deloitte construction and infrastructure market overview and

Construction and infrastructure market

overview and opportunities in Poland

Madrit, April 2012

Agenda

Infrastructure gap and prospects in Poland 3

Construction market overview 8

Prospects for Infrastructure / PPP projects in Poland 14

© 2012 Deloitte Advisory Sp. z o.o.2

Infrastructure gap and prospects in Poland


and prospects in Poland

There are sound perspectives for Polish economy: 3-4% of GDP growth y/y

• In 2004-2008, recorded strong growth of GDP in Polandmore than 5.0%. In 2009, GDP growth has slowedbecause of the global crisis, but Poland remains one ofthe few countries that recorded a GDP growth reaching1.6%. In 2010, GDP growth rose again to 3.9% in 2011to 4.0%.

• In 2012, due to the economic situation in Europe, theEIU estimated GDP growth of 1.5%.

• EIU forecasts indicate the possibility of relatively rapidimprovement in economic growth in Poland after 2012,although long-term GDP growth is estimated at around3.5% per annum, lower than in 2006-2008.

Poland’s economy is expected to continue growing.

GDP

6,8%

5,1%

1,7%

3,8% 4,0%

2,6%

3,5% 3,7% 3,8% 3,8%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2007

2008

2009

2010

2011

2012P

2013P

2014P

2015P

2016P

Real GDP

© 2012 Deloitte Advisory Sp. z o.o.4Source: Polish Ministry of Finance.

3.5% per annum, lower than in 2006-2008.

• Public debt in Poland is forecast to decline from 52.7%in 2011 to 50.6% in 2013 according to Polishmethodology of debt calculation.

• In case public debt would exceed 55% or 60%(constitutional limits) according to Polishmethodology of debt calculation, this could limitability of government and local authorities tospend money on public infrastructure.

• According to European Commission Polish public debtis to increase from forecasted 56.7% in 2011 to 57.5%in 2013 (different method of debt calculation and impactof Polish zloty depreciation).

53.0% 52.7% 51.9% 50.6%

General government gross debt (% of GDP)

50%

51%

52%

53%

54%

55%

2010 2011F 2012F 2013F

2007

2008

2009

2010

2011

2012P

2013P

2014P

2015P

2016P

Source: EIU

In transition economies in particular CEE Region and Poland, there is a strong positive correlation between

the rate of economic growth and the rate of infrastructure restoration (improving its accessibility and quality).

Poland, in particular positively distinguish from other countries in CEE Region both in terms of economic

growth and the rate of infrastructure restoration.

Lack of infrastructure

Economic growth

Increasing consumer wealth affects their lifestyle, and as a result creates a need for

infrastructure development. At the same time, relative high economic growth

generates capital, that may be used for the infrastructure development.

There is a significant gap in terms of infrastructure as compared with western

Europe i.e. the density of motorway network (the length of network per 100 km2) is

The fundament of growth of Polish construction market consists of several independent drivers

Major drivers Comment


Major drivers

for the

Infrastructure

development in

Poland

EU funds

Lack of infrastructure

Poor quality of existing

infrastructure

Financing

Significant inflow of EU funds accelerates infrastructure development, but it should

be noted that the efficiency of using those funds differs greatly across the region.

in Poland 0,24 – only 240 m of Highway per 100 km2 – what is 25 times less than in

the Netherlands or 20 times less than Great Brittan; even comparing with other CEE

countries, this ration is relatively low in Poland.

With time the gap is expected to be reduced.

Despite the financial crisis, the region may still experience a relatively high inflow of

funds for the infrastructure development — mainly from the public, but also from the

private sector. However, in short and mid term, some investments may experience

crisis-related delays.

Growing trade flowsCountries that experience increasing trade flows, experience also growing demand

for railways, ports, airports and other transportation services. This triggers pressure

of business and local communities on politicians to develop infrastructure.

Existing infrastructure is often in poor condition and requires substantial

investments e.g.: roads, railways, city infrastructure (parking's).

Construction market overview


Residential & other building

construction

Transport infrastructure

25.0

2.3

1.1

Roads & bridges

Railways

Airports & Ports

0.9

2.8 Water &

Sewage

Pipeline28.4

33.6

The investment shift is expected from road sector towards rail sector in coming yearsInfrastructure market is expected to grow over the next 2 years – slowdown in road construction should be compensated by investments in rail and energy & utilities.

Current market structure (2010, PLN billion)


Energy & Utilities Infrastructure 19.6

Power plants & Transmission

Sewage

Source: Business Monitor International, Poland Infrastructure Report, Q4 2011.

86.7 92.097.4 102.2

23.2

Construction market outlook (PLN billion)

2010 2011F 2012F 2013F

ENERGY & UTILITIES2

GENERAL PUBLIC & HOUSING

RAILWAY ROADS BRIDGES

BUDIMEX (Ferrovial Group)

POLIMEX MOSTOSTAL

REVENUES[2010, PLN mln]

5 400

4 161

INDUSTRIAL CONSTUCTION

6963 574

SKANSKA 3 774

STRABAG

4 430

774 847718 1 235

Marginal share of segment in revenues

Key players in construction sector in Poland

Majority of key market players cover roads & bridges segment, while fewer players compete in railway, energy & utilities construction.

Key market players in Poland and segment coverage


Source: Annual Reports 2010 and company presentations; „2010 List of 500” Polityka.

PBG

MOSTOSTAL (Acciona Group)

POL-AQUA

BILFINGER BERGER

TRAKCJA-TILTRA

ZUE (Acquired by PRK Kraków)

2 740

2 570

1 310

716

1 995

392

299 2 431

7891 769

434 22

1791 081

1 Revenues for FY ending 31.03.20102 Including power plants, water and waste treatment plants, pipelines, and other energy & utility construction etc.

PNI1 (Possible acquisition by Budimex) 543

FEROCO 217

543

MOTA-ENGIL 689

361454

23.225.0

29.032.1

15.6

9.3

28.4

242018.3

24.2 26.6 28.430.0

31.4

3.0

3.03.0

3.02.9

3.3

2.0

2.02.0

0.7

Road infrastructure overview

Major investments in transport infrastructure, including motorways, are clearly required as Poland's economy

continues its rapid growth. However, because a significant decrease of EU financing starting from year

2013, capital requirement from private sources i.e. investment funds, is expected to grow in coming years.

• Improving transport infrastructure in Poland is a huge challenge

for the coming years. It is a key requirement for keeping the

economy on a high long-term growth path.

• Poland is a key transit country between East and West (the

Western part of the European Union (EU), and Russia and former

Soviet Republics and North and South (Nordic EU members

and Southern Europe).

• While investment in the transport infrastructure typically amount

to 1-2% of GDP in developed OECD countries, this ratio never

Road infrastructure investments Total roads & Bridges industry value (PLN billion)


2009 2010 2011F 2012F 2013F

2011F - 2013FSource: Ministry of Infrastructure, National Road Program for 2011-2015, January 2011.

72.4

STATE BUDGET

ROAD FUND (Domestic funding)

EU FUNDS

* Excluding planned funding for local roads.

Source: Deloitte analysis based on GDDKiA information, government and media publications. Source: Business Monitor International, Poland Infrastructure Report.

9.1

27.7

35.6

National road program

District and municipial road program

Regional roadsBMI industry estimation

to 1-2% of GDP in developed OECD countries, this ratio never

exceeded 0.7% in Poland during the 1990s, which lead to further

deterioration of the road stock.

• Beginning the 2004 there is an inflow of EU funds to Poland. The

challenge of improving infrastructure has become even more

urgent because of co-hosting by Poland the European football

championships in 2012.

• In December 2011, the total length of motorways in Poland was

1065 km, and 580 km of motorways was under construction. The

planed length of motorways is 2000 km in Poland (The Ministry

Council Regulation from 20.10.2009).

• According the National Road Program 2011-2015 (January

2011), the total investment cost, which will be started from 2011

till 2013, is estimated at PLN 72,4 billion.

• The expected outcome of the National Road Project till year 2013

is:

− 810 km motorways;

− 782 km of expressways;

− 26 bypasses (203 km);

− 244 km of national roads.

National Roads Program funding* (PLN billion)

2006 2007 2008 2009 2010 2011E 2012E 2013E

• Record railway investment of PLN 18.9 billionannounced by PKP PLK for 2011-2013.

• According to Ministry of Infrastructure, 38 out of 110defined investment projects are expected to runbeyond 2013, with expected budget of PLN 3.3 billion.

1.42.4

3.23.6

2.3

3.8

7.08.1

Rail infrastructure outlook

Rail infrastructure segment is expected to grow rapidly to 2013 with record investments announced by PKP PLK.

PKP PLK investment plans (PLN billion)


2006 2007 2008 2009 2010 2011E 2012E 2013E

Source: PKP PLK, Ministry of Infrastructure.

Source: Ministry of Infrastructure, Railway Investment Program to 2013, May 2011.

• Further perspective of the segment depends largelyon 2014-2020 EU budget, although Europeantransportation policy assumes increased share of railtransportation and development of transeuropean railconnections (TEN-T).

• Landmark EUR 5 billion High Speed Rail projectconnecting Warsaw, Łódź, Poznań andWrocław, most probably to be developed in stages in2014-2020 and beyond.

2011 - 2013F

RAIL FUND

OTHER EU PROGRAMS (e.g. regional programs)

STATE BUDGET & EU FUNDS

16.0

3.00.71.2

20.9

PKP PLK historical spend and estimates

Ministry of Infrastructure funding plans (PLN billion)

2.102

1.535

220 Planned but without financing

Tenders with approved budget

Tramway infrastructure outlook

Investment of 1.8 mld PLN expected for tramway networks before 2013 and additional 1.6 mld PLN for Warsaw until 2027.

Tramway network funding (PLN billion)

• At least 6 cities have plans to create new tramwaynetworks (14 existing tramway networks).

• Around 60% of current tramway infrastructure requiresrenovation.

• Planned expenditure of PLN 1.8 billion before 2013


Value of current projects Tenders to be announced until end of 2013

Łódź Bydgoszcz i Toruń

Śląsk Gdańsk Kraków

Source: Deloitte analysis based on city councils and tram network operators information.

530 500

330

160

15

Tenders with approved budget (PLN billion)

• Planned expenditure of PLN 1.8 billion before 2013and further PLN 1.6 billion for Warsaw in 2011-2027.

• Expected slowdown in tramway infrastructurefunding, due to:

• potential cutbacks in EU budget 2014-2020 anduncertainty of %-level of permitted support forco-financed projects,

• high deficits of local budgets and increasingpublic debt,

• expected slowdown in economy decreasingincome of city budgets.

Prospects for Infrastructure / PPP projects in Poland


projects in Poland

Slowdownin revenue growth

of LGUs

Infrastructure gapand accumulation

of capital expenditure

External financing

Local government units (LGUs) will be increasingly looking for alternative

sources of financing investments due to:

� Slowdown in revenue growth (decline of revenues from personal income

as a result of higher unemployment; decline in corporate income tax

receipts as a result of weakened economic activity of enterprises)1.

� Accumulation of capital expenditure in connection with:

‒ development of infrastructure for EURO 2012;

‒ absorption of EU funds in the current (2007-2013) and next (2014-

2020) programming period;

‒ implementation of the National Regional Development Strategy

Prospects for Infrastructure / PPP projects in Poland Change in approach towards financing capital expenditures

© 2012 Deloitte Advisory Sp. z o.o.13 © 2012 Deloitte Advisory Sp. z o.o.13

1 In 2009 the share of LGUs own revenues in total income fell by 4% comparing to 2008 and in 2010 by further 0.4%. However in the first half of 2011 share of LGUs own revenues increased by 0,8% comparing to first

half of 2010. Incomes from the CIT and PIT in 2009 were lower by respectively 11.5% and 5.5% than in 2008 and in 2010 lower by 7.5% and 0.3% than in 2009. In the first half of 2010 incomes from the CIT increased by

25,7% and from the PIT by 11,8% comparing to first half of 2010. Based on the financial statements of local governments units, 2008 - I half of 2011.

2 National Regional Development Strategy 2010-2020 (NSRFs act as pointers) was approved by the Council of Ministers on 13 July 2010. The document assumes that by the end of 2013, annual average spending for the

purposes of NSRF will reach over PLN 34 billion.

3 According to Articles 169 and 170 of the Public Finance Act as at 30 June 2005: (1) the total amount of LGUs debt at the end of financial year may not exceed 60% of the total income realized in a given financial year,

(2) the amount of annual debt repayment by LGUs including the repayment of amounts arising from warranties and guarantees may not exceed 15% of its income.

The detailed data of debt and budget deficit of LGUs are presented in the appendix.

Statutory debt repayment ratios

Alternative sources of financing(involvement of private funds)

‒ implementation of the National Regional Development Strategy

2010-2020 (NSRF)2.

� Limitations associated with meeting the required level of debt repayment

ratios3. In year 2010, LGU’s ratio total liability to income reached

34%, comparing with 26% previous year. In the 1-3Q 2011 this ratio

reached 35%. Simultaneously the gap between LGU’s expenditures and

income widened from PLN 2.5 billion in year 2008 to PLN 15 billion in

year 2010, however in the 1-3Q 2011 there was surplus of income above

expenditures approx. PLN 3 billion.

Political interest of government in the advantages

of PPPs

Legal framework toenable the use of PPPs

Political willto use PPP models

Creation of a PPP Centre

Education of ministriesand agencies

Approval of a National PPP Strategy

Development of guidance

Centrum PPP operates asa citizens initiative2

Government unit appointedLack of an approved

national PPP Strategy

Organization of trainingCooperation platform

No specified guidelines

�

�

Act on PPP

Act on Concession1

O

O

Overview of the PPP sectorAssessment of the current status of the PPP market in Poland


Selection of PPPpilot projects

Implementation and evaluation of PPP pilot projects

Standardization of PPP contracts & procedures

PPPs as generally accepted alternative

Mature PPP market withsteady PPP pipeline

Source: Deloitte own analysis.

1*The Act on Public-Private Partnership (PPP) of 19 December 2008 and the Act on public works concessions or services of January 9, 2009 were published in the Official Journal of the European Union No. 19 of 5 February 2009.

The concession regulations can be used as of 20 February 2009, the Law of the PPP as of 27 February 2009.2Centrum PPP (PPP Center ) Foundation was established in Warsaw by a notarial act of July 10, 2008.

Lack of standard contractsand procedures �

Limitted no. of pilot projectsand PPP programmes O

29

38

7

20

1

2

8

8

1

Sport and recreation

Municipal services

Enviroment

Transport

Water and Wastewater

Education

Healthcare

Parkings

Other

Considered PPP projects by sectors

Source: The Centrum PPP database, as of June 2011.

Summary of projects’ implementation plans

� Currently, the public sector is considering the potentialimplementation of around 120 PPP projects (based on the Acton PPP or on KNRBLU), which are at different stages ofdevelopment and in most cases have not yet commenced thetender procedure.

� The projects relate primarily to sport and recreation, tomunicipal infrastructure, and to the infrastructure associatedwith transport (including parkings). In comparison withEurope, at this moment there are still relatively few projects inthe education, healthcare and environment sectors.

� The most active regional governments are those of the largestcities in Poland: SilesianAgglomeration, Cracow, Warsaw, Gdansk, Wroclaw, Lodz and

Prospects for PPP projects in Poland There are around 120 considered potential PPP projects in Poland

© 2012 Deloitte Advisory Sp. z o.o.15 © 2012 Deloitte Advisory Sp. z o.o.15

Sport and recreation

25%

Municipal services

33%Enviroment6%

Transport18%

Water and Wastewater

1%

Education2%

Healthcare7%%

Parkings7%

Other1%

Share of considered PPP projects by sectorsAgglomeration, Cracow, Warsaw, Gdansk, Wroclaw, Lodz andPoznan.

Source: The Centrum PPP database, as of June 2011.

There are increasing number of new business opportunities in Poland

Road• The road market will remain the biggest part of

the construction market in Poland in coming years.

Railway

• Expected record investments in railway infrastructure up to year 2013.

• Highway sections: 165 km (€1,2 b) 141 km (€1,3 b)• Two bridges over Odra River in Wroclaw: (€143 m)• Pilots PPP projects in Lower Silesian, Kujavian

voivodships for the repair and maintenance of regional roads

• HSR (€5.0 b)

Sector key trends Selected PPP opportunities:Sector


Healthcare

• Expected thirst PPP hospital projects (financial closing of Zywiec hospital expected soon).

• Three pilot projects with the support from Ministry of Regional Development (MRD will engage a financial advisor).

Railwayand tram

infrastructure up to year 2013. • Plans to develop High Speed Rail in Poland (490

km).• Good prospects in trams sector.

• HSR (€5.0 b)• Zabrze railway station

• Lancut, Bielanski and Czerniakowski hospitals with the toatl value of about € 290m

• A 450 bed Poznan hospital

Social infrastructure, residential and office

building,

land development

• A growth expected in residential and office construction market in comming years.

• Very good prospects for the development of the public investments and services (under PPP): social housing, healthcare, car parks and land development.

• City center development: Łódź, Katowice• Investor Center: Krakow• Parkings: Warsaw (€ 45m), Kraków, Bielsko

Biała, others.• Social housing: Warsaw (€ 15-25m), Łódź, Kraków

Nb Location Authority Project description Sector StatusEstimated

project value

1 Warsaw – Kukuryki GDDKiAConstruction of A2 Motorway on the section Warszawa-Kukuryki(165 km) with exclusion of constructed ring road of Mińsk Mazowiecki.

Roads Pre-launch € 1200m

2 Tuszyn - Pyrzowice GDDKiA

The project comprises 141 km of both brounfield and greenfield

highway which will link the city of Lodz in central Poland with Katowice in the South of Poland. Probably only a bypass around Częstochowa

and a section of the road on to Pyrzowice totalling 57 km will be procured as an availability payment PPP scheme (DBFO/M) due to difficulty to agree off balance sheet treatment for the whole 141 km section.


3Lower Silesia (Road nr 342)

The Province of Lower Silesian

The Polish Province of Lower Silesian have already launched a pilot PPP project for the repair and maintenance of regional roads.If the project is deemed a success, up to 2500km of roads could be

tendered out to the private sector.

Roads Re launch n/d

Prospective PPP Project Pipeline Selected opportunities in transport


tendered out to the private sector.

4 WroclawCity of Wroclaw

The city of Wroclaw is expected to tender its PLN 560m (EUR143m) ring road PPP including two bridges.


5 Dabrowa - Tucznawa Municipalityof Dąbrowa Górnicza

The Municipality of Dabrowa Górnicza is looking for a private partner to

design, finance, build, operate and maintain a 6-mile dual carriageway from the DK-94/ DW-790 interchange to the DW-796 junction in Tucznawa, to the north of Dabrowa Górnicza, in southern Poland.

RoadsProcurementLaunched09/02/2012

€ 25m

6 Poland PKP PLK

The future line is estimated to cost around EUR 5bn. The Y-shaped high-speed rail line will start at Warsaw and pass through Lodz, where it will branch out in two different directions - one section heading towards Poznan and another towards Wroclaw, over a total length of 490km.

Rail In study € 5000m

7 Zabrze City of ZabrzeZabrze railway station would involve railway station, interchange platform with other forms of transport, conference center, and underground car park.

Rail Station In study n/d

Source: Infrastructure Journal, Infranews, Public works financing; Factiva; press.

Prospective PPP Project Pipeline Selected opportunities in healthcare


project value

1 LancutMinistry of Regional Development

The project involves new build and refurbishment work on an existing hospital in the City of Lancut, located in south-east Poland. The 250-bed hospital is expected to have a 20-year concession period

Hospital Pre-launch € 40m

2 WarsawMinistry of Regional Development

The project involves refurbishment work and expansion on an existing Bielanski hospital in the City of Warsaw.


3 Warsaw

Ministry of

Regional Development

The project involves refurbishment work and expansion on an existing Czerniakowski hospital in the City of Warsaw.


4 PoznanWielkopolskie voivodship

The government of the Wielkopolskie voivodship will announce a tender for a project to design, build and operate a 450-bed

gynaecology and obstetrics hospital in Poznan.



Source: Infrastructure Journal, Infranews, Pubic works financing; Factiva; local press; direct DTT Poland research; own direct research

voivodship gynaecology and obstetrics hospital in Poznan.

• In Poland majority of expenditures for revitalization of city centers comes from budgets of respective cities, which prepare „local programs of revitalisation” (in years 2007 – 2030 ca. PLN 30 billion).

• Private sector (within the framework of PPP) currently participates in ca. 15% of revitalisations’ costs.

Prospective PPP Project Pipeline Selected opportunities in accommodation and land development


project value

1 Krakow City of Krakow

The Investor Service Centre - an object consisting of two (5- and 7-

level) buildings connected by ties and a common communication duct -

arcade, with a two-level underground garage and a one level of the underground storage.

Accommodation Pre-launch € 55m

2 Krakow City of Krakow

Extension of the Archives of the City of Krakow. On the area intended for the investment the building of the 1960's is located, the part of

which is intended for demolition. The remaining part shall be converted into an office and administrative building for the new MoK Archives, and then a 7-segment, two-level storage building shall be expanded,

Accommodation Pre-launch € 10m


and then a 7-segment, two-level storage building shall be expanded,

connected with the office and administrative building.

3 KatowiceCity of Katowice

The City of Katowice plans to start the redevelopment and regeneration of the city center through involvement of private investors through announce a tender for a financial advisory services.

Land development

In study n/d

4 Łódź City of Łódź

Lodz is starting Lodz Center Renewal Project, now the city has announced a tender for advisory services intended to accelerate the project implementation. The project has in scope road, railway infrastructure as well urban space redevelopment and regeneration through involvement of private investors.

Lodz has announced the tender for advisory services in September last year. The potential investment opportunities can appear in the second half this year.

Landdevelopment

Ongoing n/d

Prospective PPP Project Pipeline Selected opportunities in car parks and social housing


project value

1 Warsaw City of Warsaw

The City of Warsaw is planning to tender up to six multi-level

underground car parks together with accompanying infrastructure via a PPP procurement.

Carparks

Pre-launch € 45m

2 Bielsko-BialaCity of Bielsko-

Biala

The Town Office of Bielsko-Biala, 50-miles southwest of Krakow in Poland, is seeking a private sector partner to design, build, finance and operate two or more underground car parks in the town

Car

parks

TransactionLaunchedDec 2011

€ 30m

3 Krakow City of Krakow“Olimpijka” Underground parking in Krakow. The investment involves the construction of a multi-level underground car park.

Carparks

Pre-launch € 8m

Other cities: Poznań,


Source: Infrastructure Journal, Infranews, Pubic works financing; Factiva; local press; direct DTT Poland research; own direct research

4Other cities: Poznań, Wrocław, Katowice, Lublin.

The cities are looking for private partner.Carparks

In study n/d

5 Warsaw City of Warsaw

Warsaw City has just started the project work on social housing in PPP in Warsaw including announcing a tender for advisory services. In

general it is expected that the private partner will be responsible for the construction, financing and operation of the houses for 20-30 years.

In total 400 apartments will be built in 5 locations.

Socialhousing

In study € 15-25m

6 Krakow City of KrakowThe project involves 300 apartments for communal use. The expectedcontract term is 17 years and the payment mechanism: involving both availability payments and commercial revenues.

Socialhousing

In study n/d

7 Łodź City of Łódź Multi-family housing regeneration programmeSocialhousing

n/d

ContactAndrés Rebollo Jaroslaw Dabrowski Patryk Darowski Karolina [email protected] [email protected] [email protected] [email protected]


+34 91 514 50 00 +48 22 511 03 04 +48 22 511 04 11 +34 91 514 50 00


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