Poland’s shipyards face uncertain future

The launch of a trawler built for Norway at the Remontowa Shipyard in Gdansk, Poland, 27 March 2018. [EPA-EFE/Adam Warzawa]

Polish Prime Minister Mateusz Morawiecki has announced reconstruction plans for the country’s battered shipbuilding industry. However, there is still no clear strategy and the current ideas have been slow to come go beyond mere concept.

During a recent government exposé, Morawiecki made declarations about the need to rebuild the shipbuilding industry. The government is making promises yet again, however, the actions it has taken so far point to a complete lack of concept when it comes to the shipbuilding sector.

The potential for extremely high profits – in billions of zlotys – makes this issue very important, but so far revenues remain hypothetical. Experts’ hopes for improvement are linked with offshore wind energy, but can offshore save Polish shipyards?

Opening balance

Shipyards have been struggling with underfunding and a lack of a coherent vision for years. For decades, they played a major economic role, especially during the communist times, as they were the main employer in Pomerania.

However, the last 30 years have been marked by instability, constant changes of management, as well as a more recent dispute with the European Commission over unlawful state aid from more than a decade ago.

Meanwhile, the sector still plays a significant role in the global economy. According to various estimates, around 80% of the world trade is transported by sea. And then there are other profitable branches, such as the construction of luxury and cruise ships.

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Piotr Słupski, co-owner of the consulting company InvRest, pointed out that “in Western Europe, the shipbuilding industry is experiencing a renaissance, especially in the case of cruise ships”.

Meanwhile, quite the opposite trend can be observed in Polish Pomerania.

Profits are usually generated by private companies, such as Gdańsk Shiprepair Yard (PLN 65 million in 2018), while the state-controlled Gdynia Shiprepair Yard Nauta ended last year with a loss of PLN 58 million.

A positive element in the Polish shipbuilding industry is the production and export of yachts and catamarans, produced in one of the world’s most modern yacht shipyards.

Poland is an important player in this area and in 2018 it reached 60% of the EU’s export value, which accounted for 395.8 million euro, twice as much as in 2014 (€184.8 million). Poland was followed by countries such as Finland (€60 million and 9.1%) and Italy (36.7 million and 5.6%).

The need for a strategy

In the meantime, the Gdańsk Shipyard, re-nationalised by Morawiecki’s government, and its sister company GSG Towers has posted losses.

The amount of the transaction has still not been disclosed and the state investor – the Polish Industrial Development Agency – had to help unprosperous entities with loans amounting to tens of millions of zlotys.

“Fragmentation and lack of vision are pushing the Polish shipbuilding sector far behind its global competitors. The current state of affairs does not encourage potential foreign investors,” said Piotr Słupski.

He added that the role of the state should be limited to providing tools, while funding should be left to investors – of course, if the conditions are appropriate. “Such system works  out most often in Western countries’.

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Is energy from the sea a remedy?

For years now, experts have been arguing that the development of offshore wind energy will put the shipbuilding sector in Poland back on its feet.

The Baltic Sea seems to be the promised land for this type of investment and thanks to the development of technology, wind farms can be built further away from the shore, which means more power on offer.

In the next decade, Polish offshore may increase to 4.6 GW (making Poland one of the top European countries in this regard), and the share of RES in the energy mix to 21%, according to data from the Polish Energy Policy Project.

The interest in offshore energy is confirmed by the investment plans of state-owned companies such as Orlen. Investments are also being prepared by a recently established company PGE Baltica, or Baltic Trade & Invest (BTI).

Baltic power games in the ascendancy

Europe’s power politics are playing out more and more in the Baltic Sea, as the energy potential of the sea basin shifts more into the limelight. 

“The offshore wind energy sector is a great opportunity not only for the industry but also for a large number of people active in the labour market,” Jakub Budzyński from the Polish Offshore Wind Energy Association (PTMEW) told EURACTIV Poland.

It is estimated that investments may bring tens of billions of zlotys of profits, and the representative of PTMEW even mentioned a staggering amount of 200 billion from new projects.

There are more than 100 companies currently in Poland providing components and services for the offshore wind energy industry. So far, it has been mainly for the Western European market, including farms in the North Sea.

Tele-Fonika Kable has become the main European supplier of cables for offshore wind farms. Other products, such as steel components (supporting structures and others), enjoy a good reputation,” said Jakub Budzyński.

“The development of the offshore elevator sector is also an opportunity for coastal communes and smaller ports, which may serve as service facilities for the operation of existing offshore farms. The life cycle of an offshore wind turbine is calculated at 25-30 years and it is the minimum perspective of investment continuity,” said Budzyński.

“The economic stability of such projects is demonstrated by the fact that in the Scandinavian countries, the pension funds invest very significant investment resources in offshore wind projects, thus proving their stability and rather great prospects for the development of this industry,” he concluded.

Searching for a market niche

Piotr Słupski, however, warned that offshore wind energy has great potential but is still a rather distant prospect.

“It is not possible to base operations on a single product or single market segment… I do not think that letting go of the traditional shipbuilding market is the best solution. If certain conditions are met, cruise ships or other specialist vessels can still be built in Gdynia,” he argued.

High-tech projects may still be carried out in Poland, but they require adequate financial investment, which is not available to the state, said Słupski.

“In Romania, for instance, the state withdrew its subsidies from the shipbuilding sector, leading to its sale to the Dutch company Damen, which has proved to have had a positive impact on Romanian shipbuilding sector.”

Another solution may be the implementation of the Iberian scenario. Portuguese and Spanish shipyards have been restructured with the overwhelming participation of the state and have gradually recovered their position, mainly through diversification of production.

First, they clinched contracts for the Portuguese and Spanish navies and then international deals were completed.

The success of the local shipyards in Portugal and Spain also depends on investments in the offshore wind energy.  However, in order to develop such a model, there is a need for a well-thought-out vision and stability.

Meanwhile, it is still unclear which direction the Polish industry will go, and the information about the liquidation of the Polish Armaments Group (PGZ), which was supposed to lead consolidation and acceleration of efforts to modernise the Polish navy “is a step backwards”, said Słupski.

[Edited by Zoran Radosavljevic/Sam Morgan]

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