The impact of the pandemic on energy construction

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The COVID-19 pandemic and its consequences in the form of inflation have had an impact on the global economy through rising prices of building materials and raw materials, which affects the condition of construction companies in the energy sector. An example of such a situation is the construction of a hard coal-fired CHP plant in Puławy for Grupa Azoty.

In November 2020, its contractor, i.e. the consortium of Polimex Mostostal, submitted an application for the extension of the completion date by 223 days and an increase in remuneration by almost PLN 36 million net. The impact of the coronavirus pandemic was cited as the main reason. On December 30, 2021, Grupa Azoty announced that it refused to accept the request for a salary increase, and requested additional information regarding the extension of the deadline.

According to Polimex, construction delays are caused by, inter alia, sickness and quarantine among its employees and subcontractors. On the other hand, the requested increase in the amount of the contract was to be related not only to the increase in the prices of materials, but also to the costs of the consortium’s longer stay at the construction site.

As Kajrukszto stated, more and more contractors will bring claims against contracting authorities in connection with the increase in construction costs. Further price increases started in the fourth quarter of 2020 and are practically still ongoing or remain high after the period of growth. This situation concerns building materials, equipment and labor, which began to rise dynamically as the global economy accelerated after the stage of widespread lockdowns. The waiting time for materials and devices also increased, and further delays in work were also caused by infections among employees or their quarantine.

Contractors are also disadvantaged by the weakening of the Polish currency, which is particularly important in the case of energy construction, where the cost of technology has a large share in the value of the entire contract. Specialized devices or installations usually have to be purchased on foreign markets for euros or dollars, and contractors receive remuneration from ordering parties in PLN.

According to Dr. Damian Kaźmierczak, chief economist of the Polish Association of Construction Employers, it can be assumed that the prices of raw materials will eventually normalize and the supply chains will unlock. Much will depend, among others on the further development of the COVID-19 pandemic and the US FED’s monetary policy. On the other hand, the price of electricity is likely to remain at very high levels, and the zloty is unlikely to strengthen significantly. On the other hand, in the second half of 2022, demand for materials from infrastructure and local government construction will begin to emerge.

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