beyondbrics

A traffic jam clogged the express roads running along the Vistula River on Wednesday evening as thousands of fans headed to Warsaw’s brand new national stadium to watch a Poland-Portugal football match.

But although the Poland team is lacklustre at best, the fans are still in for a better time than unfortunate investors who hoped to strike it rich on Poland’s infrastructure boom.

Poland went into a building frenzy five years ago when, together with Ukraine, it won the right to co-host the European football championships.

With the official kick-off now less than 100 days away, and more than 95bn zlotys ($31.7bn) spent on new highways, airports, railways and stadiums, investors have ended up nutmegged.

According to a new analysis done by the money.pl website, the Warsaw Stock Exchange’s construction industry index has shed 75 per cent of is value since 2007, while the broader WiG index only lost 30 per cent over the same period.

One reason, according to Andrzej Kasperek of UniCredit CaiB Poland, is that companies battled fiercely for road and other contracts, often submitting bids below what the government was prepared to pay. The problem is the public procurement law, under which the government chooses the lowest bidder. That tends to drive down prices below what companies can afford.

The clearest example was a bid by China’s Covec construction company to build part of the A2 east-west highway connecting Warsaw to the German border. The bid was so low that the Chinese ended up not being able to complete the project, forcing the government to scramble for a last-minute replacement.

Normally, companies expect a return of 5-6 per cent on big infrastructure contracts, while many of the ones associated with the football championships had a return of zero. Construction companies have also been hit with rises in the prices of raw materials.

Any chance of the gloom for investors lifting? Not much, finds the money.pl report, which notes that the rush construction programme may flag after the fans and players head home in June.

There are also questions over the level of support Poland will obtain in the next EU budget cycle. In the current 2007-2013 budget Poland is getting €67bn in structural funds, which has fuelled the building surge. The next budget may not be as generous.

As building companies jostle for a diminishing pool of contracts, the price competition may become even fiercer.

It might make sense for investors to cash in their remaining shares and buy football tickets instead.

Related reading:
Poland: 2012 football dreams crumble; so do the roads, beyondbrics
Poland cracks down on football thugs, FT