EU to press Poland for faster deficit cuts-draft

BRUSSELS, Nov 15 (Reuters) - The European Commission will urge Poland's new government next week to cut the budget deficit faster, refusing to end a disciplinary procedure that has irked Warsaw, a document from the European Union executive showed.
The Commission's draft recommendation, obtained by Reuters on Thursday, acknowledged that Poland would be able to reduce its deficit below the European Union's cap of 3 percent of gross domestic product this year from 3.8 percent in 2006.
But the correction is not regarded as sustainable and next year's fiscal shortfall is forecast to widen to 3.2 percent of GDP, so the Commission cannot recommend ending the EU's excessive deficit procedure, the document said.
"Looking ahead, the durable correction of the excessive deficit, without which the excessive deficit procedure cannot be abrogated, is, on current information, vulnerable to important risks," said the paper, due to be published on Nov. 20.
The Commission draft urges Poland's new government led be the pro-business Civic Platform party, victor of an Oct. 21 parliamentary election, to present promptly an updated deficit reduction programme.
"The achievement of the deficit targets beyond 2007 crucially hinges upon timely specification and implementation of the deficit-decreasing measures by a new parliament and government," the paper said.
The Commission said no more severe steps are needed in the discipline procedure for now since Poland looks set to put its shortfall below the required cap this year.
The EU's 27 finance ministers are expected to approve the Commission recommendation in December.
Brussels monitors member states' deficits under the Stability and Growth Pact, intended to underpin the euro.
Poland, which joined the EU is 2004, is not yet in the euro zone, so the EU cannot fine it for exceeding the deficit ceiling persistently. But it could freeze part of the bloc's huge regional development aid in an extreme case.
The Commission said Poland's 2007 deficit fell thanks only to much faster-than-expected economic growth, seen at 6.5 percent this year, which boosted tax revenues, while state spending actually increased.
Growth is expected to slow to 5.6 percent next year and spending will increase due to tax cuts and social security measures ordered by the outgoing government of conservative Prime Minister Jaroslaw Kaczynski.
In particular, a planned further cut in contributions to a disability fund will have a budgetary cost equivalent to more than one percentage point of GDP.
Income tax relief related to the number of children in a family is expected to cost a further 0.5 percentage points.
The restoration of annual indexation of pensions and disability benefits linked to wage growth as well as inflation will cost about 0.4 percentage points in 2008, the paper said.
Increases in excise duty for cigarettes and higher value added tax on some services required by the EU will boost revenue by about 0.2 percentage points of GDP.
A senior Civic Platform official has said the new government of Prime Minister Donald Tusk would aim to limit the deficit to ensure it meets euro adoption criteria. A candidate country must keep its deficit below 3 percent of GDP.
(Editing by Paul Taylor)
Source: By Marcin Grajewski,

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Country focus Poland

Despite the exodus of native workers since the country joined the EU, Poland’s economy and construction market have gone from strength to strength. Marcin Klammer of EC Harris reports

01 The Polish economy

As the new Polish government, Donald Tusk's Civic Platform party, settles in after October's election, the perception is that the new leaders are likely to play a more co-operative role with the EU than their predecessors.

Since joining the EU in May 2004, Poland has witnessed strong growth in all major sectors. GDP rose 5.8% in 2006, compared with 3.5% in 2005, while inflation in 2006 was 2%. This is likely to pick up to about 3% in 2007, mainly owing to price rises in the construction industry.

The economic situation is stimulating development and investment in commercial real estate. An influx of foreign capital since 2004 has been a catalyst for property development and industrial growth. In the early years of its EU membership, most commercial properties in Poland were put on the market with a high return on initial investment. A lack of commercial properties has driven development in all major business centres. Several large companies, including LG Philips, Dell and Bridgestone have confirmed they are moving into Poland.

Foreign investors are choosing regions close to motorways connecting to western Europe, for example Wroclaw, or those with a well-educated, highly-trained local population, like Krakow and Warsaw. Lodz is centrally located, provides a well-educated workforce and good connections with other parts of the country.

The Polish economy has also profited from the EU subsidies from cohesion funds and other investments for infrastructure.

02 The property market

The Polish property market was already steadily developing before 2004 but boomed the day after it joined the EU. A significant influx of foreign capital, not witnessed in the other accession countries, has been partly responsible for a decrease in yields, but also stimulated development growth after two years of decrease between 2002-2004.

Foreign capital has affected all property sectors, particularly residential. This part of construction became a market of its own after decades of domination by the so-called housing co-operatives – entities established under the Communist regulations to develop residential projects.

The residential market is diversified. Major players – Polish as well as Irish, English, Spanish, Israeli and others – are involved.

The growing market has inevitably affected property prices in major cities and created interest in smaller towns, which were previously unpopular. Poland has 42 towns with more than 100,000 inhabitants, so still has a lot to offer to property players.

As a result of this activity, construction in Poland has gone from being an investors’ market in 2002/2003 to a contractors’ market. It is estimated that prices have risen almost 20% over the past two years. Contractors can now choose between property and infrastructure contracts based on profitability, although there are restraints in the supply of workforce and materials.

03 The football effect

The coming years look promising for the construction sector. The recent political change is perceived positively by investors and entrepreneurs. Stable growth should be maintained by continuing investment by the government and EU.

The recent announcement in April that the Euro 2012 football tournament will be held in Poland and Ukraine is already creating demand for construction services. Six football stadiums are to be built or modernised in Warsaw, Wroclaw, Gdansk, Poznan, Krakow and Chorzow, as well as training centres and infrastructure.

In addition, investment in other projects related to Euro 2012 has been backed by the government. Hotels, conference centres, training and leisure centres, residential and other commercial investments can now qualify as Euro 2012 projects and receive fast-track approval. This is positive, as administrative restraints, claims, objections and lengthy approval processes have, in the past, been major obstacles to the successful execution of real estate projects.

Even though Euro 2012 is a state commitment, individual investors have seen it as a chance to fit their projects into the five-year, fast-track schedule. Many large projects, such as office towers, shopping centres and leisure investments, including the Modern Art Museum in Warsaw, will be tendered in the next 18 months.

04 Infrastructure

On the infrastructure side, further investments are planned for the next five years. Although Poland has 600km of motorways, there are still 900km more to build, and the construction of expressways and upgrading of national roads.

There are also plans for investment in water and public transport, including a second metro line in Warsaw, and the modernising of 52 train stations into modern commercial centres.

The most in need are in Katowice and in east Warsaw, where a strip of land next to the station has been earmarked for development.

There is also the need to upgrade airports and build 10 new terminals.

05 Prices and workforce

While major economic growth has taken place in Poland since 2004, paradoxically, about 2 million young and qualified Poles have left to work in old EU countries.

Some 15% of this outflow has been from the construction industry, leading to salary increases at almost all levels. On site, labour rates for a number of skills increased by 15% in 2006; a further 14% is expected this year, with only a marginal slowdown over the couple of years.

However, many have started coming back, accepting lower salaries but benefiting from a lower cost of living.

This has had a positive impact on construction, since those coming back have worked on projects using modern technology and well-organised teams, so are better trained and have a beneficial effect on local teams.

However Poland still lacks specialists in some areas, partly because after Poland regained its independence, young Poles sought out managerial and marketing professions. This led to a shortage of experienced engineers and construction specialists.

The other reason is that in the eighties, while Poland was still under Communist rule, few major infrastructure projects were undertaken, with few railroads, alternative sources of energy and motorways (these did not exist before 1989). As a result of this lack of investment, the only experts in infrastructure projects are people well into their sixties.

The development of the construction market has led to increases in material prices locally, with the price of concrete, mineral wool and Gypsum boards up by 30% in just 18 months. This has led to structural steel being shipped in from Germany, a situation which would have been unthinkable a short time ago.

This only eased when prices in Poland rose to levels comparable with those in western Europe.

Now, rates have stabilised and maximum growth is anticipated at the level of 5-7% per year.

06 Tendering and project execution

The positive outlook means developers, investors, contractors and consultants all face challenges. Not only do they have to recruit specialists to respond to growing demand for infrastructure projects, but also have to balance rises in private commercial tender prices with risk of price and salary rises.

Contractors are less willing to accept these risks and are unwilling to tender for lump sum contracts, something which was unheard of three years ago.

In response, developers and investors are seeking other solutions to reduce prices, which often exceed their planned costs.

Developers appear to think construction management (CM) achieves lower costs and certainty of time. However, it is also apparent that developers choosing CM face the same problems that have pushed contractors into not accepting lump sum contracts.

EC Harris believes that, instead of using CM, developers should look for innovative solutions and expand their supply chains. This is a better approach than facing the challenges on the local market and being at the mercy of contractors and suppliers with full order books.

Establishing a supply chain that benefits from products and services in the country of their origin will become the way forward for the successful execution of better value projects.

While global procurement is not easy, it will differentiate successful and unsuccessful projects in the years to come. Not only will companies have to be more competitive, but they will also become more independent from local market disturbances.

Procuring globally may create an alternative to local markets, but prices abroad for purchase, transportation and import must be compared with local prices.

Source: By Marcin Klammer,


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Poland's LPP Q3 net profit rises nine-fold to 32.5 mln zlotys

WARSAW (Thomson Financial) - Poland's largest clothing retailer LPP posted a nine-fold jump in third-quarter net profit after the costs related to the failure of its major collection depressed earnings in the same period of last year.

LPP, which runs 279 stores in Poland under its Reserved and CROPP brands, earned 32.5 mln zlotys between July and September, up from 3.6 mln a year earlier and lower than 39.1 mln in the second quarter of 2007.

LPP's revenues rose 59 pct from a year earlier to 324 mln zlotys helped by an expansion in other central and eastern European countries.

source: By Piotr Skolimowski,


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Poland's Bank BPH to merge operations with GE Money by end 2008 - CEO

WARSAW, Nov. 14, 2007 (Thomson Financial delivered by Newstex) -- Poland's third biggest lender Bank BPH expects the legal side of its sale to GE (NYSE:GE) Money to be completed in the first quarter and said it should be fully integrated with the US-owned bank's operations by the of 2008, its chief executive said today.

Speaking after third quarter results beat expectations, the bank's long-time chief Jozef Wancer said the bank as a whole should generate 2 bln zlotys in gross profit this year as it prepares to split its assets between current owner Unicredit and GE Money.

'After the spin-off, which will happen (legally) at the end of November, in the first quarter of next year, we should complete the sales transaction of BPH to GE Money,' Wancer told reporters.

'From an operational point of view, the whole process of the merger should be completed by the end of 2008. If we were not to complete the divide, the whole of BPH this year would reach a gross profit of more than 2 bln zlotys.'
Gross profit at Bank BPH after the third quarter stood at 1.650 mln zlotys.

Source: By Piotr Skolimowski,

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Poland's software company Sygnity Q3 net loss at 50.1 mln zlotys

WARSAW (Thomson Financial) - Polish software company Sygnity reported a net loss of 50.1 mln zlotys in the third quarter, weighted down by losses related to its merger earlier this year.

The loss was bigger than an average 31.9 mln expected in a poll of analysts surveyed by the state news agency PAP. Third-quarter sales reached 250.6 mln zlotys.

Sygnity, which had three straight quarters of losses this year, also said its revenues will rise to 428 mln zlotys in the last three months of 2007, while earnings before interest and taxes should reach 33 mln zlotys.

Sygnity, created earlier this year from the merger of local software services companies ComputerLand and Emax, will lay off 500 of its 3,600 workforce and plans to raise 50-60 mln zlotys from the sale of some assets.

Source: By Piotr Skolimowski,


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Poland's economy minister nominee says zloty too strong, cautious on euro

WARSAW (Thomson Financial) - Poland's zloty currency is too strong and should reflect an appropriate balance between supporting imports while not blocking exports, the new cabinet's candidate for economy minister was quoted as saying.

Victory for the pro-business Civic Platform in Poland's general elections prompted a flood of cash into the zloty last month, sending it around 5 pct higher and boosting other central European currencies.

'The zloty is too strong right now,' Waldemar Pawlak, leader of the Platform's coalition ally Peasant Party and its nominee for deputy prime minister, told daily Gazeta Wyborcza in an interview.

'The exchange rate has to be adequate to the possibilities of the economy and the society. There has to be a balance between relatively attractive wages translated into euro, while on the other hand it cannot block exports and promote imports.'

The Civic Platform won last month's elections on expectations the party would push forward with public finance and other economic reforms, as well as a swift push to adopt the single currency.

But many signals from senior party officials since have been cautious, and the zloty's upward march has stalled as investors await concrete policy declarations from the new cabinet, which is to be sworn in this Friday.

Pawlak said he had also discussed the euro with finance minister nominee Jacek Rostowski, who has shied away from contact with media in recent weeks but previously had supported an immediate entry to the euro.

'I have talked to Professor Rostowski about this,' Pawlak said. 'Today the situation is different than it was when he drew up these plans. I think that we will have similar views on the euro.'

'He is leaning towards a practical realism, meaning that tools have to be appropriate to the situation, that euro zone entry should happen at the appropriate moment.'

He declined to give a target date for euro adoption.
Source: By Adrian Krajewski, forbes.com

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Poland's Grupa Lotos expects Q4 refining margins to fall compared to Q3

WARSAW (Thomson Financial) - Poland's second-largest oil company Grupa Lotos expects fourth-quarter refining margins to be lower that the previous quarter, but still higher than is 'typical' for the last three months of the year, its finance chief said.

'Restructuring of the retail network will last until the end of 2007 and we expect that the network will begin to bring in an operating profit in 2008,' Chief Financial Officer Mariusz Machajewski told a news conference.

'Refining margins in the fourth quarter will be higher than usually in this period. That is how the market environment looks right now.'

Lotos Chief Executive Pawel Olechnowicz told the same conference he expects to refine 6.192 mln tonnes of crude this year and that the company will sell 7 mln tonnes of products this year.

Source: By Piotr Skolimowski, orbes.com

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Poland's Grupa Lotos raises 2007 net profit forecast by 13 pct to 713 mln zlotys

WARSAW (Thomson Financial) - Poland's second largest oil company Grupa Lotos has raised 2007 net profit forecast by almost 13 pct to 713 mln zlotys, citing expectations for higher refining output and more expensive crude, the company said today.

Lotos also expects to have 12.935 bln zlotys in sales this year, up a touch from a year earlier.

In September the company, which is due to release its third-quarter results tomorrow, forecast its net profit this year would fall to 634 mln zlotys from 666 mln zlotys a year earlier and the sales will reach 12.8 bln zlotys.

source: forbes.com

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Poland's Getin Holding more than doubles Q3 net profit on higher lending

WARSAW (Thomson Financial) - Poland's Getin Holding, which includes mid-sized lender Getin Bank, more than doubled its third-quarter net profit thanks to rising demand for consumer credit, mortgages and car loans.

Getin Holding, which also incorporates financial advisor Open Finance and wealth management unit Noble (nyse: NE - news - people ) Bank, earned 110.6 mln zlotys between July and September, up from 43.6 mln a year earlier.

The company said small consumer loans rose three-fold year-on-year while car loans rose 65 pct to strengthen its leading position on the domestic market.

Source:By Piotr Skolimowski,

(Thomson Financial)


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More foreign airlines allowed to offer irregular flights from Poland

Warsaw (Puls Biznesu) – Polish charter airlines warn that too many foreign companies are allowed to operate from Poland to extra-EU countries.

Next to Eurocypria which has been recently allowed to operate from Poland to countries not belonging to the EU, there are new airlines being let into the market.

“Cabo Verde and Air Italy have received similar permissions. The first one may fly to extra-EU countries while the second one to Cuba and Dominicana”, Krzysztof Szymanski, PrimaCharter (PCh) deputy CEO said.

PCh is the Polish charter operator which has managed to avoid bankruptcy.

“Why do authorities adversely affect Polish airlines?” Adam Wychowaniec, PCh CEO asked in a letter to Grzegorz Kruszynski, the head of the Civil Aviation Authorities (ULC).

“This will hit LOT’s group directly” Wojcieh Kadziolka spokesman of LOT flag carrier commented.

LOT’s subsidiary Centralwings offers charter flights.

“Who is going to cover nearly USD 1m of monthly costs of leasing new planes which are going to be useless all winter long? We have just received first annulments of 10 flights to Brazil, Cuba and Dominicana because Cabo Verde and Air Italy have launched operations. We estimate costs at USD 1.8m”, Adam Wychowaniec added.

Source: pulsbiznesu.pl

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INTERVIEW Polish finance minister wants deficit cut by 3-4 bln zlotys - official

WARSAW (Thomson Financial) - Poland's likely new finance minister is in favour of cutting the 2008 budget deficit by 3-4 bln zlotys from the 28.6 bln planned by the outgoing conservative cabinet, a senior official from the new administration said today.

Central European University Professor Jacek Rostowski has not spoken to Polish media since he emerged as the new pro-business administration's candidate for finance minister.

But the pro-business Civic Platform party's leading light on economic policy, Zbigniew Chlebowski, told Thomson Financial News he had already agreed with Rostowski on a cut in next year's deficit.

'I have agreed with Professor Rostowski that is may be possible to lower the deficit to around 25 bln zlotys,' Chlebowski said.

'In the course of the next year, if strong economic growth continues, there is a chance we will be able to lower it further.'

He gave no clear indication of Rostowski's views on the euro, for which markets are watching keenly, hoping that the new minister will support a swift drive to adopt the single currency early next decade.

Chlebowski reiterated that the budget would be sent in the same form to the Sejm (Poland's lower house) as the draft approved by the current cabinet, and that any changes would be made in committee work on it.

'From my conversations with Professor Rostowski it appears that he is surprised by the rise in spending in the budget assumed by the outgoing government,' Chlebowski said.

'We will try to limit some of this spending. But we have to remember that we have to raise teachers' wages.'

Source: By Paweł Sobczak,


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Poland's PKO BP says loan growth strong, to up costs of credit

WARSAW (Thomson Financial) - Poland's largest bank PKO BA sold 1.1 bln zlotys in new mortgages in October alone, versus 11 bln zlotys in the first 9 months of the year, and is likely to raise costs of loans due to generally higher costs of global capital, officials said.

'Everybody can see that the sub-prime crisis has led to a rise in the cost of capital,' management board member Robert Dzialak told a news conference.

'We are also seeing a certain slowdown in economic growth which causes tightening of credit conditions for clients. We are thinking of a rise of several dozen basis points in the cost of loans.'

Source: By Piotr Skolimowski, forbes.com

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Poland's PKN may seek access to oil in Azerbaijan - economy minister

Poland's largest oil refiner PKN Orlen is in talks with Azerbaijan's SOCAR in a move to gain access to oil deposits in Azerbaijan, Poland's outgoing economy minister was cited by daily Parkiet as saying.

'Orlen is ready to invest in the Azerbaijani oil sector and start to seek oil in deposits, whose magnitude we will specify later,' Piotr Wozniak said.

State-owned PKN has failed so far to build a successful upstream division, which it has said for years is a priority to cut its dependence on Russian supplies.

Azerbaijan, which is to build the Odessa-Brody-Gdansk pipeline in cooperation with Poland, is one of world's biggest oil producers, with joint deposits around the Caspian Sea said to equal 30 bln barrels, or 10 pct of global reserves.

Source: By Adrian Krajewski, forbes.com

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Official: Poland well prepared to join Schengen zone

WARSAW, Nov. 9 (Xinhua) -- Poland's outgoing Interior Minister Wladyslaw Stasiak said here Friday that EU experts had very well assessed the state of Poland's preparations for entering the Schengen zone.

"It was a great challenge and a great effort by many people for Poland to be assessed in a positive way," Stasiak was quoted as saying by Polish PAP news agency.

On Thursday EU internal affairs ministers decided on the enlargement of the Schengen zone by nine new EU countries, including Poland.

Joining the zone means above all in Poland's case the liquidation of passport control on internal borders with Germany, Slovakia, the Czech Republic and Lithuania.

Source: news.xinhuanet.com

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