voltage levels. We do not have, however, the right equipment of grids of 800 kW, 500 kW, 300 kW that are used in Ukraine. They are non-standard power levels. We are unable to assist our neighbours in this case. Wojciech Tabiś stated: “We hit a brick wall, so to speak, which means that in this case we have already used all the reserves that Polish energy companies had at their disposal. By sending those reserves to Ukraine, we are only left with the bare minimum, a necessary level to, among others, undertake current repairs domestically.”

Therefore, there are no more reserves in Poland that the Ukrainian transmission system could make use of. Consequently, it would be appropriate to approach the problem now from a different angle, namely, to begin cooperation in Poland in terms of production of materials and equipment that would meet Ukrainian standards. The Ukrainian side even asked their Polish counterparts to send them broken switches or disconnectors, but the applicable regulations prohibit the imports of such devices to Ukraine, because according to the law they are waste. This requires an urgent liberalisation of Ukrainian import regulations.

In principle, all energy companies in Poland are open to cooperation with Ukraine. This also concerns, perhaps above all, distributed energy. This branch of energy production, based on renewable sources, has already grown in Poland. It is very difficult to import and produce high-power generation sources, and these are long-term processes, requiring time that Ukraine does not have. However, it is easy to install photovoltaic sources, locate low-power transformers, and build such energy facilities from scratch. It also seems natural that the destruction of the Ukrainian energy system should constitute an impulse to rebuild the network in accordance with the UCTE standard enforced in Europe. Primarily where this infrastructure was completely destroyed.

What also characterises the crisis is the fact that certain processes have accelerated and Ukraine may use this opportunity to rebuild its infrastructure basing on European standards.

As far as the transfers of electricity between Poland and Ukraine are concerned, it was possible to separate the already mentioned Khmelnytskyi Island from the Ukrainian energy system, powered by a local nuclear power plant, which produced energy that was later sent to Poland. Operational tests of this system had already been carried out. However, due to the ongoing Russian aggression, there is currently no exchange of energy between the two countries. The idea of supplying energy from Poland to Ukraine is also unfeasible at the moment, as both high-voltage connections are currently non-operational. At the same time, debates and works are underway to create connections at a lower voltage, for which devices transforming the different Polish and Ukrainian voltages would be necessary. In order to implement this, initiative is required on both sides of the border.

Sławomir Gładykowski, Vice-President of the Electric Networks Department at MEGAPOL S.A., predicts that the reconstruction of Ukraine will take place in two stages. First, power must be restored to industrial production. Second, a national post-war concept must be drafted. However, as it is impossible to foresee the end of the conflict, the network should now be rebuilt with cable lines instead of overhead lines. Building power stations underground is also worth considering. This process is more costly, but it provides greater security.

As far as the post-war reconstruction is concerned, it is a matter of legislation, so the legal foundations must first be laid. It is necessary to define priorities that will allow for faster reconstruction in the Ukrainian reality than it would take place in Poland, in our local legal system.

Tomasz Tomasiak, Head of Energy Transition Department at the Polish Development Fund, is also of the opinion that Ukraine will be rebuilt in two stages. The first stage is winning the war, because there can unfortunately be no question of new investments due to the ongoing military operations and the risk of their immediate destruction. At this stage, Ukraine can count on support and financial aid from EU countries. As for the post-war situation, talks are already in place on the reconstruction of Ukraine, both by the EU countries along with the United States and business communities. Ukraine’s potential as a neighbouring country of the EU is noticeable. And the prospect of it becoming a member of the Community in the near future is real. Other countries and the world of business have already realised this truth. After Ukraine wins the war, funding will surely not be an issue. The Polish Development Fund has two types of instruments at its disposal: aimed at supporting and investments (commercial ones). If the PDF received funds to support Ukraine, it would distribute them. The Fund already now possesses funds that can be invested, but it is difficult to make use of them in rebuilding Ukrainian infrastructure while an active armed conflict is still ongoing. This does not mean, however, that these funds cannot be invested in Poland for such purposes as for instance the production of parts or components for Ukraine’s present needs.

Tomasz Tomasiak also addressed the issue of rebuilding the power system. In his opinion, the example of Ukraine shows that distributed, local, cluster systems, or the so-called energy islands, will be a principal element in Ukraine’s power industry of the future. It seems that these systems are the future, they guarantee energy security for local communities, and at the same time unburden the transmission system. The energy from large power plants can be then transferred to production plants.

Certainly, the goal itself is to standardise the Ukrainian power industry in accordance with European standards. In the power industry, the production of certain devices or equipment that are uncommon required sometimes up to 2-3 years. Meanwhile, standard devices can be purchased directly on the market. Moreover, cheaper, used ones are also readily available.

An essential issue from the point of view of power supply is the availability of power sources, that is fuels or renewable energy. At the same time, greater independence, which works well during a conflict, can apparently be achieved from such sources as water, wind or sun, which do not need to be imported. The use of renewable energy is also related to thinking about energy efficiency, and it often turns out that in winter months considerably less energy is needed to heat a house after thermal modernisation.

Europe’s pursuit of electric solutions, for example switching to electric transport or the everyday use of heat pumps, may also be vital in the reconstruction of Ukraine. The Green Hub project implemented by the Polish Development Fund, which aims to implement Poland’s energy transformation, has already been recognised in the European Union, according to the Fund’s representative. Green Hub could function as a role model for Ukrainian energy transformation. The more so that renewable sources will play a rather key role in its future development.

Gennadiy Radchenko, Director of the Ukraine Business Center at the Union of Entrepreneurs and Employers, was asked to summarise the round table discussion. He pointed out that not only Ukrainians suffer from power outages, but so does the industry. However, the industry was able to adapt to the new reality astoundingly quickly. Entrepreneurs do their best to meet their needs by importing large power generators, for which there is currently a huge global demand, disproportionate to the available supply. It is worth mentioning that the production of energy from power generators costs 10 times more than grid energy, which translates into significantly higher production costs. According to Radchenko, considering the current state of affairs in Ukraine, far-reaching international cooperation should be established between industries in Poland and Ukraine. Business ought to be included in creation of solutions needed on the Ukrainian market. A good answer to present challenges would be to establish production facilities for Ukraine in Poland, which would carry out the most necessary orders for reconstruction. It would be beneficial for both countries. It should be noted that after the war, the entire Ukrainian energy system will turn away from Russian solutions and switch to European standards. At the same time, it is necessary to deal with legal solutions and start executing projects that, while they take time, may materialise soon. Therefore, red tape and bureaucratic barriers to post-war reconstruction should be eliminated as early as now. Because it certainly is much easier nowadays to solve engineering problems than bureaucratic ones.

Radchenko also expressed his gratitude for the support that Poland has given to the Ukrainian nation, stating that we are now in the best time for cooperation between the two nations ever in history.

See more: 18.01.2023 Memorandum of the Union of Entrepreneurs and Employers Ukrainian energy infrastructure in the face of Polish-Ukrainian cooperation

Warsaw, 30 November 2022 

 

How to support SMEs in the public procurement market? Let us not waste this opportunity!

 

• The domestic public procurement market is characterised by insufficient competitiveness. It is therefore desirable – in terms of the economic conditions – to increase the participation of the SME sector in the use of public procurement. Currently, the participation of SMEs as public procurement contractors is disproportionately low in relation to their role in the domestic economy.
• There are a number of legal instruments potentially supporting the SME sector in the public procurement market. The most important of these include the possibility of submitting partial tender offers (division of a contract into lots); refraining from the formulation of conditions for participation in the procedure; non-application of optional grounds for exclusion where it is not necessary; flexible application of tender evaluation criteria; appropriate descriptions of the subject matter of the contract; the possibility to waive the requirement for a bid deposit or to set its amount at a reasonable level; creating contractor-friendly contract templates; the possibility for consortia to submit tenders; no artificial aggregation of contracts; application of Art. 30 sec. 4 of the Public Procurement Law; not reserving the obligation of personal performance of a part of the contract; answering all questions regarding the Terms of Reference; extending deadlines for the submission of tenders; using, where possible, cost estimate-based remuneration or not requiring the submission of documents where contractors’ statements are sufficient. The implementation of at least some of these opportunities could reduce the current disparities with regard to the potential of the SME sector and its participation in the public procurement market.
• Contracting authorities in the public procurement system should use the concept of local content, the essence of which is supporting SMEs (both on a national and regional level). In order to create the right conditions for their increased participation in the system, it is necessary to raise awareness of the existence of the instruments provided for in the Public Procurement Law to facilitate the participation of SMEs in tender procedures.
• It is possible and desirable for contracting authorities to apply the concept of local content to the public procurement system when it is not the primary and only objective, but a secondary objective that takes into account the specific characteristics of SMEs, such as the pursuit of environmental, innovative or social goals. The concept of local content is part of the evolutionary changes taking place in the public procurement system.
• The National Procurement Policy makes it possible to put the principle of local content into practice, as it is itself a source of secondary objectives aiming to increase the level of innovation in the national economy in line with the development of solutions of an environmental, social and health-related nature.
• The concept of local content can be applied to both domestic and EU proceedings. It should then be borne in mind that national contracting authorities must take into account the context of strategic objectives from a state perspective. Since supporting local SMEs is possible at EU level, it is therefore desirable for the domestic public procurement system – provided, however, that the process is carried out in compliance with the principles of EU public procurement law.
• The Public Procurement Law provides contracting authorities – particularly local authorities – with a number of instruments to put the concept of local content into practice. The crucial point in this respect remains the demonstration of significant correlations between the application of the chosen solution and the actual, objective needs and the goal the contracting authority wishes to achieve.

The role of SMEs in the national economy in the face of challenges in the public procurement system – untapped potential

According to European Union figures from 2020, public procurement accounts for around 19 per cent of the Community’s GDP, which translates into an annual figure of around EUR 2.3 trillion. In Poland, their share of GDP is lower, at approximately 10 per cent, which nevertheless accounts for up to PLN 200 billion per year.

Considering the scale of the functioning of the public procurement sector and its contribution to building key economic indicators, attention should be drawn to the insufficient share of micro, small and medium-sized enterprises in the percentage of bids submitted in tenders both below and above the EU thresholds. The figures for contracts awarded also look unfavourable for SMEs.

Meanwhile, according to data from Statistics Poland in 2020, of Poland’s 2.3 million non-financial enterprises, 99.8 per cent were in the SME sector. 97 per cent of the pool of said 2.3 million companies are micro-enterprises with up to nine employees – only 3.7 thousand are entities with more than 250 employees. The trend continues – between 2014 and 2020, the number of micro-enterprises in Poland increased by more than half a million according to Statistics Poland. At the same time, the number of small, medium and large companies decreased by more than 10,000. At the same time, it is the SME sector that has been hit the hardest – due to insufficient financial reserves – by the COVID-19 pandemic, causing the need for support for the sector.

Despite such a significant share of SMEs in the total number of enterprises in Poland, the share of bids submitted by them in public procurement below the EU thresholds in 2020 in Poland was 82 per cent[1]. This is a slightly higher figure than in previous years (82 per cent in 2019, 79 per cent in 2018, 80 per cent in 2017). In 2020, construction contracts were the most sought after by the SME sector (88 per cent). In the case of bids for services and supplies, the SME participation rate was 79 per cent. The most favourable bids from the SME sector were found in 81 per cent of tenders below the EU thresholds in 2020, accounting for 85 per cent of the value of total contracts. 

The situation looks less favourable when contracts with a value above the EU thresholds are taken into account. This is where the percentage of bids submitted by SMEs amounted to just over 65 per cent of the total, with 60-62 per cent being considered the most favourable, which translated into 48 per cent of the total value of the contracts (approximately PLN 69.2 billion). The participation of SMEs as public procurement contractors is disproportionate in relation to their role in the domestic economy.

Increasing the competitiveness of the public procurement market

The Polish public procurement market is characterised by relatively low competitiveness, which is directly attributable to too few bids submitted in public procurement procedures. According to the Public Procurement Office in its Report on the Study on Low Competitiveness in Public Procurement in 2020, an average of just 2.786 bids were submitted for contracts below the EU thresholds.

The above figure represents a low percentage of companies that choose to take part in the procurement process and translates into a limitation of the possibility for the contracting authority to achieve the expected maximum efficiency in meeting the identified need. This situation also contributes to the public procurement market being dominated by the largest companies accounting for only 0.2 per cent of the Polish business market.

The reasons for the reluctance to bid for public procurement contracts can primarily be found in the limited knowledge of the instruments that the Public Procurement Law offers to the SME sector, the excessive complexity of the public procurement market and – as emphasised by entrepreneurs themselves – the hostility of the system towards small and medium-sized companies, resulting in the fear of violating public finance discipline.

There is therefore a pressing need to increase the participation of representatives of the SME sector in the public procurement market, all the more so as, given its size, any disruption to it could translate into a significant slowdown in economic growth. An additional advantage of SMEs is the opportunity to meet the needs of increasing the use of innovative solutions offered by the sector.

Meanwhile, local authorities – which are also the most important purchasers of services, supplies and construction work provided by contractors (51.8 per cent of all contracts in 2020) – are reluctant to take advantage of new opportunities to ensure that the concept of local content is implemented. The effect of this is particularly evident in the construction sector, where the most important contracts tend to be executed by the largest companies using the SME sector as subcontractors, who often have problems receiving payment for their work on time. The inability of the SME sector to bid on its own (as a result of contracting authorities not using instruments such as advance payments or splitting the contract into lots) results in SME representatives competing unnecessarily in terms of price for subcontracts with the general contractor, which translates into lower earnings and reduced profitability for these companies.

When drafting the current Public Procurement Law, the legislator recognised the problem, resulting in numerous amendments to the document, which – contrary to popular opinion – do not exclude the application of the local content principle. The current form of the Public Procurement Law gives the contracting authority a number of instruments to support SMEs both on the regional and national level.

All in the hands of the contracting authorities

Contracting authorities, particularly local authorities – based on current legislation – have a number of instruments at their disposal that potentially support the concept of local content and, at the same time, do not violate the provisions of the Public Procurement Law.

A basic instrument that could be used to increase the participation of SMEs in the public procurement market is – here the contracting authority has discretion in the application of the rules – the possibility to divide the contract into lots. The contracting authority also has the right to limit the number of lots to be awarded to one contractor. Both the Classical Public Sector Directive and the Utilities Directive gave Member States a choice regarding the introduction of an obligation to divide a contract into lots, but Poland did not make use of this option.

The contracting authority – according to the latest formulation of the Public Procurement Law – has also gained the full right – without violating the provisions of the Law – to decide not to formulate the conditions for participation in the procedure. This gives representatives of the SME sector the chance not to submit full documentation and declarations when it is not necessary. De-bureaucratising this element of the procedure – assuming that contracting authorities make use of this privilege – could have a huge impact on increasing the competitiveness of the public procurement market and the role of SMEs in it. The contracting authority may also choose not to apply the optional grounds for exclusion, provided that this decision does not violate the principles of competitiveness and does not create a risk of inadequate performance of the subject matter of the contract. The use of optional grounds for exclusion must always be associated with a clearly defined objective.

Some opportunities for implementing the local content concept are also provided by the bid evaluation criteria. In this case, although the contracting authority may not directly promote SMEs, nothing prevents it from using criteria whose implementation will be simpler from the SME’s point of view – such as, for example, the employment by these entities of staff living in close proximity to the place where the subject of the contract is to be performed, which may translate into a higher efficiency of its performance.

An opportunity for the SME sector to increase its participation in the public procurement market is also provided by the fact that there is no obligation to establish a requirement to pay a bid deposit, regardless of the value of the contract, the type of contract and the mode of the procedure conducted. This is new in relation to the 2004 Public Procurement Law. Given the optional nature of the deposit, any waiver of it by the contracting authority increases the competitiveness of the procedure.

In financial matters sensu stricto, the provision of Art. 442 of the Public Procurement Law, which provides for the possibility for the contracting authority to make an advance payment – under certain conditions – is also of paramount importance. This is a nod to representatives of the SME sector, who usually have less financial capacity than the country’s largest companies. Advance payments fully comply with EU law and increase the competitiveness of the public procurement market in all cases.

Contractors also have the option of submitting a bid as a consortium. This has a positive impact on increasing the potential of contractors to meet the conditions imposed by the contracting authority in the procedure. However, the contracting authority has the option of limiting the freedom of contractors in terms of the fulfilment of individual conditions for participation in the procedure. In order to increase the chances of SMEs to submit the most well-prepared bid, contracting authorities may use the privilege of extending the deadline for the submission of bids – but this must then be consistent with the possibility of properly and fully preparing the bid. Extending the deadlines for submitting bids is one way of putting the concept of local content into practice – longer timeframes mean more realistic opportunities for SMEs, which do not usually have specialised units responsible for quickly preparing a full bid and completing the necessary documentation. Contracting authorities – in order to stimulate SMEs in the field of public procurement – may also use the formula of cost estimate-based remuneration, which, unlike lump-sum remuneration, offers relative certainty about receiving a higher remuneration from the contracting authority in a situation in which the contractor incurs additional costs. Cost estimate-based remuneration is a formula that directly encourages SME contractors to increase their participation in the public procurement market.

Contracting authorities can also implement the local content concept using a number of other instruments provided by the Public Procurement Law. These include the creation of contract templates that are as transparent as possible, the appropriate descriptions of the objects of the contracts, the departure from the popular practice of artificially aggregating contracts, the provision of answers that are as concise as possible regarding the contract specifications or the careful reservation of the obligation for the contractor to perform part of the contract personally.

Conclusions

Local authorities and other contracting authorities, in accordance with the Public Procurement Law, have the opportunity to implement the concept of local content when carrying out both national and EU procurement, which effectively increases the chances of the most numerous group of enterprises in Poland, i.e. the SME sector, to participate in the public procurement market. The use of the aforementioned instruments increases the competitiveness of the public procurement sector and wards off the prospect of the market being dominated almost exclusively by the largest companies.

On the one hand, cooperation between the public and private sectors, based on the principles of partnership and dialogue, can encourage more entrepreneurs – with particular emphasis on entrepreneurs from the SME sector – to participate in procurement procedures. On the other hand, a wider range of companies submitting bids is also an opportunity for contracting authorities to choose the most favourable offer in terms of primary and secondary objectives.

For this to happen, however, there must be a real change in the mentality of the contracting authorities, which must be followed by the willingness – based on real tangible benefits – of contractors, including representatives of the small and medium-sized enterprise sector.

***

[1] Data based on the Report of the President of the Public Procurement Office on the Functioning of the Public Procurement System in 2020.

Warsaw, 19 September 2022 

 

Memorandum of ZPP on the plans to build a nuclear power plant in Poland

 

Familiarise yourself with the memorandum of the ZPP on the development of the Polish nuclear power industry. Get to know:

• the opinion of Polish people on the construction of a nuclear power plant,
• the latest plans of the government in that matter,
• whether it is only the administration that has an idea for nuclear energy,
• whether our neighbours are building nuclear power plants or they are closing them down,
• when and how much electricity will the plant generate,
• whether the plant means expenditure or is it independence and benefits?

An investor for the first large-capacity nuclear power plant in Poland is to be selected in the coming weeks. Projects involving the creation of smaller modular units are also being developed. The social perception of the nuclear power plant, in Poland and abroad, is improving. The neighboring countries also make significant use of nuclear sources of energy. In the opinion of the Union of Entrepreneurs and Employers, despite the great costs and relatively long investment process Poland will need nuclear sources of energy in the future.

The support for nuclear power in Poland is steadily increasing. Based on the CBOS study conducted in 2006, the percentage of people against nuclear energy was as high as 56%. ^[1] Over more than 15 years, the sentiment has changed and, according to the Ministry of Climate and Environment, public support for the construction of a nuclear power plant in Poland was 62.5% in November 2020. ^[2] Moreover, already during the ongoing energy crisis and military actions in Ukraine, according to a study published on 3 August this year (source: ARC Market and Opinion), as many as 64% of the respondents were in favour of speeding up works related to the construction of large nuclear power plants. ^[3]

12 August 1971 can be considered as the beginning of nuclear energy in Poland, as on that day, the government decided to build a power plant. More than half a century later, in December 2021,  the company Polskie Elektrownie Jądrowe indicated the seaside municipality of Choczewo as the site for the construction of the first Polish nuclear power plant.  The construction works are planned to start in 2026, and the first unit of the power plant, with a capacity of approximately 1-1.6 GW, is to be commissioned after six years. The remaining six units, with a total installed capacity of approximately 9 GW, are expected to be commissioned every two or three years. ^[4]

Since 1971, a lot has changed in the field of safety and efficiency of nuclear units. There are also new technical concepts for scaling up a nuclear installation. Parallel to the government’s project to build a high-capacity nuclear power plant, the largest Polish companies are interested in launching the so-called Small Modular Reactors,  as they are considered to be more ”efficient”, both in terms of investment implementation period and management of such reactors. The capacity of modular nuclear reactors, that consist of several individual reactors, can be adapted to local needs and network conditions. Additionally, that type of power plants, due to the variety of technologies being developed, may find a wide range of applications in the future, depending on the needs of investors – starting from the generation of electricity, through the production of heat for technological purposes in large industrial plants, to their use in network heating.

Construction of nuclear power plants as the opportunity for the Polish economy.

The Polish Economic Institute (PIE) estimated that the construction of two nuclear power plants in Poland will cost PLN 184 billion. In its report “The economic aspects of nuclear investments in Poland – the impact on business, labour market and local communities“, the PIE argues that in 20 years, nuclear power will secure electricity supply in Poland at the level of 26 to 38% of the demand. ^[5]

The PIE analysts estimate that the involvement of Polish companies in the construction of the nuclear power plant, in a realistic scenario, may turn out to be from 50 to 70%, which is also mentioned by potential investors from the USA, France and South Korea.

The value of works performed by Polish companies is expected to be approximately PLN 130 billion, which should create from 26.4 thousand to  39.6 thousand new jobs. Those will be jobs not only in the field of construction but also related to the operation of the nuclear power plants over the 50-year operating cycle of the reactors.

The contractor for the Polish nuclear power plant is going to be selected soon

The latest positions of government representatives indicate that the final decision regarding the national nuclear programme is going to be made soon. The project to build a nuclear power plant in Poland is expected to be adopted by the government within the coming weeks (the schedule assumes the third quarter of this year).

So far, the willingness to sell the technology and build infrastructure has been expressed by:

France – in October 2021, the country presented an offer  from the EDF Group which indicated two to three locations for the construction of nuclear power plants in Poland
, with a declared total installed capacity of 6.6 to 9.9 GW,

South Korea – in April 2022,  the Polish government was presented an offer from the Korea Hydro & Nuclear Power (KHNP) concern that assummed the construction of 6 reactors with a total capacity of 8.4 GW,

United States – Westinghouse Electric Company and Bechtel were the last to present a proposal to the government for the construction of nuclear power plants (however, the details of the offer have not been disclosed by the time of the publication).

All the above-mentioned companies have extensive experience in the construction of nuclear reactors and the technologies proposed to Poland are successfully used worldwide:

• four Westinghouse AP1000 units are operating in China and two other, located in the United States, are in the final stages of construction. China plan to build another four such units.
• two Korean APR1400 units are currently in use in South Korea and one is used by the United Arab Emirates. A total of seven other units are currently under construction in those countries.
• the French EPR (European Pressurized Reactor)  is a type of reactor that has been operating for several years in Taishan in China. The following power plants will be completed soon: Olkiluoto in Finland, a unit in Flamanville in France and Hinkley Point in the U.K.

In recent weeks, Prime Minister Mateusz Morawiecki discussed the issue of Polish nuclear power plant with the Vice President of the United States, Kamala Harris, the South Korean President, Yoon Suk-yeol, and the President of France, Emmanuel Macron. After a telephone conversation with the Vice President of the United States, the Prime Minister stressed that the government was analysing the possibilities in detail, both in terms of the construction of a large nuclear power plant and the development of the so-called  small modular reactors.

Earlier, on 30 August 2022,  Mateusz Morawiecki talked over the phone with the President of South Korea, Yoon Suk-yeol. The Chancellery of the Prime Minister announced that economic and military cooperation, energy security measures, including in the area of nuclear energy, were discussed, among other things.

Prime Minister Morawiecki pointed out that partnership with the Republic of Korea was an important element of national foreign policy. In recent months, Poland has closed a number of major deals with Korean partners. The Polish Armed Forces will be equipped with Korean combat aircraft and self-propelled artillery.

On 30 June 2022, the Minister of Climate and Environment, Anna Moskwa, concluded an agreement with the Minister of Trade, Industry and Energy of the Republic of Korea on energy cooperation in the field of, inter alia, peaceful use of nuclear energy, energy efficiency, hydrogen technologies, renewable energy, carbon capture and sequestration (CCS), carbon capture and utilisation (CCU), electromobility and smart grids.

The day before his conversation with the President of South Korea, Mateusz Morawiecki, during his visit to Paris, discussed cooperation in the nuclear energy sector with the President of France, Emmanuel Macron.

Such frequent direct talks between Prime Minister Morawiecki and the three representatives of the governments, who are negotiating the large contract, indicate that the ”winner of the battle” for the construction of a Polish nuclear power plant is going to be announced soon.

Obviously, the choice of such a strategic partner is not only a financial calculation but also a political and strategic issue. Each of the competitors is linked to Poland by economic ties, taking into account the EU structures, NATO or the arms industry. ^[6]

Strategic companies are not waiting for the government’s decision and are taking the initiative  with regard to small modular reactors (SMR).

A parallel path to nuclear energy in Poland may be Small Modular Reactors (SMR), which are smaller than the traditional large nuclear complexes. Such reactors are characterised by lower costs and shorter investment time, compared to the  large nuclear power plants. Individual elements are manufactured by the supplier of technology, as well as by using the so-called  “local content” – that is, companies located in the country where the investment is carried out. The components manufactured in this way are delivered, in the form of larger units, directly to the construction site. The use of modern safety systems, including passive ones, and simplifying the design of those units at the same time, allow for even safer operation and minimise the consequences of shutdown of a reactor, which may be associated with the lack of power supply to large groups of recipients. Thanks to the above-mentioned characteristics, the reactors can be built closer to human settlements, which makes it possible to use them – in addition to generating electricity – to produce heat for district heating systems and process heat for the needs of industrial recipients. Smaller size and modularity of the units, which enables easier expansion of the power plant by adding extra units, gives greater flexibility in terms of adapting the size of the entire park to the electricity and process heat demand of the investors. Moreover, the construction of many smaller units in different parts of the country may help to maintain a distributed energy generation system in Poland in the future.

KGHM Polska Miedź SA and PKN Orlen S.A.  support the SMR technology.  KGHM is the second largest consumer of electricity in Poland. The company’s annual demand is 3 TWh, which translates into an electricity bill of PLN 1 billion. The whole Orlen Group of Companies, which includes refineries in Płock and Gdańsk and the Anwil chemical company in Włocławek, is also a large consumer of electricity. Therefore, it is not surprising that both companies consider nuclear power as a way to make huge savings.

Based on the contracts already signed,  the company’s copper power plant will be powered by six SMR VOYGR reactors with a capacity of 462 MW, from the American company NuScale. Orlen will also use the American technology – BWRX-300, from GE Hitachi Nuclear Energy. ^[7] The first reactors for KGHM and PKN Orlen are to be commissioned by 2029.

Back to nuclear energy on the old continent

Due to the prospect of energy shortages in the winter season, the Europeans consider nuclear energy again. The way in which the demand for energy changes the perception may be demonstrated by the fact of reconsidering nuclear energy by the largest economies, as well as the positive change in the attitude of the citizens of the European Union. Nuclear technology, which until recently was in retreat, is now experiencing its renaissance and its benefits are noticeable against the background of, for example, reactivated coal-fired power plants.

Germany will keep two of its remaining three nuclear power plants, due to the turnaround in its energy policy, and will temporarily extend their operation beyond the assumed shutdown date, i.e.  31 December 2022 – announced Robert Habeck, the Minister of Economy of our western neighbour. ^[8] This move, expected in the EU, resulting from the failure of Russia to fulfil the contracts for the supply of energy carriers, means a shift in the policy of abandoning nuclear energy in favour of renewable energy (Energiewende), which has been developed for two decades. ^[9]

Prior to the energy crisis, in Germany, there was enormous public support for phasing out nuclear energy; however, according to the recent poll conducted by Forsa Institut, three-quarters of Germans support postponing the shutdown of nuclear power plants.

Over the decades, Germany’s western neighbours have become accustomed to using nuclear energy. Fissile material is currently used to generate 70% of electricity in France. Another reactor is under construction on the Seine, and six more are planned to be built. In 2019, the French government postponed the implementation of the plan, by 10 years, the original goal of which was to reduce the share of nuclear energy to 50% by 2025. At some point, France was the largest exporter of electricity in Europe and supplied a significant quantity of electricity to the U.K. and Italy. Currently, the neighbouring countries are closely observing the situation in France, which is facing an internal energy crisis due to the restrictions on the operation of reactors and it is likely to import more energy than export it this year. The situation is considered very serious by the French government and, at the end of July this year,  the National Assembly approved the nationalisation of the nuclear power company EDF.  ^[10]

In the former Eastern Bloc countries, which are now included in the EU structures, several nuclear power plants operate, which meet 15 to 50% of the electricity demand of the economies. In turn, Belgium and the Netherlands, which also use nuclear power plants, abandoned their plans to shut down nuclear reactors after Russia’s attack on Ukraine. In Sweden, six nuclear power plants meet 40% of the country’s electricity needs, while Finland is to launch the sixth reactor by the end of the year. At that time, 60% of the country’s electricity will come from nuclear sources. In Spain, seven nuclear power plants cover 22.2% of the country’s electricity demand. In the EU as a whole, 26% of electricity currently comes from nuclear power plants. ^[11]

What will we gain by using nuclear energy?

Rationally, the unstable prices of gas, coal and other fuels should direct us towards alternative sources of energy that guarantee independence and security. Currently, the structure of the energy mix in Poland is based on coal, which, despite its deposits in Poland, is largely imported for Polish power plants from outside the Community. On many occasions, when referring to Poland’s path towards energy independence, we have stressed the inevitability of achieving climate targets; i.e., the reduction of CO2, particulate matter and other factors that contribute to global warming.  The prices of CO2 emission allowances in the EU make the generation of energy from coal less profitable for energy companies, and the purchase of energy is associated with increasingly higher costs for energy-intensive businesses. It is not a ground-breaking statement that a nuclear power station, the construction of which has been planned in Poland for years, will be a fully-fledged alternative to coal and could also help to stabilise the system in the development of renewable energy sources.

According to Statistics Poland data, in 2021, as much as 11% of all expenditure incurred by households was on energy. ^[12] The years 2022-2023, are associated with a further nominal increase in bills. Most of the expenditure is heating costs in the autumn and winter season. Only the energy transition and diversification of the sources of electricity generation, implemented with great determination, give the prospect of eliminating the spectrum of energy poverty, which involves the poorest households to the greatest extent.

Based on the analysis conducted by WHO – contrary to popular beliefs – nuclear power is the safest source of energy, which is also confirmed by other scientific studies, including those carried out  for Statista in 2020.^[13]

We appreciate that the government recognises the need for an urgent response and it is changing the regulations on the implementation of nuclear investments through fast-track legislation. On 16 August 2022, the Council of Ministers adopted a draft act amending the act on the preparation and implementation of investments in nuclear power facilities and associated investments and certain other acts, submitted by the Minister of Climate and Environment. The first reading of the draft took place on 14 September 2022,  during the meeting of the parliamentary committee for energy, climate and state assets (ESK). The document places great emphasis on the assessment of the environmental impact of power plants; however, the whole process of the construction of a power plant is expected to be faster due to formal simplifications. The investor will be able to contact the administrative bodies to obtain the necessary information in connection with the performance of tasks related to nuclear power facilities and associated investments. Moreover, once the commissioning permit is granted, it will be possible to temporarily operate a nuclear facility. ^[14] Looking to the future and considering the development plans of KGHM Polska Miedź S.A.  and PKN Orlen S.A. for modular reactor technologies, while creating the regulations for investment in nuclear facilities the need to adapt Polish law to the construction of smaller units, which may be built near, e.g., large industrial parks, should also be taken into account.

After decades of discussing alternative energy sources, Poland is still in ”the carboniferous period”. The Union of Entrepreneurs and Employers has emphasised many times that the development of distributed energy and nuclear energy in Poland should be accelerated as much as possible. At the time of the energy crisis in Europe, this acceleration should be absolute. For this to be possible, the introduction of a number of deregulated solutions is necesaary, which we systematically try to emphasise. Also, in our opinion, a public information campaign on this subject is required, which is why, among other things, we are the initiator of such projects as the “Energy for Europe” conference, which will be held in Brussels on 27 October 27 this year: https://zpp.net.pl/events/event/konferencja-energia-dla-europy-jednym-glosem-o-przyszlosci-europejskiej-energetyki/ The conference is one of many undertakings that fit into the long-term policy of ZPP of promoting low and zero carbon energy sources in Poland.

***

[1] https://www.cbos.pl/SPISKOM.POL/2006/K_108_06.PDF

[2] https://www.gov.pl/web/polski-atom/poparcie-spoleczne-dla-budowy-elektrowni-jadrowej-w-polsce—badania-z-listopada-2020-r-625-polakow-popiera-budowe-elektrowni-jadrowych-w-polsce

[3] Source: ARC Rynek i opinia, 3 August 2022. https://www.wirtualnemedia.pl/artykul/wiekszosc-polakow-popiera-budowe-krajowej-elektrowni-atomowej

[4] https://spidersweb.pl/2022/08/elektrownia-jadrowa-w-polsce-historia.html

[5] https://energia.rp.pl/atom/art36882581-energetyka-jadrowa-w-polsce

[6] https://www.wnp.pl/energetyka/wybor-atomowego-partnera-polski-jest-coraz-blizej,619112.html

[7] https://wszystkoconajwazniejsze.pl/pepites/jak-bedzie-dzialal-maly-reaktor-jadrowy-smr-kghm/

[8] https://www.wsj.com/articles/germany-to-delay-closure-of-two-nuclear-power-plants-as-energy-crisis-bites-11662400161

[9] https://businessinsider.com.pl/gospodarka/elektrownie-atomowe-w-niemczech-moga-dzialac-dluzej-niz-planowano/8j5q0l1

[10] https://www.dw.com/pl/francja-elektrownie-atomowe-na-granicy-przegrzania/a-62816418

[11] https://biznes.interia.pl/gospodarka/news-energia-jadrowa-w-ue-niemcy-sie-kloca-inni-stawiaja-na-atom,nId,6201434

[12] Sytuacja gospodarstw domowych w 2021 r. w świetle wyników badania budżetów gospodarstw domowych (The situation of households in 2021, on the basis of the results of the household budget study), Statistics Poland, 2021.

[13] Brook, Barry W., Alonso, Agustin i Meneley, Daniel A. Why nuclear energy is sustainable and has to be part

of the energy mix. Sustainable Materials and Technologies. 1-2, pp. 8-16, 2014.

[14] https://www.experto24.pl/aktualnosci/42117-nowe-przepisy-o-energetyce-jadrowej.html#.YxrrrHZBy3A

 

See: 19 September 2022 The memorandum of ZPP on the plans to build a nuclear power plant in Poland

Warsaw, 31 March 2022

Memorandum of the Union of Entrepreneurs and Employers (ZPP) on the economic situation in Ukraine and its consequences for Polish companies

 

On 24 February 2022, the Russian Federation invaded Ukraine. Hostilities spread over almost the entire territory of our eastern neighbour. The extent of the damage after nearly a month of attacks is counted in the tens of billions of dollars. Almost all critical infrastructure was either destroyed or severely damaged.

The humanitarian disaster in Ukraine brings with it a migrant and economic crisis for the entire region, the economic impact of which will be felt around the world for years to come. Ukraine is one of the largest producers of cereals and vegetable oils. The production crisis will lead to a spike in prices for the food industry on world markets. This has a major impact on Poland’s economy due to the disruption of supply chains and the almost total lack of business opportunities in war zones. Hundreds of Polish companies in Ukraine have been forced to temporarily close or relocate their businesses and offices.

At present, a comprehensive assessment of the foreseeable impact of the situation on Polish business is probably impossible. Polish investors are left to actively monitor changing regulations, assess the safety of conducting business activities and hope that the war ends as soon as possible. 

1. General information about the Ukrainian economy (state before the Russian invasion). Expected reforms and changes to business regulations.

In the first years after gaining independence in 1991, Ukraine was a heterogeneous country plagued by internal conflicts and corruption. The country’s economy regularly faced economic crises, internal power struggles which were not conducive to development and foreign investors’ confidence. It was not until 2014 that the country shifted and chose a Western course for further development which ended in partial Russian aggression. Recent years, however, have seen slow reforms of the judiciary system, a fight against corruption (increasingly successful and producing tangible results), opening more to Western investments and, finally, land reform. The country’s development decisively accelerated after 2018 and even the COVID-19 pandemic did not manage to diminish Ukraine’s very good prospects in the short and medium term. 

*Data does not include GDP of occupied Donbass and Crimea, **Source UKRSTAT

*Data does not include GDP of occupied Donbass and Crimea, **Source UKRSTAT

Based on the above data, we can conclude that the Ukrainian economy has been growing slowly but steadily, despite the large expenditure on armaments since the beginning of the war with the Russian Federation in 2014. Another interesting issue is the level and origin of foreign direct investments over the last 10 years. Even before 2015, Russian capital from Cyprus, where it was mostly legalised, was at the top of the list of largest investors. Following the annexation of Crimea, the structure of foreign capital in Ukraine changed significantly. It should be mentioned that in recent years Poland has not only become one of Ukraine’s main economic partners, but the level of Polish investment in the country itself is one of the highest in history and it has been showing an upward trend. It should be noted, of course, that the rate of investment has slowed sharply in 2020 – 2021 due to the restrictions on economic activity caused by the coronavirus outbreak.

*Source UKRSTAT

*Source UKRSTAT

An example of the changes is the “Dia City” bill, which introduced far-reaching changes and tax reliefs for almost the entire IT sector (the bill came into force on 1 January 2022). “Dia City” aimed to develop the entire IT sector, fight against the grey employment market and introduce low and transparent taxes for foreign investors as well as their employees. The main objectives of the bill are as follows:

a) A company that has passed the verification may choose the method of corporate taxation: 9% of dividend tax, or 18% income tax under the general rules.

b) When profits are distributed by a participant in the Dia City programme to a non-resident founder, the tax benefits provided for in international conventions for the elimination of double taxation shall apply regardless of the corporate tax payment system chosen.

c) Preferential taxation of employees:

based on an employment agreement, personal income tax (hereinafter referred to as “PIT”)
– 5% single social security contribution,

– 22% minimum wage for PIT,
– 1.5% military tax,

if an employee’s total remuneration is higher than EUR 240,000 per year, all income above this limit shall be subject to 18% personal income tax.

d) Dividends paid by IT companies to their founders – natural persons (both residents of Ukraine and non-residents) shall be exempt from taxation in Ukraine provided that the dividends are paid no more often than once every 2 years.

2. The banking system of Ukraine during the war

 The operation of the banking system and the foreign exchange market in Ukraine during wartime is regulated by a resolution of the National Bank of Ukraine of 24 February 2022:

– all banks operating on the territory of Ukraine shall continue to provide their services and operate in their field branches as part of their business,

– banks shall continue to provide both natural persons and companies with access to safe deposit boxes,

– domestic transfers in Ukrainian currency shall be unlimited,

– cash deliveries to ATMs shall takes place without restrictions,

– The NBU shall refinance banks without restrictions to maintain liquidity for up to one year with the possibility of extension for another year.

The relevant resolution also provides for the introduction of temporary restrictions from 24 February 2022, namely:

– suspension of foreign exchange market operations as of 24 February 2022, with the exception of the sale of foreign currency to the bank’s customers,

– UAH exchange rate freeze as of 24 February 2022,

– Limiting cash withdrawals from a customer’s account to UAH 100,000 per day (except for salaries and social benefits), except for enterprises and institutions ensuring the implementation of mobilisation plans (tasks), the Government and individual authorisations of the National Bank of Ukraine,

– prohibiting the transfer of funds from customer accounts in foreign currencies, except for enterprises and institutions ensuring the implementation of mobilisation plans (tasks), the Government and individual authorisations of the National Bank of Ukraine; on 4 March 2022, Resolution No.: N36 of the National Bank of Ukraine lifts the prohibition on the transfer of funds (except for Russian and Belarusian roubles) to residents’ accounts in banks for export transactions.

– introducing a moratorium on cross-border payments in foreign currencies (with the exception of enterprises and institutions ensuring the implementation of mobilisation plans (tasks) and individual authorisations of the National Bank of Ukraine),

– suspension of spending operations conducted through the banks’ operation on the accounts of residents of the country that invaded Ukraine.

On 8 March, the NBU eased restrictions on the foreign exchange market by introducing Resolution no. 44 of the NBU Board of Directors of 8 March 2022. Martial law requires the NBU to gradually ease and clarify the list of restrictions on the foreign exchange market. For this purpose, from 8 March 2022, the National Bank of Ukraine:

– provided banks with the possibility to open accounts for soldiers and to carry out their identification and verification on the basis of a call-up paper,

– enabled customers in areas at risk of occupation by an aggressor state to withdraw cash
in domestic and foreign currency without quantity restrictions, and to purchase cash in foreign currency and precious metals with physical delivery, subject to the availability of cash or precious metals at bank branches. The decision to carry out such an operation shall be made by the General Manager of the bank. The General Manager may also delegate this right to a Branch Manager of the bank,

– established that the prohibition of transactions in Ukraine using the accounts of residents of Russia or Belarus and legal entities whose ultimate beneficial owners are residents of Russia or Belarus does not apply to social benefits, salaries, utilities, taxes, fees and other mandatory payments,

– extended the possibility for residents and non-residents to make transfers to charitable foundation accounts not only in hryvnia but also in foreign currency. This applies to charitable foundations whose purpose and areas of charitable activity are the promotion of defence capabilities and state mobilisation readiness, support of the Armed Forces, territorial defence of Ukraine, social protection, health care and other pressing martial law issues,

– clarified that settlements of documentary and standby letters of credit / guarantees / counter-guarantees granted (confirmed) from 24 February 2022 are prohibited. The NBU made an exception only for the cases of payments for critical imports, settlements with MFIs and other operations of bank customers, the list of which is set out in points 2-6, paragraph 14 of Resolution no. 18 of the NBU Board of Directors of 24 February 2022.

The NBU also decided that the bank may exchange funds in Russian or Belarusian roubles coming from abroad for the purposes of export and import of goods into another currency on the international foreign exchange market and continue to book them on customers’ accounts.

3. Settlements with the Ukrainian tax authorities during the war

In Ukraine, a moratorium on penalties related to non-compliance with tax obligations has been introduced for both natural and legal persons, as confirmed by the authorities responsible for assessing emergency situations:

“Ukrainian Chamber of Commerce and Industry confirms that the circumstances of martial law from 24 February 2022 until the official end of the war are extraordinary, unavoidable and objective circumstances for business entities and/or natural persons under an agreement, separate tax and/or other obligations, which were performed in accordance with the terms of the agreement, statutory or other regulations, the performance of which became impossible within the prescribed period due to the occurrence of such force majeure (force majeure).”  The occurrence of force majeure is confirmed by the Ukrainian Chamber of Commerce and Industry on the basis of Art. 14, 14-1 of the Law “On Ukrainian Chambers of Commerce and Industry” of 2 December 1997 № 671/97-VR, Statute of the Ukrainian Chamber of Commerce and Industry.

The law exempts taxpayers from financial liability for tax offences and violations of other regulations resulting from force majeure (paragraph 112.8.9 of the Tax Code of Ukraine; CC), provided that the Ukrainian Chamber of Commerce and Industry confirms the occurrence of force majeure. In the case of force majeure, the tax authorities shall not apply penalties if the taxpayer is not able to perform the following actions on time:

1. pay taxes and charges,
2. file tax returns,
3. register tax invoices and calculations of adjustments made to them in the Unified Register of Tax Invoices,
4. register excise invoices and calculations of adjustments made to them in the Unified Register of Excise Invoices,
5. submit electronic documents containing data on actual fuel residues and volumes of fuel/ethanol traded, etc., but as soon as the state declares the force majeure to have ceased, the taxpayer must fulfil his/her tax obligations.

At the same time, the Government of Ukraine issued an appeal to all companies operating on the territory of Ukraine to make every effort to conduct (as much as possible) normal operations
in order to minimise losses to the Ukrainian economy and supply.

In addition, the Verkhovna Rada of Ukraine passed a law on 17 March 2022 providing for a simplified taxation system for big business, abolishing excise duty on fuel and VAT, exempting private individuals from paying the single social security contribution and more. This was announced by Prime Minister Denys Shmyhal – Law No. 7137-d on the website of the Verkhovna Rada. The document provides for a large number of changes affecting various sectors, as well as small and medium-sized enterprises. This preferential tax regime shall last until the end of martial law.

Fuel taxes: From now on, excise duties on petrol, heavy distillates and liquefied petroleum gas are EUR 0 per 1000 litres. The rate of value added tax on fuel imports has been reduced from 20% to 7%.

Big business will be able to take advantage of the simplified tax system and pay one tax. The annual revenue limit was raised from UAH 10 million to UAH 10 billion and restrictions on the number of employees were lifted. The tax shall be 2% of turnover regardless of the type of business activity. The tax relief shall not apply to businesses involved in the sale of excise goods, the gambling industry and the extraction and sale of minerals.

4. The flow of goods and services between Poland and Ukraine. 

The Cabinet of Ministers of Ukraine adopted Resolution No. 234 of 9 March 2022 on uninterrupted supply of imported food and feed under martial law. According to the resolution:

 – entities operating in the food market who, as a result of military (combat) activities, are unable to comply with the requirements of Art. 10 of the Law of Ukraine “On the Provision of Food Information to Consumers”, may sell food in the customs territory of Ukraine that is labelled in a language other than Ukrainian. However, larger consignments must contain basic information
on the origin and ingredients in Ukrainian;

– foreign humanitarian aid entering the customs territory of Ukraine is completely exempt from the obligation to include a description of the goods in the Ukrainian language.

Under martial law, the government established new rules for the export of a number of agricultural products.
In particular, the resolution prohibits the export of:

– oats,

– millet,

– buckwheat groats,

– sugar,

– salt,

– wheat,

– live cattle,

– pork and beef meat products.

In addition, the Cabinet of Ministers of Ukraine is banning fertiliser exports from Ukraine due to martial law in order to maintain balance in the domestic market of important mineral fertilisers. Thus, a zero quota is introduced for their export. This applies to nitrogen, phosphorus, potassium and compound fertilisers:

– mineral or chemical fertilisers, nitrogen (UKT FEA code 3102),

– mineral or chemical fertilisers, phosphorus (UKT FEA code 3103),

– mineral or chemical fertilisers, potassium (UKT FEA code 3104),

– mineral or chemical fertilisers containing two or three nutrients: nitrogen, phosphorus
and potassium; other fertilisers; goods of this type in tablets, in packages of a gross weight not exceeding
10 kg (UKT FEA code 3105).

This entails a de facto total ban on all exports of the above-mentioned products.

Exports of the following products were allowed under a specific declaratory licence:

– wheat and a mixture of wheat and rye,

– maize,

– domestic chickens meat,

– eggs of domestic hens,

– sunflower oil,

Obtaining a declaratory export licence means allowing the export of a particular good in a limited quantity. All other goods can be freely exported according to the standard procedure.

From the point of view of Polish importers, the restrictions in force will not have a significant direct impact on fertiliser prices. However, it is important to remember that the sanctions imposed on Russia and Belarus will already have a significant impact.

On the other hand, it is obvious that Polish exports to Ukraine are facing a slump; many companies importing Polish goods in eastern and southern Ukraine have been destroyed and some are operating to a limited extent. In the central and western regions of the country, most of the retail chains, distribution, logistics and production companies are operating normally. It should be noted that Poland was Ukraine’s third largest economic partner (after Germany and China).

*Source UKRSTAT

*Source UKRSTAT

5. General situation of Polish business in Ukraine

As of 1 January 2022, there were approximately 1,000 companies with Polish capital operating in Ukraine, and the scale of Polish investments in the Ukrainian economy was one of the highest compared to other countries. The largest Polish investments concern the following sectors:

– insurance

– banking

– manufacturing

– construction

– IT

– clothing

– fuel

– pharmaceuticals

– furniture.

For many Polish companies in Ukraine, current events may mean closing their factories, warehouses and offices. A few weeks ago, most foreign companies (not only Polish ones) decided to evacuate key personnel to Lviv in western Ukraine or their home countries. Some companies offered to relocate their employees and their families to other countries and, after martial law was declared, to relocate to areas of western Ukraine.

Many Polish companies with branches in Ukraine also operate outside the country, which means that foreign projects (for men
aged 18-60) are on hold. Only the men who meet the following criteria can leave the country:

– have 3 children,

– are unfit for military service,

– are professional drivers with special authorisation to engage in road transport,

– are the sole guardians of minors,

Some employees also cannot fulfil their professional duties due to being called up for active military service. For IT companies responsible for key infrastructure, there is an option to withhold conscription for 6 months for key employees. However, they still cannot travel outside Ukraine, even temporarily.

The Kyiv School of Economics hired Gradus Research to conduct a study, which found that because of the war, as many as 85% of companies in Ukraine work part-time or are closed, including:

– 1% of companies have closed and have no plans to restart,
 – 35% of companies have suspended operations waiting for better times.

*Source Gradus Reaserch

Some Ukrainian companies have decided to change their business activity for the duration of the hostilities, e.g. leading confectionery manufacturer Roshen – humanitarian aid; Carlsberg Ukraine breweries – bottled mineral water.

*Source Gradus Reaserch

*Source Gradus Reaserch

*Source Gradus Reaserch

To sum up, the situation for Polish business in Ukraine is difficult and deteriorates with every day of hostilities by the Russian Federation. Even at this stage of the war, it will likely take years to rebuild the infrastructure and the economy. Even with substantial financial assistance from Western countries, a return to the past performance by Polish companies is impossible, at least in the short term.

Ukraine is one of the ten most important foreign markets for Polish business; its proximity and untapped potential since the beginning of the 1990s still provide opportunities for development and stabilisation for many Polish companies. It can already be said that a large proportion of Polish foreign investment in Ukraine has been successful. The companies have strong standing, many customers, and in some cases become local market leaders, employing tens or even hundreds of employees. Unjustified aggression by the Russian Federation can destroy the capital built up over many years. With this in mind, we should consider supporting Polish companies that have built up a reputation for Poland as a reliable business partner over the years.

See: 25.03.2022 Memorandum of the Union of Entrepreneurs and Employers (ZPP) on the economic situation in Ukraine and its consequences for Polish companies