Central & Eastern Europe: Mixed bag of results

It’s not easy to say with any measure of credibility that the construction industries in countries throughout the Central and Eastern parts of Europe are doing well or badly, as the economic and industrial performances vary greatly from country to country.
In some cases, the difficult global economic situation of the past few years has had a serious, worrying affect on a market, while others seem to have weathered the storm with barely a blip on the graph.
Figures from Eurostat, the statistical office of the European Union, highlight some of the variations.
In Hungary, construction output for June was 13.9% lower than the same month a year before, and 5.5% down on May this year. The year-on-year fall in Romania was 10%.
This was balanced, to some extent, by the fact that June’s construction output grew by 16.2% in Poland, compared to the same point in 2010. Also, one of the highest increases in June compared to May this year was recorded in Slovakia, with a 25% rise.
To put this in perspective, however, Slovakian construction output was around €6 billion in 2009, and an estimated €5 billion in 2010. This compares with figures of €37 billion in 2009 for Poland, and an estimated €41 billion for 2010.
Success or failure depends on many factors, from domestic economic management to the performance of other powerful economies, from a basic home-grown need for construction compared to a major project which drives other work – for example, a big football tournament.
In 2007, Poland and Ukraine were selected as joint hosts of the 2012 UEFA European Football Championship (Euro 2012), and a result of this has been an expected increase in civil engineering as the governments get ready for the influx of fans with stadium and road improvement projects.

Capital expenditure
According to market research company PMR, activity in Polish road construction will peak in 2011 and 2012. Driven by substantial capital expenditure from the General Directorate for National Roads & Motorways (GDDKiA), the value of roadwork is set to exceed PLN30 billion (€7.5 billion) in 2011.
According to the report Road Construction in Poland 2011 – Development Forecast for 2011 to 2014, published by PMR, growth of more than 40% in the first half of 2011 will be followed in the second half by a moderate slowdown in construction output generated by road and bridge projects. The value of roadwork projects in 2011 as a whole is expected to increase by nearly a quarter to just under PLN31 billion (€7.7 billion).
PMR said that the value of projects completed by the road construction industry would peak in 2011 and the sector would report steady declines of several percent starting from 2012, which will be a result of a lower number of motorway and expressway sections under construction.
PMR researchers expect Poland’s road construction sector to bottom out in 2014 when its output is expected to be a little more than PLN19 billion (€4.7 billion). However, they felt construction output generated by road projects could start to grow again from 2015, partly driven by the positive financial perspective for 2014 to 2020 benefiting Poland, and at least one PPP (public-private partnership) motorway construction project planned around that date.
Among Polish projects planned, Italian-based Astaldi has won a contract for the second phase of the project to modernise the Warsaw to Lodz rail line. The €350 million contract also includes the construction of the underground station of Lodz Fabryczna.
The works have been commissioned by PKP (Polish Railways) and the Municipality of Lodz. The project is co-financed by European cohesion funds, and will be undertaken by Astaldi in partnership with three Polish enterprises, including Torpol (Polimex Mostostal Group), which is a specialist in railway work.

Underground railway
Also in Poland, Astaldi is constructing 6km of new underground railway to connect Rondo Daszynskiego in the centre of Warsaw to Dworzec Wilenski in the north east suburbs, on the other side of the River Wisla. The scheme will include seven stations and is due for completion in 2013.
Ferrovial certainly sees potential in Poland as it is buying one of the country’s leading railway construction companies for almost €56 million.
Budimex, the Polish subsidiary of Ferrovial Agroman – the head company of Spanish-based Ferrovial’s construction division – is buying Przedsiebiorstwo Napraw Infrastruktury (PNI), having reached an agreement with PKP.
The acquisition, which began in October 2010 when the Polish government announced plans to privatise the company, is expected to be closed this month (October), following approval by the Polish competition authorities.
Ferrovial Agroman CEO Alejandro de la Joya said, “The acquisition of PNI will provide notable synergies to Budimex in terms of seizing business opportunities in Poland, a country with great growth potential.”
Among PNI’s biggest contracts are refurbishing the Danzig station, rebuilding the Hrubieszów station, and upgrading the railway between Krakow and Rzeszów. The company has also upgraded the railway lines between Sulechów and Luboñ, Bednary and Zgierz, and Goleniów and Kolobrzeg, among others.
The European Investment Bank (EIB) has also approved a further €800 million loan to support the construction of motorways linking Poland with its neighbouring countries.
And the EIB is also supporting infrastructure development elsewhere. It approved loan of €450 million for the rehabilitation and improvement in the quality of roads in Ukraine, for example, – said to be its largest loan to date in the Eastern Partner Countries (Ukraine, Moldova, Georgia, Armenia, Azerbaijan and Russia).
EIB funds will help to improve some 350km of five sections of highways branching out from the capital Kiev, which are European and national transport corridors and largely on the extended Trans-European Transport Network (TEN-T).
The project is being co-financed by the European Bank for Reconstruction & Development (EBRD).
The works, predominantly covering the road corridors connecting Dresden-Katowice-Lviv-Kiev and Moscow-Kiev-Odessa, as well as key national corridors in Ukraine, will be implemented in two phases by Ukravtodor, Ukraine’s state roads administration.

Winter olympics
Poland and Ukraine are not the only countries with an international sporting event focusing their minds. The 2014 Winter Olympics will be held in Sochi, Russia.
The Black Sea resort is seeing a massive amount of construction work as it readies itself for the games. As well as the various venues for the competition, new roads are being built, along with new interchanges, and an integrated road and railway connecting the Adler district of Sochi with the Alpica-Service mountain resort for the skiing element of the games.
The project will include 35km of bridges and overpasses, six tunnels and five intersections. Part of this is along the banks of the Mzymta River, and fortifications have been necessary to restrict the water in the river. A 1.2km stretch is raised above the bank.
The various stadiums of the Olympic Park in Sochi itself include the Central Stadium, which has been designed so that it can be altered to accommodate different events with 25,000 to 40,000 seats in the future. The Sochi Olympic Skating Center and the smaller curling venue have been designed so that they can be dismantled and relocated to another region after the games.
Russia is proving an attraction to firms from the rest of Europe. There is still a great need for new housing in Russia, according to Finnish-based Lemminkäinen, which estimates that it will start building about 500 units in its own housing development in St Petersburg this year.
Austria’s Strabag pointed to the recovery in Russia – where it said several large scale construction projects had been awarded – as well as an improving construction climate in the Czech Republic and Slovakia, where the EU is funding more infrastructure projects.
Hitachi Construction Machinery said the biggest rise in its sales for the fiscal year ending March 31, 2011, was to Russia and the CIS, where Hitachi’s revenues almost doubled to €634 million.
And Volvo Construction Equipment is to invest SEK360 million (€39 million) to build a 20,660m2 excavator factory in Kaluga, Russia. The site is about 175km south-west of Moscow and will produce the EC210, EC240, EC290, EC360 and EC460 tracked machines, with production beginning in the first quarter of 2013.
Terex and Gaz Group have announced plans to form a joint venture company that will manufacture construction and road building equipment in Russia. The company will manufacture and market Gaz’s entire construction equipment portfolio, along with certain Terex products in the Russian market. The joint venture will also distribute imported Terex construction and road building equipment in Russia as well as selling some of the Gaz portfolio it manufactures on export markets.
PMR found that Russia’s construction industry contracted by 0.6% last year, but this represented a marked improvement from the decline of 13.2% recorded in 2009, with the country’s residential sector fuelling the recovery.
According to the latest data from PMR, 2010’s improvement was achieved despite a tight budgetary situation which resulted in cuts to Russia’s transport infrastructure spending.
PMR said the wildfires that ravaged parts of Russia in the summer of 2010 had fuelled demand for housing, and 2,200 new homes had been built over two-month period in 2010 for the victims of the disaster. In addition to housing, more than 200km of roads and 100km of gas pipelines were also needed.
The construction sector also received a boost from the decision to award the 2018 FIFA World Cup to Russia, which will require stadiums, airports, road and rail connections to be either built or modernised in the next few years.

Positive position
The European Construction Industry Federation (FIEC) Congress was held this year in Sofia, Bulgaria. Addressing the Congress, Svetoslav Glossov, president of the Bulgarian Construction Chamber, told delegates that he was optimistic about the future in Bulgaria, especially in terms of roads as the country has five pan-European corridors. He said that in 2010, out of the hardest-hit sectors of the EU, only construction remained in a positive position.
Rosen Plevneliev, Bulgaria’s Minister of Regional Development & Public Works, told the congress about the economic situation in his country. He said capitalism was about cycles – if there is growth for many years, there is a long way to fall.
“If growth is less, then it is a fall from the first floor,” he said. “Others fall from the 10th floor.”
He said, “It is all about sustainability. Bulgaria is a small country with a small industry. The Bulgarian construction industry was one of the worst hit, but it found an honourable way through the crisis. It looked for solutions – we’re very proud of that. There was very good communication and we addressed the future by sharing the same visions. It was a sustainable model.
“We did not take cheap, easy money at the cost of the next generation. The next won’t have to pay the debts of the previous generation.”
Bulgaria’s construction sector is poised for growth between 2012 and 2015, following a slow recovery from the difficult market conditions that it is currently experiencing.
According to PMR, the country’s construction sector declines will begin to slow by the end of this year.
The first half of 2011 was marked by an average decline of more than 10%, and construction output also fell heavily in July, registering a 13.3% decline according to figures from Eurostat.
But PMR analysts said growth later this year would mean that the average decline for Bulgaria’s construction market for the whole of 2011 would not be as severe – in the region of 3%.
And moderate construction market recovery is forecast for 2012 to 2015, driven by the civil engineering infrastructure sector and large-scale infrastructure projects related to EU funds.
From 2012, the market will be supported by the launch of Bulgaria’s regional development, transport and environment programmes, which will provide €4 billion by 2013 for different infrastructural projects.
In the Czech Republic, the construction industry has yet to see improvement, despite predicted mild growth in GDP (Gross Domestic Product) this year and in 2010, following a fall in 2009, and an international rating of the country as “stable” and a favourable budgetary situation.

No real improvement
FIEC’s annual statistics report found that while growth in industry and private consumption renewed in the course of 2010, and improvements were observed regarding certain macro-economic indicators, no real improvements were observed in the construction industry.
It said that this could be partly explained by the fact that growth in construction usually trails GDP developments with a delay longer than a year.
The FIEC report suggested that Hungary too was struggling to climb out of recession, having hit the bottom in the second quarter of 2009 – perhaps a quarter behind other parts of Europe. It suggested this was why Hungary emerged from recession in 2010, six months after the rest of Europe.
After an upturn over several years, with a minor decline in 2006 and a steep fall of 14.4% in 2007, the Hungarian construction industry has not been able to recover from the 5% contraction of 2008 and 2009. FIEC said that a 10.5% fall was seen in the first nine months of 2010, which it said was partly brought about by a slump in civil engineering, including large infrastructure projects, and partly by a significant decrease in home building.
The Hungarian construction market’s recovery will begin in 2012, despite a very weak 2010 and a poor start to 2011, according to PMR. Public infrastructure projects will be the main driver of this growth, it
predicted.