Record high output of road construction

2010-02-05

The year 2009 yielded material growth in road construction which for many years had not delivered to roadmen’s expectations, and was finally a true engine for the Polish construction industry. We estimate that in 2009 the value of road and bridge construction works totalled approximately PLN 24bn, noting close to 40% growth relative to 2008.

In our opinion, because of the rapid development in 2009, 2010 will be characterised by rather low pace of growth, though, nevertheless, we expect the value of road works to continue to inch up because of the many contracts concluded for road works in 2009. Yet, the problems which have arisen with the construction of two important sections of A1 motorway in the last few weeks will undoubtedly harm to some degree the pace of road construction.
Thanks to the environmental decisions obtained in 2009 and currently being obtained for new road construction projects, the number of tenders announced in the current year should stay at a level that was satisfactory for contractors in 2009. In turn, thanks to tenders announced in 2009 and currently, the number of contracts concluded for road construction will also remain on par with 2009 levels. We can then conclude that we are in a good for the market situation of continuity in national road investment processes. What is important, after several years of a slowdown, the preparatory procedures preceding the construction of expressways in Poland have clearly picked up pace; plans provide for the country to have thrice the length of today’s expressways. Roadmen’s fears about the lack of road investments planned for after 2012 are, in our opinion, premature.



Though in the opinion of many market players the road work projects are being executed too slowly, we think the situation is actually good for the market which if too many projects were being executed could be destabilised, as was the case with the mortgage boom which destabilized residential construction in 2005-2008. It is still unknown how the market will cope with assuring full logistics during the most intensive stages of the execution of the roadwork construction programme – in the years 2011 and 2012. This primarily concerns whether there will be a sufficient supply of basic building materials used in road construction and whether transport will be available to ship them to construction sites.
As far as the cost of construction works is concerned, everything seems to suggest that because of the intensive execution of road works, 2010, and especially the latter half of the year, will yield a reversal of the price trend haunting road construction. The true costs of execution may begin to inch up, which does not necessarily have to be directly reflected in the bids made by general contractors in tenders. We believe that in 2010 companies submitting bids in tenders should move away from applying grossly low bid prices. It is clear that the construction market is picking up pace and many firms, thanks to the contract won in the last few months, does not have to worry too much about their near future. Thus, we believe it is the right moment to loosen up the over-stringent 2009 pricing cuts before it is too late.



Bartłomiej Sosna
Senior Construction Analyst
PMR Publications

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