The Council of Ministers

THE COUNCIL OF MINISTERS

“INFRASTRUCTURE – A KEY TO DEVELOPMENT”

This program is an integral part of

the Governmental Economic Strategy

“Entrepreneurial spirit – Development – Jobs”

adopted by the Council of Ministers on 29 January 2002

WARSAW, JANUARY 2002

TABLE OF CONTENTS:

1. BACKGROUND 2

2. SOCIAL HOUSING 2

2.1 Current status 2

2.2 Goals 3

2.3 Actions 4

2.4 Expected outcomes 6

3. CONSTRUCTION OF MOTORWAYS AND EXPRESSWAYS 7

3.1 Current status 7

3.2 Objectives of the amended Program 9

3.3 Actions 12

3.4 Sources of financing 13

Vignettes 13

Securitization of future revenues 13

Bond issue 14

Total sources 14

4. TELECOMMUNICATI AND INFORMATION TECHNOLOGY 16

4.1 Current status 16

4.2 Goals 16

4.3 Tools 17

4.4 The outcomes 19

4.5 Required legislative changes 19

5. RAILWAY TRANSPORT 20

5.1 Current status 20

5.2 Goals 20

5.3 Tools and expected sources of financing 20

5.4 The outcomes 22

6. AIR TRANSPORT 23

6.1 Current status 23

6.2 Goals of the program 23

6.3 Actions 24

6.4 The outcomes 25

7. SEA SHIPPING AND RELATED INFRASTRUCTURE 26

7.1 Goals 26

7.2 Access to seaports 26

7.3 Port infrastructure 27

7.4 Sea shipping industry 28

7.5 Inland shipping infrastructure 29

7.6 The outcomes 29

1. BACKGROUND

The quality of infrastructure is one of the most important criteria to assess the level of social and economic development of a country and at the same time a crucial factor of GDP growth rate. Social housing, transport and telecommunication infrastructure are the sectors, which have direct consequences for the quality of human life. Additionally, they are considered vital for the national economy in terms of permanent job creation and synergy effect they may induce.

Infrastructure is one of the economic sectors, where backlog and negligence are particularly visible. In the social housing sector, the supply of new dwellings, curbed by the lack of efficient demand, has remained at a very low level. Continuing over 2000 and 2001 reduction in the number of construction permits issued by relevant authorities indicates that the situation may deteriorate even more. The construction crisis, which entailed numerous bankruptcies in the industry and reduced demands in other sectors, brings negative consequences for the economy as a whole. To reverse these trends and revitalize the construction industry, and in particular social housing subsector, are both considered one of the most pending challenges.

The quality of Polish transport infrastructure, and most of all road and motorway networks is becoming increasingly serious problem and a barrier for economic development of the country. This problem is seen in the context of our European aspirations. Also in this sector we need a radical “new beginning” in order to fight the omnipresent impotence and find the way which will bring us to the successful progress.

Our priorities in the infrastructure sector include also development of telecommunication industry and creation of the e-society. Modern economy is not able to function properly without advanced technologies in the field of information flows. There is therefore need to achieve sustainable development of the telecom and information markets and increase availability of information.

The infrastructure program presented below is based on the result of our analysis of current status, faults and mistakes, which happened in the past. It is the manifestation of our determination to make changes wherever it is appropriate, which flows from our conviction that development of infrastructures may and should be regarded as one of the main leverages bringing economic development of the country. Yet this program is not limited. We shall welcome each and every new initiative, which will bring us closer to the national infrastructure goals. We shall evaluate them all and implement the most efficient ones.

2. SOCIAL HOUSING

2.1 Current status

With about 300 dwellings per 1000 inhabitants Poland is ranked one of the last countries in Europe – the average for Europe is 400 dwellings. Our estimations show that the difference between the number of households and the number of dwellings is about 1.5 million. Additionally, its is estimated that about 1 million of dwellings will have to be pulled down between now and 2010.

Despite such extensive backlog, the situation is even worse in terms of the number of construction permits issued by relevant authorities. In 2000, 20% less permits were issued, and last year this negative trend continued. One of the consequences may be substantial decrease in the number of new dwellings built in 2002.

The symptoms of dramatic running-down period are seen also in the construction industry. Over last 18 months, 101 thousand construction workers lost their jobs and another 7.4 thousand jobs were reduced in the segment of construction materials. Employment in the construction sector was decreasing twice as fast as in the national economy (17.5% reduction in the construction industry versus about 9% in the national economy). Financial standing of construction companies has deteriorated. As a result of liquidity problems more and more companies have stopped paying their liabilities in timely manner – a pathological situation on the market, which leads to growing number of bankruptcies.

Principal barriers to the sector development include:

·  Potential demand for dwellings is cumbered by the lack of financial sources resulting from low level of wealth in the society and high interest rates, which make any credit expensive and unaffordable to the majority of population. This is substantiated by the fact that despite significant deficit in dwellings, part of new dwellings built in 2001 was not sold.

·  A number of administrative barriers makes the permitting process time-consuming, which results in delayed implementation and indirectly leads to cost overruns.

·  The State Budget can ill afford growing expenditures in support of social housing development.

·  Legal opportunities are short of expectations and do not encourage investments in housing sector and developing activity.

All the barriers should be eliminate if we are to think about creating a momentum for the construction industry in Poland

2.2 Goals

We set forth the following goals for the social housing sector:

·  To reverse current trends and provide for significant improvement in terms of the number of dwelling built annually.

·  To extend seriously the number of dwelling for rent built by Social Housing Associations (TBSs) and housing cooperatives.

·  To maintain employment in construction and assembly industries and related subsectors at current level and provide for a rebound.

Achievement of the above goals will bring the balance to the demand and supply of dwellings, increase availability of dwellings to low-income population and significantly reinforce general development trends in the national economy.

2.3 Actions

Actions to improve overall situation in the construction sector will be focused on three main aspects:

·  To launch the social housing program to be based on cheap loans with low and fixed interest rate;

·  To bring more capacity to the system of supporting the social housing for rent schemes with loans,

·  To facilitate the construction processes.

Cheap housing loans

Insufficient financial sources to support construction and sale of new or overhauled dwellings are considered principal obstacle to development of the housing sector in Poland. The part of population, which can afford to finance investment in new dwelling with their savings only is too small. Globally, long-term mortgage loans are the main source of funds to buy new dwellings. In Poland, availability of this form of financing is limited due to high interest rates and consequently high cost of such loans.

In order to create real demand on the housing market, we intend to launch a system of generally available, long-term housing loans, of fixed interest rate of not more than 9%. Main assumptions of the system are the following:

·  Any natural or legal person, who intends to construct or buy a dwelling for own account or for rent will be entitled to take such loan.

·  Loans will be available through commercial banks, which qualify for the system.

·  The repayment period of the loan will be at least 20 years.

·  The difference in interest between the market interest rate and the fixed interest rate will be covered by Bank Gospodarstwa Krajowego/National Housing Fund (BGK/KFM). When the market interest rate falls below the fixed interest rate, the commercial banks will start to pay compensation to BGK/KFM.

·  In order to support the chap housing loans, BGK/KFM will issue long term bonds to be guaranteed by the State Treasury. It is estimated that the bond issue will bring PLN 1.8 – 2.0 billion in revenues over 2002-2005, which will be enough to support construction or overhaul of about 200 thousand dwellings of the total cost of PLN 20 – 25 billion.

·  The loans will be made even more attractive by a tax exemption for natural persons, who will be able to deduct interest payments on a housing loan from the taxation base. Thanks to the deduction, the real interest rate of such housing loans will be 7% or less.

The above system of cheap housing loans will be offered to a vide spectrum of investors. As a matter of principle, it does not increase or reduce overall cost of loan availability but makes the loan more attractive over the first years. Borrowers will benefit from fixed interest cost and the risk of recouping the first years support over next years of the system operation (when market interest rate falls below the fixed interest rate) will be borne by the State Budget.

Funding social housing for rent schemes

The construction program of social housing for rent was initiated in 1995. In 2000, 8,841 dwellings were built under this system, which was about 6% of total construction. The number could have been significantly higher if the National Housing Fund had provided requested funding. The deficit of KFM has been growing since 2000 and the end figure for 2001 is PLN 3.3 billion. The number of pending requests for financing is 700.

It is expected that the capacity of the system of providing loans to the Social Housing Associations (TBSs) and housing cooperatives will be improved by the following:

·  Over next years, KFM will receive a constant annual subsidy from the State Budget of at least PLN 450 million. Stable involvement of the State Budget will be a foundation of long-term financing strategy of KFM.

·  Capital base of BGK will be increased in the form of the State Budget shares to be contributed, valued at PLN 400 – 500 million. This will provide for greater involvement of BGK in generation of the off-budget financing for housing schemes.

·  BGK is authorized to take loans from financial institutions to the limit of PLN 1.5 billion.

·  BGK/KFM will issue bonds to be guaranteed by the State Treasury (in 2002 at the level of PLN 400 – 500 million).

·  Actions will be taken to enable KFM involvement in financing directly subsidies to cheap commercial loans for housing purposes (to cover the difference between the price of generating market financing by KFM and revenues on interest paid by TBSs under cheap housing loans) in order to leverage the housing for-rent schemes.

New structure of raising and allocating funds by KFM will enable to mobilize significant funding in support of social housing for-rent schemes in a relatively short time.

Facilitating the construction process

Actions in this field will focus on eliminating the administrative barriers hampering development of the construction sector and tuning the system of incentives increasing the supply of new dwellings, including dwellings for rent. Main orientations of the actions include:

·  To facilitate procedures to locate a project;

·  To facilitate procedures of drafting local master plans and issue decisions establishing conditions of construction and area development.

·  To facilitate the procedure of granting construction permits and set forth the list of required supporting documents.

·  To establish deadlines for consideration of applications and granting decisions allowing the construction process to go ahead. Failure to meet the deadlines by administrative authorities will be penalized in the form of fines.

·  To strike the balance between the rights of owners and tenants in private housing projects to make the construction for rent more attractive.

The above objectives will be achieved provided that the following legislation is amended:

·  the law on spatial management,

·  the Construction Law,

·  the law on protection of the rights of tenants, communal housing resources and related changes to the Civil Code,

·  the law on Open Pension Funds,

·  the law on guarantees and sureties issued by the State Treasury,

·  the law on particular forms of supporting social housing.

2.4 Expected outcomes

Principal effects, which will flow from implementation of the housing development program outlined above, will include:

·  The number new dwelling built annually will increase to 140 thousand in 2004.

·  Housing for rent schemes will be developed extensively and quickly – over the next two years, about 45 thousand of dwellings will be available through the schemes.

·  Demand for dwellings (construction services) will increase by 40% when compared to current level.

·  Demand for construction-related services will be boosted, i.e. for construction materials, housing infrastructure, furniture, household equipment and appliances, etc.

·  About 100 thousand new jobs in the construction sector will be created and 250 thousand new jobs will be induced in other sectors.

·  Mobility of workforce will increase thanks to increased availability of dwellings, which will translate directly into reduction in operating expenditures of any economic activity, reduced expenditures of households and lower unemployment figures.

·  State Budget revenues through direct and indirect taxes will increase.

General result of the program implementation will be creating a significant momentum to the development of the national economy in general and growth of Gross Domestic Product since the increased demand for dwellings is always associated with relatively low pressure for import expansion.

3. CONSTRUCTION OF MOTORWAYS AND EXPRESSWAYS

3.1 Current status

The Motorway Construction Program initiated in 1994 fell short of expectations and its results are less than just modest.