Poland Today Business Review+ No. 043-44 by Poland Today Business Review+

1 year subscription: EUR 690 (PLN 2760) Newsletter Editor: Lech Kaczanowski lech.kaczanowski@poland-today.pl tel. +48 607 079 547 Sales Contact: James Anderson-Hanney james.anderson-hanney@poland-today.pl

No. 043-44 / 14th July 2014 / www.poland-today.pl / magazine, conferences, portal, newsletter

MANUFACTURING & PROCESSING Finnish Nordkalk to expand Polish limestone unit page 3 ENERGY & RESOURCES PKN Orlen takes full control of Czech refinery; still weighing its options in Lithuania page 3 PGE awards PLN 1.3bn nuclear power plan engineering contract for Britain's Amec page 4 Hitachi-led consortium signs PLN 3.25bn power plant deal in Poland page 5

Messer supplies oxygen, nitrogen and other gases to a wide range of industries.

Photo: Messer

Messer building 2nd plant in Poland

German industrial gases specialist Messer has broken ground on its second Polish air separation plant. The EUR 30m investment will reach completion in Q3 2015, Messer Polska's Managing Director Dirk Fünfhausen tells BR+. page 2

Chinese PE fund goes shopping

CEE Equity Partners, a private equity firm founded and capitalized by China's EximBank seeks to invest more than USD 250m in Polish projects. Their first deal is to be sealed this week. page 3

PROPERTY & CONSTRUCTION HB Reavis breaks ground on 50,000-sq.m phase two of Gdański Business Center in Warsaw page 6 State bank BGK provides financing for mixed-use project in Poznań page 7 FOOD & AGRICULTURE Swiss chocolate firm Barry Callebaut to expand Łódź factory page 8

tel. +48 881 650 600

TRANSPORT & LOGISTICS Remontowa shipyard wins USD 165m ferry contract in Canada page 8 TF Silesia acquires substantial stake in railway engineering firm Torpol page 9 IT & TELECOM Key shareholder seeks buyers for large stake in fiber optic network operator Hawe page 9 SERVICES & BPO Polish IT outsourcing firm REC Global to employ 45 engineers at its new R&D center in Szczecin page 10 POLITICS & ECONOMY Gov't survives 2nd confidence vote in less than two weeks page 11 KEY FIGURES Up-to-date macroeconomic figures, currency & stock market data and lots of other hard-to-find info pages 16-18

weekly newsletter # 043-44 / 14th July 2014 / page 2

MANUFACTURING & PROCESSING

Messer building 2nd air separation plant in Poland German industrial gases specialist Messer has broken ground on its second Polish production unit. Located in the central Polish town of Turek (170km west of Warsaw), in the Łódź special economic zone, the EUR 30m air separation plant will produce approximately 400 tons or 20 cisterns of liquefied oxygen and nitrogen a day.

Since gas production is a fully automated process, Messer's projects create few new jobs, but by establishing business closer to customers, the company reduce deliveries by trucks and the related carbon footprint. Asked whether Messer has plans for any R&D or technology centers in Poland, Mr. Fünfhausen replies: "R&D is organized on a group level inside the Messer Group with R&D centers in Germany, Austria and France. We will however invest an additional EUR 3m in Turek in a new filling plant for gases in cylinders. We also invest each year especially in tanks and cylinders in order to market our new capacities."

"The plant will be launched in Q3 2015 with a staff of at least 15 people, of whom 10 have already been employed to undergo on-the-job training," Dirk Fünfhausen, Senior Vice President Central Europe and Managing Director at Messer Polska tells Poland Today. Although Messer has been operating in Poland since 1992, its first local production unit was launched as recently as 2009 in Rybnik (40km southwest of Katowice). Developed likewise at the cost of EUR 30m, the Rybnik unit has been producing technical and medical gases for the Polish, Czech and Slovakian markets. "The Turek project will be an air separation plant of the same type as the one in Rybnik, with high purity oxygen (99,95%), high purity nitrogen (99,999%) and high purity argon (99,999%). The plant is extremely flexible in terms of production ratio between oxygen and nitrogen but its capacity will be slightly lower than in Rybnik, at 11.000 Nm3/h oxygen and nitrogen instead of 15.000 Nm3/h in Rybnik," says Dirk Fünfhausen.

Messer's new air separation plant in Turek will be operational in Q3 2015. Image: PAIiIZ The products of air separation include nitrogen, oxygen, and argon. Alongside water and electricity, industrial gases are indispensable in many industrial processes. Nitrogen is used as an oxygen-displacing gas, while oxygen enhances combustion, which is crucial, for instance, in the steel industry. The Messer Group has state-of-the-art research and competence centers in which it develops applied technologies for the use of gases in almost every sector of industry, in food technology and environmental technology, medicine as well as research and science.

"The big advantage of our industry is that there is nearly no area where gases are not needed. Their uses range from healthcare through steel plants or chemical industry to various applications in the food industry, for instance freezing, packaging, carbonating. We have experienced steady growth in Poland especially in metallurgy, which utilizes oxygen to improve efficiency of processes and to reduce emissions as well as in food industry due to increased market demand for frozen meals and packaging of foods that ensures their freshness for a longer time." The Messer Group, which was established in 1898, is the largest privately managed specialist in industrial, medical and special gases. The company is active in 30 countries in Europe and Asia, as well as in Peru, Algeria and New Zealand, with a total of more than 60 operating companies. The group has 5,404 employees globally including 250 in Poland. "Poland is still one of the best performing markets in Europe over the last years with the smallest impact during the economical crisis and growth rates around 7%. Last year we turned over approximately PLN 300m in Poland, which remains Messer Group's second largest market in Europe. We now have three entities here including the new investment in Turek," says Dirk Fünfhausen. In 2013 Messer generated consolidated turnover of EUR 1.03bn and EBITDA of EUR 231m. Last year, the group invested a total of EUR 197m (up EUR 13m in the prior year) in the expansion of production capacities and distribution channels. Besides further diversification of its business in China, the main focus of investment was the start-up of new gas production facilities in Vietnam, France, Austria and Spain.

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MANUFACTURING & PROCESSING

BANKING & FINANCE

Nordkalk to expand Polish limestone unit

Chinese private equity fund to make first transaction this week

Finnish-owned limestone aggregates maker Nordkalk will expand the processing section of its factory in Sławno, in the Łódź special economic zone by adding a new production and storage building along with logistics infrastructure. The company is to invest PLN 20.9m and create 30 new jobs as well as maintain employment at 49 positions or more for a minimum of four years, the zone said. Poland Today asked Jan Weber, Vice President of the Central and Eastern Europe Division at Nordkalk for more details on the Sławno project and their growth in Poland. "We are happy to communicate the good news but we first we need to finalize some internal processes. We will be able to provide more details on this in the 2nd half of September," Mr. Weber told Poland Today. Nordkalk has four production sites in Poland, including three quarries with mills (Miedzianka, Sławno, Wolica) and one mill (Szczecin) that relies on limestone imported from the Swedish island of Götland. Member of Finland's Rettig Group, Nordkalk the leading producer of high-quality limestone-based products in Northern Europe. Its products are used e.g. in environmental care, in the paper, steel and building materials industries as well as in agriculture. Nordkalk has operations in nine countries (including mines and quarries in five countries) and employs some 1,050 people. Nordkalk's turnover totaled EUR 357.8m last year.

CEE Equity Partners, a private equity firm founded and capitalized by The Export-Import Bank of China, expects to make its first transaction in Poland by the end of this week, a member of the company's management told Poland Today. "I cannot reveal the sector, but I can say that it is a publicly listed firm," said Rafał Andrzejewski, an investment director at CEE Equity Partners. The deal is the first for the company since it started up in Warsaw in February. Asked why it was able to do a deal so quickly, Andrzejewski said that the fact that the target firm is listed on the stock exchange made the pre-acquisition process easier. "Due dilligence has been quick and relatively painless," he said. To start, the fund has half a billion dollars to invest in the region, including the Central and Eastern European EU states as well as most of the Balkans. According to Andrzejewski, about half of the initial funding will go to Poland. Once it spends 60% of its initial capital, CEE Equity Partners will receive a new tranche of funding to the tune of USD 1.5bn. Its remit is to focus on opportunities in infrastructure, energy, telecom and specialized production. It will operate for 10 years, with the option of a two-year exten-

sion. It will invest between USD 20m and USD 70m per project in equity alone. Because the firm is looking for long-term deals and doesn't necessarily have to take a majority stake in its targets, it has had no trouble finding willing partners, said Andrzejewski. The firm expects to have made four to five transactions by the end of the year, he added. by Andrew Kureth See the next issue of Business Review+ for Poland Today's exclusive interview with Rafał Andrzejewski of CEE Equity Partners.

ENERGY & RESOURCES

PKN Orlen takes full control of Czech refinery; still weighing its options in Lithuania Unipetrol, the Czech subsidiary of Poland's leading fuel producer PKN Orlen has acquired a 32.4% stake in Česká Rafinérská from Italy's ENI for an estimated EUR 30m, thus becoming the sole owner of the Czech refinery. The Polish company is yet to receive regulatory clearance to finalize the deal, which follows Orlen's November 2013 agreement with Shell Overseas Investments B.V. to buy a 16.3% interest in Česká Rafinérská. "Our intention to buy the equity interest in Česká Rafinérská is in line with our plan to strengthen the Orlen Group's Czech assets. As the sole owner of the Czech subsidiary, we will be able to effectively and comprehensively manage our refining assets and consolidate Unipetrol's position,” commented Jacek

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Krawiec, PKN Orlen CEO and Chairman of the Unipetrol Supervisory Board. According to PKN Orlen, the transaction will ensure the availability and security of feedstock supplies for Unipetrol's petrochemical segment, contributing to its further growth. Under its strategy, the company plans to consolidate its competitive position in the Czech Republic and the neighboring markets by growing its petrochemical business and maintaining a strong position on the retail fuel market. In line with Unipetrol's strategic objectives, by 2017 the largest portion of capital expenditure will have been spent on petrochemical projects. Concurrently, in pursuit of its key development objectives, the company will continue to make efforts to optimize its operating activities, Orlen said.

PKN Orlen Group's key financials Revenues in PLN bn, left axis N et r esult in P LNbn, right axis 120

1 00

-1

-2

-3 20 06

200 7

200 8

20 09

20 10

20 11

20 12

201 3

Source: PKN Orlen

More talk on Lithuania exit

Meanwhile, rumors emerged in Lithuania's about alleged plans by Orlen to sell the unprofitable refinery in Lithuania. According to the Vilnius-based daily Lietuvos Rytas, Orlen Lietuva could be bought by Kazakhstan's KazMunaiGaz, whose representatives have reportedly met with Orlen executives several times over the past months.

In an official statement Orlen denied having been involved in any negotiations to sell the Lithuanian business but said it was "analyzing various strategic options" with regard to Orlen Lietuva, which has been the company's position for well over a year now. Orlen Lietuva posted a USD 42m loss in Q1 while sales tumbled 43% to USD 1.29bn with output capacity falling 40 pps to 58%, according to Orlen's presentation on its website. The refinery can process 200,800 barrels of oil a day, according to Bloomberg. KazMunaiGaz was among Orlen's competitors back in 2006 when the Polish company acquired an 84% stake in the Lithuanian refinery, then known as Mazeikiu Nafta, for USD 2.34bn. Its other rivals were Russia's Lukoil and TNK-BP and shortly after losing the Mazeikiu tender to the Poles, Russia cut crude oil supplies to the Lithuanian refinery, forcing the company to rely on more expensive deliveries by sea. This, in a nutshell, remains the main reason behind the unsatisfactory financial performance of Orlen's Baltic arm, which remains the largest foreign investment by Polish company to-date. Orlen's investment strategy have been focused in recent months on securing access to crude production and reducing its dependence on Russian oil. The Polish company acquired Canada’s TriOil Resources for CAD 183.7m (PLN 508m) last year and Birchill Exploration for CAD 255.6m (PLN 708m) in 2014. PKN Orlen turned over PLN 114bn last year, some 5% less than in 2012. Its EBIDTA dropped 42% y/ to reach PLN 2.5bn, while its net earnings plunged by 96% and topped a mere PLN 90m. PKN Orlen blamed a very challenging environment in the refining industry (mainly the lowest refining margin and Ural/Brent differential since 2002) for its disappointing result. On the flipside, however, Orlen's capital expenditure rose by a fifth and came in excess of PLN 2.5bn and at the

same time the group managed to its debt by PLN 2.2bn, down to PLN 4.6bn. A leading producer and retailer of fuel in the CEE region, PKN Orlen operates three refineries (in Poland, Lithuania and Czech Republic) with a combined maximum capacity of 32.4m tons a year. Last year the three sites processed 28.2m tons of oil, 90% of which was Russian Export Blend Crude Oil (REBCO). Besides investments in the upstream segment, PKN Orlen has made inroads into the power generation sector with a PLN 1.4bn combined cycle gas turbine plant (463MWe) in Włocławek and plans for a similar project in Płock.

ENERGY & RESOURCES

PGE awards PLN 1.3bn nuclear power plant engineering contract to Britain's Amec Poland's largest utility, the state-owned PGE has chosen British engineering firm Amec as the technical adviser for its nuclear power plant project, PGE said last week. Amec's role will be to support the latter's subsidiary PGE EJ1, set up to build and run the plant, during the development and execution of the nuclear new-build project. Amec will support PGE EJ1 in meeting the requirements of the yet-to-be-selected reactor vendor and EPC (engineering, procurement and construction) contractor and other key service providers. The scope of the work will cover 13 areas of close cooperation from licensing to start-up and testing. According to PGE EJ1, the bid is worth just over PLN 1.3bn, with PLN 205m of that for "required work" and

weekly newsletter # 043-44 / 14th July 2014 / page 5

PLN 1.1bn for optional services. PGE EJ1 president Jaceck Cichosz described the selection of the technical advisor as a strategic decision, enabling key project activities requiring nuclear expertise and competencies to be carried out. Amec's bid was selected following a public competitive procurement process. Also bidding were a UK-Swiss consortium of Mott MacDonald and AF-Consult, a Polish-Belgian consortium of URS Polska and Tractebel, and US company Exelon Generation. Amec recently won a strategic framework contract to provide consultancy services to the Emirates Nuclear Energy Corporation (ENEC) for their four-unit newbuild project at Barakah in the UAE.

choices for the project. A timeline issued earlier this year by the Polish government foresees selection of the location and reactor technology for the first plant by the end of 2016, with all the necessary construction approvals in place by the end of 2018. Sites at Choczewo, Gąski and Żarnowiec are under consideration, and Australian company Worley Parsons was recruited to carry out site characterization work under a PLN 252m agreement signed last year.

Energy generation in Poland in 2035 By source, government plans Nuclear 36%

Gas 11% Coal 39% RES* 14%

Source: PGE

PGE listed Żarnowiec, Choczewo and Gąski on the Polish Baltic coast as the most likely locations of the country's first nuclear plant, with Żarnowiec being Source: PGE the most likely candidate.

Poland's first nuclear power unit is to go online by 2025, according to the national nuclear power program the Polish government adopted earlier this year. The first unit would then be set to start up by the end of 2024, with a second unit starting up by the end of 2030. The second nuclear power plant is scheduled for operation around 2035. PGE has signed non-exclusive agreements with reactor vendors to investigate Areva's EPR, GE-Hitachi's ABWR and ESBWR, and Westinghouse's AP1000 as potential technology

*) renewable sources

Poland, which currently relies on its vast coal reserves to produce about 90% of its electricity, is scrambling to find alternative energy sources - including nuclear and shale gas - to meet European Union greenhouse gas emission limits by 2020. Faced with growing pressure from the EU, which expects Poland to gradually do away with its coal-fired power stations, the government has been keen to find a viable long-term alternative, albeit one that would not increase the country's dependence on Russian gas. According to plans, by 2035 nuclear power plants are to generate 36% of the country's electricity. At the same time, the highly polluting lignite-fired stations are to see their share drop from 66% as of end of 2010 down to 34%.

ENERGY & RESOURCES

HitachiHitachi-led consortium signs EUR 770m power plant deal in Poland Poland's top power utility PGE has signed a PLN 3.25bn (EUR 770m) contract with a consortium of Japan's Mitsubishi Hitachi Power Systems Europe, Spain's Técnicas Reunidas, and Polish Budimex for the construction of a brand new 450 MWe coal power generation unit at the Turów plant in Bogatynia, in southwestern Poland. The contractors are to break ground on the project by the end of the year and will have 56 months to complete the job. The tender was announced in June 2013, after cancellation of the initial procedure due to bids significantly exceeding the budget. PGE had selected the JapaneseSpanish-Polish bid in a tender in March 2014. The Hitachi-led consortium was chosen over Chinese engineering group Shanghai Electric, which had reportedly offered PLN 3.09bn. The Chinese firm appealed the decision, along with Korean Doosan, the highest bidder, but the appeals were turned down. The new 450 MWe supercritical coal unit in Turów that will fire local lignite in compliance with Poland's environmental regulations, offering efficiency well above that of a conventional coal power plant, will include a coal boiler, flue gas treatment, steam turbine, natural draft cooling tower among other key features. Mitsubishi Hitachi, which holds a 55.4% share in the consortium, will be responsible for the supply of the core technology, while TR and Budimex (each with a 22.3% share) will supply the rest of the equipment and will be in charge of the erection and construction.

weekly newsletter # 043-44 / 14th July 2014 / page 6

PGE is the largest energy sector company in Poland by sales, power generation capacity and power supply. Majority-owned by the Polish state, it has been listed on the Warsaw Stock Exchange since 2009. PGE has a total installed power of 12.860 MW and provides energy to more than 5m consumers. PGE's consolidated sales revenue totaled PLN 30.1bn last year (down from PLN 30.5bn in 2012), while its net earnings rose 14% y/y and came to PLN 4.1bn. Its net electricity generation volume rose 1% and topped 57.05 TWh. The company has a 40% share in Poland's electricity production, and controls 26% of distribution. Besides the Turów project, PGE is currently building two coal-fired 900 MW power units at the Opole power plant. With a price tag of PLN 11.6bn the project is seen as the largest ever investment in Poland's energy sector. PGE is also responsible for building Poland's first nuclear power plant, with a projected capex of PLN 50-70bn, and continues to expand its wind energy capacity, which stood at 283MW as of end of last year. As for Mitsubishi Hitachi Power Systems Europe, the German-based European unit of the Japanese power engineering giant is involved in the construction of a new 1,075 MW coal-fired power plant at Kozienice for Polish energy firm Enea. The project is to go online in 2017. In mid-June the contractor reached an important milestone on the Kozienice project by installing the first of four boiler, marking the beginning of work on the actual utility power generator – the heart of the ultra-modern bituminous coal power plant.

PROPERTY & CONSTRUCTION

HB Reavis breaks ground on 50,00050,000-sq.m phase two of Gdański Business Center Slovakian developer HB Reavis has broken ground on phase two of its Gdański Business Center project at the corner of Andersa and Inflancka streets in Warsaw. With two buildings encompassing more than 50,000 sq.m of class-A office space, the project is to reach completion in Q1 2016, bringing the total leasable area at Gdański Business Park in excess of 98,000 sq.m. HB Reavis plans to obtain a BREEAM "Excellent" certificate for the development. Gdański Business Center is located near the Dworzec Gdański railway station on northern fringes of Warsaw's central Śródmieście district, close to the Arkadia shopping centre. The construction of phase one (two buildings with a combined GLA of 47,000 sq.m) began in June 2012 and reached completion last month. Its first tenants include KPMG, SNC Lavalin, Provident and Coloplast. It looks like the Slovakians are in a hurry to dominate the neighborhood before the arrival of their powerful Belgian rival Ghelamco, which has been recently selected by the Polish railways giant PKP SA to build a large mixed-use project at the site of the Warszawa Gdańska railway station. According to PKP, the estimated total capex on the scheme will come to PLN 1.5bn.The actual construction work is to get underway by the end of 2014 or at the beginning of 2015, although the projects has seen been met with some objections from third parties, including Ghelamco's

competitors as well as the military, which is using the railway to transport explosives. The whole complex will be constructed in stages, with the new suburban train station to be delivered first.

Buildings 3 & 4 of Gdański business center will be completed in Q1 2016. Photo: HB Reavis

Besides Gdański Business Center, HB Reavis is working on a 34,000 sq.m office project Postępu 14 in Warsaw Mokotów district, not far from its first Warsaw development, Konstruktorska Business Center (48,000 sq.m). The Slovakians are also gearing up for another two major projects in Warsaw. The first one will see HB Reavis develop some 90,000 sq.m of offices, including a 130-m tall tower, on a 1.7ha vacant lot on Chmielna Street, across from the Warsaw Central Station, purchased from railway operator PKP. The company has also struck a deal with PKP to build a new Warsaw West train station along with seven office buildings totaling 54,000 sq.m in a project that's expected to cost EUR 110m. Late last year HB Reavis placed a PLN 111m (EUR 26.5m) bond issue on Warsaw's Bondsport market to finance its development activities in Poland. The bonds, maturing in November 2017, were sold to

weekly newsletter # 043-44 / 14th July 2014 / page 7

Polish institutional investors including mutual and pension funds, insurance companies and asset management companies.

Warsaw office market Key indicators as of end of 2013 Office zones Central locations CBD-Central Business District CCF-City Centre Fringe Non-central locations

Stock

Vacan-

sq.m

1,247,000

9.9%

473000

12.2%

774,000

9.6%

2,866,000

12.2%

E-East (Praga)

172,000

9.4%

LS-Lower South (Puławska)

176,000

10.2%

N-North (Żoliborz & Bemowo)

143,000

13.8%

SE-South East (Wilanów & Sadyba)

193,000

5.0%

SW-South West (Jerozolimskie & Okęcie)

712,000

14.4%

1,152,000

12.4%

315,000

13.2%

4,113,000

11.7%

US-Upper South (Mokotów) W-West (Wola) Total

PROPERTY & CONSTRUCTION

State bank BGK provides provides financing for mixedmixed-use project in Poznań Poland’s state-owned special purpose bank BGK (Bank Gospodarstwa Krajowego) has agreed to cofinance Bałtyk, a mixed-used project in Poznań. BGK agreed to provide a PLN 65.8m commercial loan for the scheme, which includes the revitalization of a transport hub in the center of Poznań, as well as a PLN 37m loan under the EU's JESSICA program (Joint European Support for Sustainable Investment in City Area). The total net capex on the project is to total PLN 147m.

co-finance the development with a commercial loan under the Polish Investments program." Bałtyk is a second major project in Poznań to receive funding from BGK in recent months. In May, BGK, ING BSK, and Berlin Hyp granted a six-year loan of EUR 187m and PLN 42m to France's Apsys to finance the construction of the Posnania shopping mall (until recently the project had been referred to as Łacina). Each of the consortium members contributed over EUR 50m worth of financing. BGK joined the project within the framework of 'Polish Investments' program, created by the government in 2012 to support growth-generating projects of national and regional significance.

Source: CBRE Q42013 Warsaw Office MarketView

Headquartered in Luxembourg, HB Reavis operates in Slovakia, Poland, Hungary, the Czech Republic, Great Britain and Turkey. Since its establishment in 1993, it has executed projects in the office, commercial and logistics real estate segment with total leasable space exceeding 670,000 sq.m. A further 160,000 sq.m is currently under construction and over 1m sq.m is at a planning or permit stage. With a staff of 400 professionals and more than EUR 860m in equity, HB Reavis is managing and developing assets worth EUR 1.4bn, based on an integrated business model that combines development, construction, property management and investment management.

Designed by Dutch architectural studio MVRDV, the Bałtyk scheme will include offices, retail space, hotel, and a cinema with a combined usable space of 15,000 sq.m. It is seen as a flagship investment for Poznań, as besides the new building it will create a public square to be used for concerts and other open-air events. The investor, a special purpose vehicle Sophia Sp. z o.o. has already secured a construction permit for the project and plans to break ground on Bałtyk in October 2014.

The Bałtyk project will rise at the site of the former Bałtyk cinema, which was demolished in 2003. Image: BGK

"We are glad that resources from the JESSICA initiative, which we are in charge of, will finance a project of key importance for Poznań. Its implementation will address a number of issues, including the revitalization of the city's central transport hub, as well as creation of a modern edifice with functionally designed urban space," commented Piotr Lasecki, Deputy CEO of BGK. "These are also the reasons why BGK chose to

Posnania will be built in a strategic location in Poznań, on the right bank of the Warta river, a 10-minute walk away from the Old Town, right next to the Rataje roundabout, and directly accessible by bus. With a total surface area of 100,000 sq.m, it will be one of the largest and most modern shopping and leisure centers in Poland.

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BGK's other recent initiatives in the property sector include a PLN 5bn rental housing fund, with which the institution seeks to buy up to 20,000 residential units in Poland's major urban markets in a move to stimulate social mobility and provide an alternative to mortgage-backed home buying. The bank has recently signed the first MOUs with commercial developers concerning the purchase of 680 apartments in four separate buildings located in Warsaw, Wrocław and the Tri-city area and it is currently reviewing offers for further acquisitions in Warsaw, Wrocław, Kraków, Poznań, Tri-city and Łódź.

FOOD & AGRICULTURE

Swiss chocolate firm Barry Callebaut to expand Łódź factory Swiss-owned chocolate producer Barry Callebaut Manufacturing Polska seeks to expand its Łódźbased factory at the cost of PLN 95.7m, reported the Łódź special economic zone. New investments will include extension of the existing production plant and storage area, along with the adjacent infrastructure, as well as new production lines for white and dessertgrade chocolate. According to the zone, the investor has agreed to create 80 new jobs by the end of 2016 and maintain the total headcount at a minimum of 172 over a period of five years. Poland Today approached Barry Callebaut with questions regarding the new project as well as their existing operations in Poland, but the company said it was too early for comments as the information provided by

the zone refers to their "mid- to long-term investment plans."

liquefied natural gas or diesel fuel. Each ferry will hold up to 145 vehicles and 600 passengers.

"We are currently in the process of refining these plans. Therefore, we are not in a position to provide further details at this moment," Gaby Tschofen, Head Corporate Communications at Barry Callebaut told Poland Today.

"These are design-build, fixed-price contracts that provide BC Ferries with substantial guarantees related to delivery dates, performance criteria, cost certainty and quality construction," Mark Wilson, vicepresident of engineering at BC Ferries said in a statement.

With annual sales of about CHF 4.9bn (EUR 4bn) in fiscal year 2012/13, Zurich-based Barry Callebaut is the world's leading manufacturer of high-quality chocolate and cocoa products – from sourcing and processing cocoa beans to producing the finest chocolates, including chocolate fillings, decorations and compounds. The company runs more than 50 production facilities worldwide and employs a diverse and dedicated global workforce of over 9,000 people. Barry Callebaut serves the entire food industry, from industrial food manufacturers to artisanal and professional users of chocolate, such as chocolatiers, pastry chefs, bakers, hotels, restaurants or caterers.

The ferry firm carried out an "extensive competitive bidding process to ensure that the company secured the best bid for its customers and the taxpayers of British Columbia," the release said. The other shortlisted yards were in Turkey, Norway, and Germany. A local shipbuilder, North Vancouver-based Seaspan Marine pulled out of bidding early this year saying it was too busy with upcoming federal contracts to bid for this contract. The ferry operator's decision to open the tender to international companies sparked some controversy in British Columbia.

TRANSPORT & LOGISTICS

Remontowa shipyard wins USD 165m ferry contract in Canada Gdańsk-based Remontowa Shipbuilding has won a USD 165m contract for the construction of three brand new intermediate-class vessels for Canada's BC Ferries. The first ship is to be delivered to the British Columbia-based operastor in August 2016, the second in October 2016, and the third in February 2017, a BC Ferries' release said. These three 105-metre-long ships will be the first in the BC Ferries fleet to run either on

Rendering of one of three new intermediate-class vessels that will be built by Remontowa Shipbuilding for Canada's BC Ferries. Photo: BC Ferries

Bidders were evaluated on factors such as the design and construction plan, recent experience building intermediate ferries, capability of introducing new technology such as LNG, customer satisfaction, delivery

weekly newsletter # 043-44 / 14th July 2014 / page 9

schedule, price and payment terms, financial stability and ability to provide guarantees, the statement said. Remontowa Shipbuilding is one of the world’s leading shipyards with state-of-the-art design and production facilities. It is part of the Remontowa Holding capital group specializing in ship design and construction of new ships, conversions and repairs, offshore units and steel structures. The shipyard was established in 1952 and privatized in 2001. The Remontowa Group employs 7,000 people. Earlier this year, the Gdańsk-based shipbuilder won a contract to build an anchor handling, tug and supply vessel (AHTS) destined for serving in harsh environment conditions for a Canadian ship-owner. The ship will be will be used for a charter to one of the largest oil companies in the world - ExxonMobil. Over the past decade Remontowa has built more than 40 fullyequipped vessels for the offshore industry, mainly for Norwegian clients. At the end of last year it was awarded an order for four modern platform support vessels by Norway's Siem Offshore Contractors. In March Remontowa delivered an LNG-powered ferry to the Danish island of Samsø.

the stake, had earlier received green light from the antitrust watchdog UOKiK to become a majority owner of Torpol. According to TF Silesia, the Torpol acquisition is "a promising investment" that enables the fund to enter the "rapidly expanding market for construction, modernization and repair of rail tracks." In the heavily oversubscribed IPO, Torpol's owner, the ailing construction firm Polimex-Mostostal sold its entire stake of 15.57m shares for nearly PLN 125m, whereas Torpol sold 7.4m new shares, raising PLN 59.2m.

came to PLN 21m and net earnings totaled PLN 5m. According to Torpol's projections, its 2014 revenues and profits will nearly double against the prior year. The company employs 400 staff. Torpol's flagship projects in Poland include the development of a brand new railway station in Łódź (PLN 1.43bn net) as well as modernization of the E75 Rail Baltica line (PLN 1.3bn net). In 2010 Torpol established a subsidiary in Norway, which has since obtained contracts worth more than PLN 100m worth on this demanding market, with PLN 61m in competed works. According to the latest reports, under the new EU budget some EUR 10.5bn (PLN 44bn) will be spent on railway-related projects. The Polish railway infrastructure operator PKP PLK, Torpol's key domestic client, said its investments over the 2014-2020 period will amount to PLN 58.6bn. A government master plan for the sector envisages PLN 115bn worth of investments between 2007 and 2030.

IT & TELECOM TRANSPORT & LOGISTICS

TF Silesia acquires substantial stake in railway engineering firm Torpol State-run corporate restructuring firm TF Silesia acquired a 38% stake in rail infrastructure builder Torpol, which debuted on the Warsaw Stock Exchange last week, TF Silesia said in a press statement. The institution, which paid an estimated PLN 70m for

TF Silesia is not a stranger to the railway business. Back in 2006 the fund acquired Poland's oldest rail switxhes maker Koltram only to sell it five years later for PLN 96.5m, following a successful restructuring. Photo: TF Silesia

Torpol is a major player in Poland's railway and tramway infrastructure segment, in which it has a 10% share, and recently it has made successful inroads into the Norwegian market, where its ambition for the coming years is a 5-6% share. The company has a diversified portfolio of contracts for the years 2014-2015, with a total value of over PLN 2.2bn net (excluding consortium partners). Last year Torpol turned over PLN 416m with a gross margin at 5.8%. Its EBITDA

Key shareholder seeks buyers for large stake in fiber optic network operator Hawe IT & telecom infrastructure operator Hawe's largest shareholder Marek Falenta wants to sell his entire stake in the company by the end of July, Falenta said in a press statement. The entrepreneur presently holds directly 8% of shares in Hawe, while a Cypriot company Trinitybay Investments linked to Falenta holds a further 27.08%.

weekly newsletter # 043-44 / 14th July 2014 / page 10

Falenta's name surfaced in Poland's recent eavesdropping scandal in which private conversations between state officials and businessmen were recorded in Warsaw restaurants and leaked to the public. The businessman faces charges issued by the prosecutor's office along with three other individuals, including former Hawe deputy CEO Krzysztof Rybka, who resigned from his post in the aftermath of the tape scandal. Falenta himself denies any involvement in the tape scandal and repeatedly stressed that charges against him are in no way related to Hawe. He admitted, however, that the situation "significantly affected" companies from his investment portfolio prompting him "to sell all shares held in Hawe."

Hawe Group's key financials in PLNm Revenues, left ax is Net result , rig ht axis 20 0

16 0

120

0 20 06

20 07

200 8

200 9

20 10

20 11

20 12

20 13

Source: Hawe

The company had been in talks with a number of investors even prior to the outbreak of the tape scandal with Hawe's CEO Krzysztof Witoń telling the Parkiet daily that support from an industry investor "would certainly be good news for the company." According to reports, the potential buyers may include Polish investment funds MCI and Investors as well as billionaire Michał Sołowow, of the Echo Investment, Rovese, and Synthos fame.

With its nationwide fiber optic that spans close to 4,000 km and connects Poland's key cities as well as the neighboring countries, Hawe operates as a "carrier for carriers" serving Polish and international telecommunications operators. Hawe has been quoted on the Warsaw Stock Exchange since 2007. It posted PLN 51.9m net earnings on PLN 175m revenues last year. A few months ago the company signed an agreement with Poland's state-owned investment company Polskie Inwestycje Rozwojowe (PIR) concerning a potential joint investment in a fiber-to-the-home network that will bring broadband internet to 870,000 households in Poland. According to information Poland Today received from PIR's representatives at the time, the investment will amount to approximately PLN 560m over six years and PIR’s share in the venture is likely to reach close to PLN 120m. With his speedy exit from Hawe Falenta may be trying to keep the eavesdropping scandal from undermining the carrier's potential cooperation with PIR.

"Szczecin has many educated and created engineers with huge potential. Every year, around 500 IT students finish their studies but only about 30% remain in Szczecin. We are creating the conditions to keep a greater number of graduates in the area they already live in," said REC Global Vice President Seweryn Krajewski.

Although REC Global refused to give us details of their financial performance, the company offered a telling illustration of its impressive revenue growth since 2007. Image: REC Global

Polish IT outsourcing firm REC Global to employ 45 engineers at R&D center in Szczecin

REC Global currently employs over 400 engineers at its seven R&D centers, which are being backed by 13 sales and support offices across Europe and the United States. The company’s software development competences are focused on a number of key areas, including automotive, industry and automation, telecommunications, energy, telematics and M2M, healthcare and more. Its systems have been used in home devices, industrial machinery, cars, solar panels and a whole variety of other applications.

One of Poland's top exporters of software engineering services, the Wrocław-based REC Global, has set up its 7th R&D unit in the northwestern city of Szczecin. Recruitment has been underway since June with REC Global planning to onboard at least 45 specialists in the areas of Embedded Systems, Linux, Android and C/C++.

The company was established in 2007 by Polish entrepreneur Krzysztof Kuliński, who from the very start believed in multi-site delivery - a network of specialized development centers in cities with top technical universities. The first unit was launched in Wrocław, followed by Koszalin, Zielona Góra, two centers in Slovakia, one in Croatia and now Szczecin.

SERVICES & BPO

weekly newsletter # 043-44 / 14th July 2014 / page 11

Poland Today talks to: Krzysztof Kuliński, CEO and co-founder of REC Global • PT: Four of REC's seven R&D centers are located in Poland. How many of your 400 staff are employed in the country? Krzysztof Kuliński: REC Global employs 260 people in Poland at the moment. Although we see ourselves a global company, we want Polish engineers to showcase their skills to the world. We have plenty of skilled and well-educated engineers in Poland, who should have the opportunity to work in their own country and their hometowns. • PT: Besides Wrocław and now Szczecin, you've relied on smaller towns, such as Koszalin and Zielona Góra, which have not yet caught the attention of other ITO industry players. How is this approach working out for you? KK: Our financial results prove that this strategy has been very effective indeed. At REC, we understand that it's not the size of a city that matters, but the commitment of our engineers and creating the kind of work conditions they would love. I am talking also about benefits such as insurance, healthcare etc. Intelligent and creative people can be born anywhere – the size of a city's population does not matter. • PT: Aren't those smaller markets too shallow? And how does REC, as an employer, deal with the natural migration of best talents to larger cities? KK: We see a growing interest in programming among young people. Of course it helps when they get univer-

sity education in the field, but we are open to all IT enthusiasts. The migration of talents often happens in the opposite direction as well. By giving our employees the opportunity to work on interesting projects near their places of residence, we help them maintain better contact with friends and family. • PT: Do you have plans for more R&D units in Poland and the region? KK: Most certainly. The company is growing quickly which requires constant recruitment. We are thinking about new locations and at the same time we keep hiring for our centers in Wrocław, Zielona Góra, Koszalin and Szczecin. Most of our assignments are international projects, which enable us to acquire new expertise and strengthen our position in the Western markets. This calls for continued talent acquisition and development of many R&D units in Poland and abroad. • PT: Which services, sectors and countries are currently the main source of revenues for REC Global? KK: Our software engineering services are aimed primarily at western markets. Most of our clients come from Germany, the Netherlands, USA, and Great Britain. We have also found customers in Poland, Norway, Sweden, Finland, Croatia, Slovakia, Switzerland and other European countries for whom REC Global designs and develops applications for a wide range of technologically advanced and intelligent devices, such as cars, washing machines or phones. A lot of our customer represent the automotive and telecommunications sectors and these two industries generate the highest profits and most interesting projects. • PT: What sets REC Global apart from other ITO firms operating in Poland? KK: I'd say it’s the variety of projects and hundreds of technologies in which our engineers specialize. There is no other company in the country with such a broad portfolio of software engineering services and embed-

ded systems. It is all the more exceptional because REC Global is not bound by typical corporate constraints. Our employees are being given a lot of freedom as well as flexibility when it comes to organization oif work as well as large prospects for development. We provide all the necessary social benefits and more: language courses, tuition grants etc. • PT: In what way has your expansion to-date translated into revenues? KK: Our revenues increase at the rate of 30% per annum, thanks to creation of new units, expanding competences, and improving global position. Our clients trust us and often return to REC Global with more projects. In less than 7 years we have attracted more than 100 global clients and completed in excess of 500 projects.

POLITICS & ECONOMY

Gov't survives second confidence vote in less than two weeks The Polish center-right government of Prime Minister Donald Tusk has survived a second confidence vote in less than two weeks, both having to do with the recent eavesdropping scandal that saw secretly taped conversations between key leaders leak to the press. While the second vote was called by the opposition, the original one was requested by Mr. Tusk himself as the Polish premier had sought to strengthen his position ahead of negotiations with the European Union. The vote on Friday was 236-155 in the government's favor in the Sejm, or lower house of parliament. The result is a setback for Poland's main opposition party, the conservative Law and Justice (PiS). The latter's

weekly newsletter # 043-44 / 14th July 2014 / page 12

leader Jarosław Kaczyński called the vote accusing Tusk and his ruling party Civic Platform (PO) of incompetence and political corruption. He criticized poor allocation of funds on healthcare and the government's housing policy, complained about future pensions amounting to just 32% of the last salary, and noted that 1.8m Poles were welfare beneficiaries. Kaczynski's criticism also touched upon "stagnant" economic growth in Poland, poor farming policy and lack of necessary vocational reforms in the education system. Tusk reiterated by accusing Kaczyński of lies and lust for power, while also calling him a coward for supporting a "technical" PM candidate instead of showing readiness to take the responsibility himself. He also reminded his rival corruption and wiretapping scandals during PiS's term in government, more than seven years ago.

tion of the bank's independence. Sienkiewicz survived a separate confidence vote also called by the opposition. In another, Foreign Minister Radek Sikorski was heard saying that Poland's alliance with the US is worthless. All in all, even though the contents of the transcripts have been the source of a major embarrassment for the people involved, mainly due to the expletive-laden language used, so far they have shown no evidence of any illegal activity. Questions remain as to who and why decided to unveil the recordings at this particular time, with state prosecutors exploring a number of leads. Although immediately after the scandal broke the government looked fragile, and even Tusk said early elections might be the only way out, this is now looking like an increasingly improbable scenario. Left-wing opposition parties Democratic Left Alliance (SLD) and Your Movement (TR) are planning further motions for the vote of no-confidence against Sikorski and their own constructive vote of no-confidence against the government.

POLITICS & ECONOMY

The past weeks have been a trying time for Polish Prime Minister Donald Tusk and his centre-right party Civic Platform (PO). Photo: M.Śmiarowski/KPRM

The troubles for PO began in June, after the Wprost weekly released a number of secret recording involving government members and other senior officials. In one, Poland's central bank governor Marek Belka and interior minister Bartłomiej Sienkiewicz are heard discussing how the central bank could help the governing party win re-election in 2015, a seeming viola-

Unemployment down to 12.1% in June According to Poland's Labor Ministry, the unemployment rate in June declined to 12.1% from 12.5% in May. The number of registered jobless amounted to 1.91m and was the lowest since 2012, the ministry said on its website. In related news, Poland's top recruitment site Pracuj.pl saw nearly 97,700 job offers published in Q2, which translates into an 8.5% y/y rise, albeit Q2

brought some quarter on quarter declines. According to Pracuj.pl's representative Przemysław Gacek, increasing corporate investments are beginning to positively impact the labor market.

Registered unemployment in Poland 15%

14%

13%

12% A pr 13

Jun 13

A ug 13

Oct 13

Dec 13

Feb 14

A pr 14

Jun 14

Source: GUS, Labor Ministry

Nearly 71,900 persons were crossed off the register in June, but the unemployment rate decrease was also caused by the fact that fewer people came looking for jobs, Labor Minister Władyslaw Kosiniak-Kamysz said as cited in the statement. The number of vacancies reported by employers in June rose by over 10% y/y, he also said.

weekly newsletter # 043-44 / 14th July 2014 / page 13

FROM THE PRINT EDITION OF POLAND TODAY MAGAZINE

Where do we go from here? Will Poland use the next 25 years to do what it takes to catch up with Western Europe? Financial Times journalist Jan Cienski sets out the positive and negative scenarios. A quarter century ago, it was really difficult to guess which central European countries were destined for success and which ones for stagnation and failure.

1990s, where he spent time talking to researchers focusing on the Soviet empire. "All the European and Soviet specialists were convinced that it was Ukraine which would be the success and that Poland would fail," he recalls with a grin. The experts were wrong. It was Poland which succeeded. In 1990, per capita GDP in today’s dollars was USD 3,186 in Hungary, USD 1,569 in Ukraine and USD 1,673 in Poland. By 2012 Poland's GDP per capita was USD 12,708, just ahead of Hungary at USD 12,531. Ukraine was left far behind, at only USD 3,867, according to World Bank data.

One country had spent more than a decade trying market reforms, had some private businesses, a less repressive government and a higher GDP per capita than most of its neighbors. Another country had an enormous aerospace and defense sector, good universities and educated people, well functioning heavy industry and an agricultural sector with vast potential. Finally, a third country was bankrupt, suffering from hyperinflation and its most valuable export was coal. The country had a rebellious population steeped in decades of resistance against its rulers, fragmented and unproductive small farms, few natural resources and decades-old clapped out factories.

Balcerowicz moved quickly to cut off financial guarantees for state owned companies, banned the central bank from financing the budget deficit, made the zloty internationally convertible and ended the state’s monopoly on foreign trade. Millions lost their jobs as collective farms went bust and factories were forced to close. Even the storied Gdansk shipyard, cradle of the Solidarity labour union, teetered near bankruptcy. The government’s popularity took a beating and by 1993 the former communists were back in power. But the reforms also launched a wave of new businesses, about 600,000 within two years of Balcerowicz’s administration of shock therapy. The sidewalks of Poland’s towns and cities were transformed into bazaars, with people selling shoes, clothes, foods – everything which consumers had been starved of under communism. "The private sector played a key role in Poland’s civilizational leap," says Mateusz Szczurek, Poland’s finance minister.

Jan Cienski (left) and Poland Today Editor Andrew Kureth (right) discussing the future of Poland at our highly successful "Poland Transformed" event.

Today, many of Poland’s largest fortunes and most successful businesses date from those turbulent times. Leszek Czarnecki, who ran a small private diving company, now owns Getin, one of the country’s largest financial groups. Dariusz Miłek, who started out selling shoes on a camp bed, now owns a retail empire and is worth just over USD 1bn.

Photo: Poland Today

The first two countries were, respectively, Hungary and Ukraine. The third was Poland. Andrzej Koźmiński, the founder of the eponymous business university, one of the most successful in central Europe, recalls teaching in California in the early

The main reason for the huge discrepancy in growth rates over the last 25 years were the reforms launched under the aegis of Leszek Balcerowicz and his team of economists in early 1990.

Meanwhile Hungary, which had been significantly wealthier than Poland, never undertook the same kinds of dramatic reforms that Poland did, which gave it a slower average growth rate than Poland over the last quarter century.

weekly newsletter # 043-44 / 14th July 2014 / page 14

Ukraine languished in corruption and misrule. It is one of the least reformed ex-Soviet republics, and its weakness has made it prey for aggression from Russia.

the centre of the Polish capital – the Palace of Culture can only be made out with difficulty against the backdrop of other towers crowded into the city’s core.

Poland has been Europe’s best long distance runner, averaging about 4% growth over more than two decades, and is the continents only economy not to fall into recession over that period. The question is whether Poland has the stamina to continue catching up over the next quarter century, or if the growth that has transformed the country will eventually sputter out.

The city of more than 2.1m people (compared to 1.7m 25 years earlier), is encircled by a ring road and knit together by three subway lines and new tramway and commuter rail links. The grey concrete communist-era apartment buildings have either been tarted up with new paint, or demolished to make way for modern developments.

That leads to two possible scenarios for 2039, marking 50 years, or two generations, since the reforms of 1989 and a full century since the start of World War II, which left Poland a bloodstained, smoking ruin.

The highway banks around the capital, crossing the Vistula River, and then heads east, all the way to the Belarusian frontier.

The positive scenario

The industrial areas outside of cities like Warsaw, Poznan and Wroclaw are crowded with low office towers housing thousands of workers working on advanced engineering projects for local companies like Pesa, the locomotive maker and Nowy Styl, one of Europe’s leading office furniture producers.

In 2039 Poland, for the first time in its more than thousand-year-history, is as wealthy as western Europe. According to the OECD, the per capita GDP in 2005 dollars for the OECD’s European members will be USD 41,000 in 2039 – that is up from USD 26,500 in 2013. "Because we’ve grown for the last 15 years at an average of 4.2% of GDP, I don’t see any reason why that should be different in the future,” a prescient Marek Belka, governor of the National Bank of Poland, said in 2014.

GDP growth in Poland (y/y)

brands and products that compete head-to-head with the best that EU, US and Chinese companies can offer. The roots of Poland’s continued success stem from a long-running government policy of making small incremental reforms. “Poland doesn’t need a revolution,” says Marcin Piatkowski, a Warsaw-based economist. “We don’t need to change the model, but to adapt it gradually. It’s hard to tell Europe’s growth champion that it’s model is flawed.” Those small steps included overhauling Poland’s hidebound court system and slashing regulations hemming in business. Simpler tax regulations also shifted Polish entrepreneurial drive to building business as opposed to avoiding taxes and dodging rules. Poland’s education system had already seen enormous strides in the first quarter century of reforms, with international rankings showing that Polish schools were among the best on the continent. In the 2013 Programme for International Student Assessment rankings, Poland placed fifth in Europe and 14th in the world.

7% 6% 5% 4% 3%

Except for the language on road signs, a driver speeding eastwards from Germany barely notices that they have entered another country. High speed trains whoosh along modern tracks built not far from the highway, while discreet signs (billboards have long since been expunged from the landscape) notify drivers of hotels and other services.

Source: GUS, EC

Sweeping into Warsaw less than four hours later, our driver sees the dense cluster of skyscrapers marking

Those companies, and hundreds more, have moved beyond the Polish market and have built up solid

2% 1% *2015

*2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

However, the country’s universities had languished, with Poland’s best two schools, the University of Warsaw and Krakow’s Jagiellonian University in the fourth centile of international institutions. However, the emphasis at universities shifted from publishing as the only road to advancement to allowing ambitious researchers to spin off their ideas into businesses. Other reforms introduced higher tuitions, forcing students to demand higher quality for the money they were paying for their educations.

*) European Commission projections

That did not turn Polish universities into Nobel prize generating mills – that is probably a goal that will always remain out of reach – but they did train a new

weekly newsletter # 043-44 / 14th July 2014 / page 15

generation of Polish workers to be ever more productive and innovative, allowing them to close the productivity and wage gap with their west European counterparts. Poland also moved to ramp up its spending on research and development. In 2012, Poland spent 0.9 per cent of GDP on research and development, up sharply from a year earlier, but still far below the level of more advanced European economies. The government still dominated that spending, accounting for 60 per cent of R&D. The small role of the private sector was due to foreign companies keeping most R&D in their home countries, while most Polish businesses were too small and parochial to spend much on research. But over the 25 years from 2014, Poland saw a huge increase in research spending. Some of that was fuelled by EU funds, while the Polish government also invested more. But the biggest change came from Polish companies which were building up brands and starting to compete on international markets. Companies like bus maker Solaris had to devote large sums to producing products able to compete on international markets. Finally, Poland dealt sensibly with its poor demographics. The loss of more than a million people following Poland’s entry into the EU in 2004 coupled with one of Europe’s lowest birth rates left the country vulnerable to a steep fall in population after 2030, when the number of Poles was only 35.5m. However, the government embarked on a sensible immigration policy, largely aimed at attracting poorer neighbors from the east, especially from Ukraine. With Poland’s GDP per capita above 80% of the EU average, these migrants tended to stick in Poland and not move further west. Linguistically and culturally similar to the bulk of the Polish population, their absorption caused much less social and economic strain than had

been the case with mass migration to western Europe in past decades.

dable abilities to avoiding the increasing snarl of red tape and onerous taxes.

"We can reach the EU average by 2039," said Ryszard Petru, president of the Association of Polish Economists. "This doesn’t demand enormous changes or revolutions like under Balcerowicz. It’s not a matter of spectacular successes, just of growing 2-3 percentage points faster than Germany over many years. Over time that makes an enormous difference."

"I’m quite worried about what happens when we reach 80 per cent of EU GDP,” said Piątkowski. “That’s when we’ll have problems because we’ll have to create our own products and our own brands and become innovative.”

The Pessimistic Scenario

Poland’s pessimistic scenario still leaves Poland significantly wealthier than it was in 2014, when GDP per capita was just over half the EU average. The gloomier prognosis sees Poland’s stalling at about 70 per cent of EU GDP per capita, repeating the Portuguese experience of rapidly catching up but then running out of steam after failing to make the economy more competitive. "In this situation, Poland grows just a bit faster than western Europe," said Petru, who prepared an outline of two future scenarios for Poland’s next 25 years for Bronisław Komorowski, Poland’s president. "In this scenario we stay a poorer relation of western Europe." In this poorer Poland, Polish companies largely avoided the risk of creating their own brands and building up their international presence. Instead, they stayed with the safer course of continuing to supply Germany with semi-finished products. That meant there was less need to innovate and increase spending on R&D, and less pressure on local universities to improve. That left Polish workers less efficient than their western counterparts – and earning a lower salary. Instead of building new companies, Polish entrepreneurs continued to devote a large part of their formi-

The government also hung on to play a large role in the economy, refusing to privatize state companies, which provided a welcome cash flow into the budget as well as jobs for well connected boys. With salaries still much lower than in western Europe, and the best jobs reserved for insiders, Poland continued to hemorrhage ambitious young people, millions of whom trekked west. That made Poland’s demographics significantly worse than the prognosis by the Polish Statistical Agency. It was also difficult to attract new migrants, as they also tended to move west at the first opportunity. “It is worth realizing the role of demography in future calculations because potential growth is likely to fall over the next decades,” said Szczurek. This stagnant Poland still has good highways and much better rail systems than in 2014 thanks to continued EU structural fund spending. But Poland loses the historic chance to become a normal west European country. "Things get better, but there is no breakthrough," said Petru. By Jan Cienski

weekly newsletter # 043-44 / 14th July 2014 / page 16

KEY STATISTICS Consumer Prices Prices

Inflation

+3.7 +0.7 +3.9 +0.3 +3.9 +0.2

-4.7

-1.7

-4.3 +0.8

-4.4 +2.8

-4.6

-0.1

Housing

+1.9

+0.1

+1.8

-0.1

+1.7

0.0

+1.6

0.0

-0.1 -0.4

Transport

-1.1

+0.4

-2.7

+0.1

-2.1

-0.1

Communications -3.2

+0.4

-0.3 +0.6

-1.7

-1.5

Gross CPI

+0.1 +0.7 +0.1 +0.3

0.0

+0.7

-0.8 -0.4

-1.1

Jan '14

-0.1

+0.2 -0.1

Feb '14 Mar '14

Apr '14 May '14

m/m (%)

-21.3

-0.6

+12.5

+2.3

-2.7

y/y (%)

+4.8

+7.0

+3.1

+8.4

+3.8 2013

Year

2009

2010

2011

2012

Turnover in PLNbn

582.8

593.0

646.1

676.0

n/a

+4.3

+5.5

+11.6

+5.6

+2.3

y/y (%) May 14

+1.4

Clothing, shoes

-0.5

Mar 14

Alcohol, tobacco +2.2

-0.3 +0.3

Jan 14

+1.2

m/m

Nov 13

-0.2

Sep 13

+1.6

y/y

Jul 13

Food & bev

Month

5% 4% 3% 2% 1% 0% -1% May 13

y/y m/m y/y m/m y/y m/m y/y m/m

Mar 13

Sector

Retail Turnover

Jan 13

May '14

Nov 12

Apr '14

Sep 12

Mar '14

Jul 12

Feb '14

May 12

Data in (%)

Residential Construction Dwellings

2009 2010

2011

2012

2013 Jan-May y/y

178.8

174.9

184.1

165.1

138.7

Commenced

142.9

158.1

162.2

141.8

127.4

U. construction

670.3 692.7 723.0

713.1 694.0

Completed

160.0 135.7

152.5

(in '000 units)

Producer Prices Prices Month

Industrial Output

Nov'13 Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14

Month

Permits

Nov '13 Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14

m/m (%)

-0.3

-0.1

0.0

-0.1

-0.2

m/m (%)

-6.2

-9.7

+2.9

-1.8

+9.4

-2.3

-1.7

y/y (%)

-1.5

-1.0

-1.4

-1.3

-0.7

-1.0

y/y (%)

+2.9

+6.6

+4.1

+5.3

+5.4

+4.4

Year

2007

2008

2009

2010

2011

2012

2013

Year

2007

2008

2009

2010

2011

2012

2013

Source: Central Statistical Office (GUS)

y/y (%)

+2.0

+2.2

+3.4

+2.1

+7.6

+3.3

-1.3

y/y (%)

+10.7

+3.6

-3.5

+9.8

+7.7

+1.0

+2.2

Gross Domestic Product

Construction Output

Construction Prices Price s -0.2

-0.1

0.0

-1.7

-1.6

-1.5

-1.4

2007

2008

2009

2010

2011

2012

2013

+7.4

+4.8

+0.2

-0.1

+1.0

+0.2

-1.8

A: avg monthly wages in PLN B: indexed avg wages, 100=2005 Q3 2013

Q4 2013

Q1 2014

138

8,615

196 6,333 144

-1.1%

Q3 2013

+2.0%

405,554

-1.9%

Q2 2013

+0.8%

296,314

-2.3%

2013

+1.6%

1,635,746

-1.3%

2012

+1.9%

1,596,379

-3.7%

Sentiment Indicators

2011

+4.5%

1,528,127

-5.0%

Economic sentiment and consumer confidence indicators

2010

+3.9%

1,416,585

-5.1%

y/y (%) Year y/y (%)

+3.2

+14.0

-8.9

+5.8

-3.9

+14.4

+17.4

+12.2

+10.0

2007

2008

2009

2010

2011

2012

2013

+15.5

+12.1

+5.1

+4.6

+11.8

-0.6

-12.0

3,560

155 3,625

158 3,690

161 3,663 160

Energy

5,828

177 6,021

183 6,736 205 6,358 193

-20

145 3,456 3,913

166 3,706 158 147 3,544

151

Transportation

3,547

125 3,589

127

IT, telecoms

6,707

174 6,654

173 6,695

174 6,986

Financial sector 6,702

151 6,109

137 6,602

148 6,749 152

National average 3,613 144 3,652

145 3,823

152 3,895 155

Source: Central Statistical Office (GUS)

100

138 3,666 130 181

-40

60 J un 14

157 3,766 160 3,895

120

Mar 14

3,421 146 3,408

Sep 1 1

3,693

Co nsumer conf id ence (lef t axis) Economic sentiment (right axis)

Manufacturing

Retail & repairs

Current account def. in % of GDP

-1.3%

Construction

-3.0

455,528

+24.2

Dec 13

143 6,061

-0.7

55.8

397,429

+18.7

Sep 13

6,290

+23.8

+2.7%

-64.0

J un 13

Coal mining

Q2 2013

58.7 697.9

+3.4%

+21.5

M ar 13

Sector

GDP in PLN bn current prices

+14.9

Q4 2013

-2.9

Source: The Central Statistical Office of Poland, GUS

Gross Wages

Growth y/y unadjusted

146.1

(%)

61.9

Q1 2014

m/m (%)

Dec 12

y/y (%)

-0.2

Sep 1 2

Year

-0.1

Period

Nov '13 Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14

J un 12

y/y (%)

-0.1

Month

M ar 12

m/m (%)

Nov'13 Dec'13 Jan'14 Feb'14 Mar'14 Apr'14 May'14

Dec 11

Month

131.7

2014

The economic sentiment (1990-2010 average = 100) is a composite made up of 5 sectoral confidence indicators, which are arithmetic means of seasonally adjusted balances of answers to a selection of questions closely related to the reference variable. Source: Eurostat

Key Economic Data & Projections Indicator

2010

GDP change

+3.9% +4.5%

+1.9%

+1.6%

+3.5%

Consumer inflation

+2.6% +4.3%

+3.7%

+0.9%

+0.3%

Producer inflation

+2.1% +7.6%

+3.4%

-1.3%

-1.4%

CA balance, % of GDP

-5.1%

-5.0%

-3.7%

-1.3%

-0.6%

Nominal gross wage

+3.9%

+5.2%

+3.7%

+3.4%

+4.3%

Unemployment**

12.4%

12.5%

13.4%

12.2%

3.99

4.12

4.19

4.20

4.12

EUR/PLN

2011

2012

2013

*2014

Sources: NBP, BZ WBK, PKO BP, GUS *) projections **) year-end

weekly newsletter # 043-44 / 14th July 2014 / page 17

100 DKK

55.55 ↓

100 SEK

44.94 ↑

10,000 JPY

USD EUR 350

300

49.44 ↑ 300.31 → 15.09 ↓

100 CZK 10,000 HUF

400

26 Jul 13

100 NOK

as of 11 July 2014

WIG-20 stocks Price Change Change in alphabetical 11 July 4 July end of order '14 '14 '13

WIG Total index

133.49 ↓

Money Supply

PLN (up to 1 year)

4.3%

4.2%

4.5%

4.4%

PLN (up to 5 y )

4.9%

4.8%

4.9%

4.8%

PLN (over 5 y)

4.7%

4.8%

4.7%

↓ Asseco Pol.

PLN (total)

4.7%

4.8%

4.7%

↓ Bogdanka

EUR (up to 1m EUR) 1.9%

2.0%

1.9%

2.0%

EUR (over 1m EUR) 2.9%

3.6%

3.4%

3.3%

3.0%

2.7%

1 week

1 month

3 months

6 months

2.64%%

2.60%

2.61%

2.68%

2.69%

in PLN m

Feb '14

Mar '14

Apr '14

May '14

Monetary base

158,330

173,213

168,511

162,246

2.59%

- Currency outside banks

548,033 114,680

558,954

548,394

116,657

119,261

557,651 119,649

954,284

964,624

969,754

975,001

- Time deposits

423,296

422,990

439,137

435,386

968,442

980,377

986,142

991,120

- Net foreign assets 135,759 132,849 126,943 142,260 Monetary base: Polish currency emitted by the central bank and money on accounts held with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (inc in foreign currencies) M3= the broad measure of money supply Source: NBP

NBP deposit

Rediscount

4.00%

1.00%

2.75%

-2%

40.46

-1%

-12%

Change 1 week

0% ↓

113.1

-3%

-10%

Change end of '13

0% ↓

↓ BZ WBK

348

-4%

-10%

↓ Eurocash

39.5

-1%

-17%

WIG-20 blue chip index

37.1

+2%

+5%

43.28

-3%

-19%

2,3 2,372. 72.05

↓ Kernel

-4%

-19%

Change 1 week

0% ↓

↑ KGHM

126.5

+1%

+7%

Change end of '13

-1% ↓

↓ LPP

8000

-1%

-11%

↓ mBank

486.5

-2%

-3%

WIG Total closing index

9.58

+2%

-2%

last three months

175

-3%

54,000

20.4

+1%

+25%

53,000

5.15

+2%

41.79

+4%

+2%

38.2

+2%

-3%

51,000

-4%

50,000

↓ JSW

Central Bank (NBP) Base Rates Lombard

-3%

↑ Grupa Lotos

Overnight

↑ Orange Pol.

Credit

→ Pekao

The financial sector's net lending in PLN bn,

↑ PGE

loan stock at the end of period

↑ PGNiG

Type of loan

Feb '14

Mar' 14

Apr' 14

May' 14

↑ PKN Orlen

Loans to customers

914,068

923,709

928,450

930,652

- to private companies

263,941

267,553

270,886

273,360

→ PZU

431.2

- to households

567,257

569,334

573,332

574,800

↑ Synthos

4.5

+4%

-18%

Total assets of banks

1,616,891

1,628,519 1,639,359 1,660,583

→ Tauron

5.1

+17%

↑ PKO BP

Source: Central Bank NBP

51,085. 085.89

79.5

↓ Alior Bank

Warsaw Inter Bank Offered Rate (WIBOR) as of 11 July 2014

Reference

Dec '13 Jan '14 Feb '14 Mar '14 Apr '14 May '14

52,000

11 Jul 14

341.07 ↓

Warsaw Stock Exchange, rates in PLN

on loans to non-financial corporations

18 Jun 14

521.22 ↓

100 CHF

11 Jul 14

100 GBP

5 May 14

414.19↓

24 Feb 14

100 EUR

Key indices

Term / currency

450

12 Dec 13

304.26 ↓

3 Oct 13

100 USD

Stock Exchange

Average weighted annual interest rates

27 May 14

as of 11 July 2014

Interest rates

17 Apr 14

100 USD/EUR against PLN

Central Bank average rates

26 Mar 14

Currency

Source: Warsaw Stock Exchange

T rade Poland's ten largest trading partners, ranked according to 2013

Poland exports and imports according to commodity groups, according to SITC classification EXPORTS in PLN bn Jan-Apr 2014

y/y (%)

share (%)

2013

EXPORTS in PLNbn

IMPORTS in PLN bn share (%)

Jan-Apr 2014

y/y (%)

share (%)

2013

share (%)

No Country

Jan-Apr share 2014

IMPORTS in PLN bn *2013

share No

Country

Jan-Apr share 2014

*2013

24,353

+9.8

10.9

69,304

10.9

16,611

+4.9

7.5

47,906

7.4

1 Germany

47,765 21.7% 139,334 21.5%

Beverages and tobacco

2,874

+9.8

1.3

8,624

1.4

1,223

-5.0

0.6

4,150

0.6

2 UK

14,109

6.3%

41,503

6.5%

2 Russia

26,387 12.0%

Crude materials except fuels

5,642

+1.1

2.5

15,744

2.5

7,290

-0.3

3.3

21,585

3.3

3 Czech Rep.

13,475

6.0%

39,421

6.2%

3 China

21,405 9.7% 60,914 9.4%

Fuels etc

9,750

-3.8

4.4

30,013

4.7

25,443

+2.9

11.6

75,539

11.7

4 France

13,093

5.9%

11,303

639

+35.8

0.3

1,864

0.2

866

+2.3

0.4

2,646

0.4

5 Russia

9,809

Food and live animals

Animal and vegetable oils

58,734 26.3% 159,622 25.0%

79,601 12.3%

5.1% 33,703 5.2%

35,745

5.6%

4 Italy

4.4% 34,058

5.3%

5 Netherlands

10,033

4.5%

27,450

4.3%

6 France

9,048

4.1%

25,292 4.0%

7 Czech Rep.

7,648 3.5% 23,778 3.7%

8,172 3.7% 25,005 3.9% 8,705 4.0% 24,533 3.8%

Chemical products

20,370

+5.1

9.1

59,103

9.3

33,213

+6.9

15.1

92,917

14.3

6 Italy

Manufactured goods by material

43,767

+2.4

19.6

129,915

20.3

38,999

+6.6

17.7

112,392

17.3

7 Netherlands

Machinery, transport equip.

85,634

+11.0

38.4

239,434

37.5

71,343

+3.9

32.4

216,608

33.4

8 Ukraine

n/a

18,037

2.8%

8 USA

5,028 2.3%

17,350