Stability and Development Plan by Jeronohnson

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									              Stability and Development Plan
       – REINFORCING THE POLISH ECONOMY IN THE FACE OF THE GLOBAL
                                                      FINANCIAL CRISIS


1. Introduction...............................................................................................................3
2. Steps taken.................................................................................................................5
2.1. Ensuring the stability of public finances..............................................................5
2.2. Actions taken to stabilize the financial system.....................................................5
Guarantees for bank deposits...........................................................................................5
Guarantees for intrabank loan..........................................................................................5
Financial Stability Committee.........................................................................................6
NBP ‘Trust Package’.......................................................................................................6
2.3. Actions to ensure economic growth......................................................................7
Increasing the consumer demand....................................................................................7
Increasing the investment demand..................................................................................7
3. Anti-crisis
plan................................................................................................................................10
Better access to loans for companies – increase in the volume of assurances and
guarantees......................................................................................................................10
Support for the financial market
institutions.....................................................................................................................10
Reinforcing the system of guarantees and assurances for
MŚP................................................................................................................................10
Speeding up investments co-financed from EU funds...................................................11
Introducing a higher investment relief for newly established
companies......................................................................................................................12
Removing barriers for investments in informatics communications
infrastructure.................................................................................................................12
Preventing the taxation of research expenses................................................................13
Supporting investments in renewable energy
sources...........................................................................................................................13
Reinforcing the position of the power industry recipients, reinforcing


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competition and the position of the regulator in order to protect the
economy and households against the uncontrolled increase of energy
prices.............................................................................................................................14
Creating the Social Solidarity
Reserve..........................................................................................................................15
4. Performance of the Stability and Development
Plan................................................................................................................................15




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                  PRO-INVESTMENT IMPULSES FOR THE ECONOMY
Actions:                                            2009 planned expenses
Increasing the LG / LC limit for the economy and          BPLN 40
the financial market
Creating additional, safe credit action for small         BPLN 20
and medium enterprises (SME)
Advancing the investments co-financed by the             BPLN 16,8
European Union by increasing expenses
qualifying for the European Committee certificate
Earlier prepayment from the European Committee            BPLN 3
to expend the EU assets
Supporting investments in renewable energy               BPLN 1,5
sources (the National Fund for Environmental
Protection and Water Management)
TOTAL AMOUNT:                                            BPLN 81,3
                FACILITATING THE CONSUMER GROWTH INCREASE
Tax reduction and simplification
Introducing two-tier PIT settlements                      BPLN 8
VAT reform                                                BPLN 2
TOTAL AMOUNT:                                            BPLN 91,3




                                                                            3
   1. Introduction


    Unlike the USA or the Western European countries, Poland did not take the brunt of the
financial crisis. Short-term obligations of the banks constitute 8% of the Polish GDP, whereas
in e.g. Iceland, Switzerland or Belgium – even as much as 200-300% of the GDP. In the
recent years, the Polish financial institutions have showed only marginal interest in risky
operations which were the primary cause of the so called credit crunch in the USA and Great
Britain. As a result, the quality of the Polish banks’ portfolio is incomparably better than those
of many western financial institutions.
    This does not mean that Poland has not experienced the credit crunch. As far as economy
goes, the crisis is global in character – it affects all countries in the world to some extent.
However, the foundations of the Polish economy are much stronger than is the case with other
crisis-affected countries. Projections of economic growth in Poland for the years 2008-2009,
prepared by the International Monetary Fund (IMF) and the Organization for Economic Co-
operation and Development (OECD), run at the level of 5% and 3%, respectively, while in
countries such as Germany, England or Ireland the economic growth is likely to be zero, or
even negative. The international institutions expect the 2009 economic growth in Poland to be
lower than long-term average, but also much higher than in the other EU countries, and that
the actual pace of convergence with EU15 will be maintained.
    The situation on the global markets – and thus economic growth prospects in the world
and in Europe for the next couple of years – are very much uncertain. The crunch has been
affecting the recurring economic slowdown in the Eurozone since the Fall 2007. Foreign
investments in Central Europe have been rapidly decreasing, external financing costs have
been growing significantly, while the reduced consumption in the developed countries has
been negatively affecting the import (also of goods manufactured in Poland). Historical
observations seem to suggest that Poland’s economic situation is 6-8 quarters behind the
EU15. One of real threats to the Polish economy is the limited availability of credits, due to
tensions on the intrabank and financial markets, but also due to the reluctance of the bank
themselves to take credit risks.
    All the foregoing factors might contribute to the fact that the year 2010 will be a
substantial challenge for the Polish companies, households and public administration. One of
two possible scenarios will probably develop. In the first variant, the global financial crisis is
gradually spreading to Poland, leading to reduced GDP growth dynamics in the years 2009
and 2010. In the second scenario, the financial crisis triggers a specific adaptation impulse in

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the Polish enterprises in 2009, which would lead to improved economic situation during the
following year.
    In relation to the unstable situation on the global financial markets, both the government
and the National Bank of Poland (NBP) have taken decisive action to improve the stability
and economic growth in Poland. The steps include instruments designed to bring back the
intrabank trust and to introduce mechanisms aimed at increasing the investments financed
from both public and private funds. Consumption expenditure will be increased thanks to
consistent tax reductions in 2009, reaching over 2,5% of the GDP forecasted for 2009.
   The present document describes in detail the planned initiative to combat the crisis, to be
implemented by the government in the months to come.




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   2. Steps taken


   2.1. Ensuring the stability of public finances


Maintaining the planned budget deficit of BPLN 18,2 in 2009 is important because:


   • It would enable interest rate reductions by the Monetary Policy Council (RPP), which is
    the best way to combat the potential crisis. Announcing that the previously planned
    deficit amount will be unchanged has already brought results, as RPP has recently
    reduced the interest rates exactly because it reasoned that the loosening the monetary
    policy (governed by NBP and RPP) would not coincide with loosening the fiscal policy
    (the government’s decisions regarding the budget deficit).


   • Polish public finances would stay on the course enabling gradual reduction of debt
    service costs. This is particularly relevant right now, when the developing countries are
    closely watched by their creditors. Each decision translating to increased budget deficit in
    such a country could lead to value of the debt dropping rapidly. In extreme cases,
    increased deficit might be fully consumed by the growing debt service costs – a result
    quite opposite to the intention.


In the amendment act to the 2009 budget, the GDP growth projections have been changed
from 4,8% to 3,7%.
As a result, budget expenses will be reduced by BPLN 1,7 (mainly reserves), which will allow
to flexibly move the assets around if need be. There are also changes to the excise tax on
alcohol (price for a bottle of beer will go up by PLN 0,07 and for a bottle of vodka – by PLN
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1) and on cars over 2000 cm, up to 18,6%, which will feed the budget with MPLN 1140 for
the Social Solidarity Reserve. Furthermore, budget execution in 2009 will be rigorous and
based on strict limits, so that the planned amount of BPLN 18,2 is not exceeded.


   2.2. Actions taken to stabilize the financial system


Guarantees for bank deposits




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In accordance with the joint declaration of the EU members, issued at the ECOFIN session on
07.10.2008, the Sejm accepted – on 23.10.2008 – the governmental project of amending the
Bank Guarantee Fund law. The project assumes that, by the end of 2009, TEUR 50 (TPLN
175) of deposits will be guaranteed in 100%. Also, the Fund will be able to raise loans from
the state budget. The amendment also allows for the Council of Ministers to issue a regulation
(upon seeking opinions of the NBP and KNF presidents) temporarily setting an even higher
upper limit and percent of guaranteed funds. The bill has been signed by the President of
Poland.


Guarantees for intrabank credits


There is also another project ready in the Sejm – National Treasury support programme to the
financial institutions. The law would allow the government to quickly and effectively respond
to a potential crisis. The act provides the minister of finance with authority to directly
influence the liquidity of the financial market (just like NBP has been doing so far), in
cooperation with the presidents of KNF and NBP. The support mechanisms suggested in the
bill include mainly guarantees of intrabank credits, which will contribute to maintaining
liquidity of the financial institutions and improving trust between those institutions (seriously
damaged so far in the crunch). The governmental guarantees will be issued according to
principles established during the recent sessions of the European Committee (for a fee,
approximating commercial conditions, maturity from 3months to 5 years). In order to reduce
the liquidity risk, the guarantees (but not in full amount) will be only provided to ‘safe’ banks
with strong capital base. Other forms of support will include loan / sale of National Treasury
securities. According to the project, the support may only be provided up to 31.12.2009, and
not longer. The Public Finance Committee is currently working on the project (submitted to
the Sejm on 13.11.2008). Should the bill be passed, it will come into force on the day it is
included in the Official Law Journal.


Financial Stability Committee


In the recent months, the sessions of the Financial Stability Committee have become much
more frequent (currently once a week). The minister of finance and the presidents of the
Financial Supervision Authority and the National Bank of Poland use the Committee sessions
to exchange information and to coordinate necessary steps to maintain stability of the Polish

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financial system. One of the tasks of the Committee is provide steady financing sources for
enterprises and thus help them develop and operate.
Supervising the financial system should be facilitated by the Financial Stability Committee
bill, accepted by the Sejm on 07.11.2008. The Committee has been assessing the international
markets, as well as the domestic financial system; it has also prepared a set of rules for
cooperation in case the system is at risk. Small makeup of the Committee is in fact an
advantage, as it ensures that the decisions are taken, as soon as a potential crisis situation
arises, by the relevant institutions (the National Treasury, KNF, NBP).
Endorsing the Committee’s activity with a proper law is consistent with the EU Memorandum
of Understanding, providing for cemented cooperation between the financial supervision
authorities, the central banks and the ministries of finance in the European Union countries in
case of any sort of crisis in the financial system. The Financial Stability Committee bill was
signed by the President on 24.11.2008 and it should come into force 14 days after including it
in the Official Law Journal.


‘Trust package’ of the National Bank of Poland


In order to increase the banking system’s liquidity, on 14.10.2008 the National bank of Poland
introduced the so called trust package.
The package comprises the following elements:


• operation supporting the open market, in the form of repurchase agreements valid up to 3
 months;


• FX swap transactions;


• FX deposits as collaterals for refinancing credit facilities;


• modifications to the operating system of the lombard loan: reducing haircuts on determining
 the value of collaterals for the lombard loans and expanding the list of assets which might
 potentially serve as the loans’ collaterals in NBP;


• maintaining the emission of 7-day cash certificates as the primary instrument for dealing
 with over-liquidity;

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• introducing – if it turns out to be necessary – higher frequency of open market operations to
 react to liquidity changes more quickly and to stabilize the POLONIA rate around the
 reference rate.


The primary goals of the package are as follows:


• providing the banks with PLN assets for periods longer than 1 day;


• providing the banks with FX assets;


• increasing the banks’ PLN liquidity by expanding collaterals for operations signed with
 NBP.


The government has been supporting NBP in its actions to increase the stability and liquidity
of the banking system, especially by providing guarantees to the National Bank of Poland.
The project of National Treasury support to the financial institutions was developed by the
government and sent to the Parliament. It is currently in the Public Finance Committee (after
the first reading) and it should be ready this week.


   2.3. Actions to ensure economic growth


Increasing the consumer demand


One of the most important steps in limiting the financial crisis results in to improve the
consumer demand. In the years 2008 – 2009 it will be possible thanks to the introduced
reductions to taxes and quasi-fiscal charges. Due to the actions implemented during the
2008-2009 period, in 2009 the taxpayers will save over BPLN 35, with only BPLN 5,2 saved
by taxpayers from the II and III brackets. The plan involves finding financing (i.a. lower
public expenses) necessary to reduce the tax amounts established by the previous government,
as well as implementing new solutions beneficial to the taxpayers. Radical reduction of taxes
is possible thanks to introducing the second phase of pension contribution reduction in 2008
(BPLN 19,9), child upbringing relief (BPLN 5,4) and starting from 2009, a 2-tier personal
income tax (BPLN 8), as well as the passed VAT reform (BPLN 2). Just for comparison: due

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to the tax changes introduced in the 2006-2007 the tax payers had saved merely BPLN 4, in
relation to 2005.


Increasing the investment demand


Eliminating obstacles for investments co-financed with EU funds
One of the most important elements for improving the investment demand is facilitating
investments co-financed with the European Union assets. It is common knowledge that
implementing such investments often requires changes made to the Polish laws, particularly
as regards environmental protection, competition and public procurements. Which is why
recently the government has undertaken decisive steps to adapt the Polish law to the European
Union directives.
One of the results is the amended Public Procurement Law, in force since 11.10.2008,
extending the deadlines for submitting offers if certain relevant procurement conditions have
been changed, and introducing obligation to provide adequate information on changed
procurement conditions by altering the proposal. It is expected that the new solution will
contribute to a larger number of potential contractors, which in turn should lead to healthy
competition in the public procurement procedure. In order to facilitate the entire process,
specifically for the small and medium enterprises (which often lack necessary funds), the law
changed the principles of establishing the deposit amount in reference to potential
supplementary procurements.
Also, on 15.11.2008 another law came into effect: the act on providing information about the
environment, environmental protection, social participation in environmental protection and
assessing impact on the environment. The said law provides for establishing new authorities
with a single purpose of preparing efficient environmental impact assessments, which ought
to improve the effective spending of the EU funds. The General Council of Environmental
Protection, together with regional councils, will serve as specialized bodies authorised to issue
environmental impact assessments, on both countrywide and regional scale. Implementation
of the Natura 2000 network will also be accelerated, which should develop Poland’s natural
potential and eliminate most problems in investment execution.
On 07.11.2008 the Sejm approved amendment to the act related to implementation of
structural funds and Cohesion Funds, which ought to further increase spending efficiency of
the EU assets and facilitate applications for more subsidies. New solutions include, e.g.
appealing to a court, if a given co-financing offer is rejected.

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In November 2008 the National Fund for Environmental Protection and Water Management
(NFOŚiGW) prepared two programmes aimed at providing financial support to the
beneficiaries of the 2000-2006 Cohesion Fund, implementing municipal environmental
investments, so that cities and municipal companies might complete their investments faster
and smoother. The programmes will also improve economic situation in the construction
sector and allow the utilisation of free production capacity.
The first NFOŚiGW programme will help to grant the self-government units and
companies low-interest long-term loans for the total amount of MPLN 600. To this end, the
minister of environment has provided funds accumulated on a sub-fund for used cars
registration fees.
The second programme is directed to beneficiaries with similar financial problems, but with
financial standing solid enough to be eligible for commercial credit facilities. The subsidies
will be given for ten years in the amount corresponding to 500 p.a. / year (that is the annual
grant from NFOŚiGW might reach even 5% of the granted facility per year). This instrument
is expected to encourage the banks to provide commercial facilities for the total amount of
BPLN 1,5.
Improved flexibility of public-private partnership (PPP) regulations
In order to facilitate investments in the public-private partnership sector, on 21.11.2008 the
Sejm accepted the government’s project regarding the public-private partnership. The project
involves the following changes to the existing regulations:


• The new regulations no longer impose a strict list of enterprises eligible for the PPP formula.
 It is enough if the two parties agree that remuneration will be conditioned on the work
 results of the private partner and share the risk accordingly.


• In order facilitate the application of the new regulations, the project refers to the existing
 areas of the Polish law (particularly the civil law).


• The act also refers to the general clauses well-established in the civil and commercial laws.


• numerous costly and troublesome analyses formerly required for initiating a PPP investment
 have been lifted (including the specification of risk category).




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• Approval of the minister of finance is now required only for the investments with budget
 over MPLN 100 and the deadline for issuing such approvals was cut short, from 60 days to 6
 weeks.


   The law will be submitted to the Senate within the next couple of days.




   3. Anti-crisis plan


   Better access to loans for companies – increase in the volume of assurances and
guarantees


   In order to secure the situation on the national market of finance the limit for the
assurances and guarantees of the National Treasury provided for in the budget Act, will
be increased to BPLN 40.


    According to the act on the National Treasury supporting financial institutions, the
National Treasury will be able to grant guarantees for the banks to repay the re-financing loan
incurred in the National Bank of Poland in order to prevent further loss of liquidity. The
National Treasury will also be able to guarantee the repayment of individual liquidity loans on
the intrabank market.


   This item assumes granting guarantees i.a. for:


   •   Infrastructure projects carried out as part of EU funds,
   •   Infrastructure projects carried out as part of PPP,
   •   Guarantees for orders – i.a. in case of the motor industry (including companies
       producing sub assemblies for car concerns)
   •   Guarantees for export projects broadening the export offer of the Polish economy and
       allowing to maintain a high scale of export pursuant to the rules and regulations of the
       European Union.




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   Support for the financial market institutions


   Due to the difficult and quite unpredictable situation on the global financial markets, the
government is preparing another Bill securing the solvency of financial institutions and their
ability to finance the economy. The purpose of the Bill is to re-capitalize the financial
institutions and provide additional, apart from that in liquidity, aid to the financial institutions
operating on the Polish market from the National Treasury.


   The bill assumes the possibility of re-capitalizing these institutions in return for the stocks
and shares in the companies receiving aid acquired by the National Treasury. Within less than
2 weeks the bill will be consulted between departments and with the representatives of the
banking sector.


   Reinforcing the system of guarantees and assurances for SME


   Essential for facilitating access to loans to small and medium companies will be
implementing a package of reinforcing the system of loan assurances. Implementing the
package will allow to make use of the synergy effect resulting from the operating merger of
the assurance capitals of the Union Assurance Fund, National Fund of Loan Assurances and
the National Assurance Group. It is assumed that the average assurance value will constitute
50% of the loan amount. The amount of the collateral will depend, i.a. on the risk related to
the performance of a given project and the industry in which the client operates.
   Implementing the package will allow the development of a safe loan operation up to the
level of BPLN 20, in 2009.


   The package inter alia assumes:
   •   increasing the capital of Bank Gospodarstwa Krajowego to BPLN 2. This at the
       same time requires naming the role of BGK as the organizer and re-guarantor as well
       as active participant of the assurance system as well as entity supporting the process of
       servicing the assurances and guarantees of the National Treasury.
   •   the government approving, in the form an ordinance by the Council of Ministers,
       the program specifying the model, standards and development directions as well as
       rules of monitoring assurance activity.



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   •   amending the law on assurances and guarantees granted by the National Treasury
       and certain legal persons enabling i.a.:
           − the system participants granting assurances (BGK and assurance funds)
              according to the rules specified in the government program,
           − implementing new products, such as e.g. bid bonds, leasing, factoring, capital
              investments, contract performance bonds,
           − broadening the group of assurance/guarantee beneficiaries with e.g. entities of
              social economy
           − considerably increasing the maximal assurance amount,
           − constructing a system of local and regional assurance funds with the capital
              participation of local government units.


   •   amending the law on the regional and county government, which will enable capital
       investments and creating assurance funds in the form of commercial companies meant
       to improve the conditions of constructing stability of the assurance system with
       maximal use of EU funds (involving the funds from the Regional Operating Programs
       to provide capital for the assurance funds).


   Speeding up investments co-financed from EU funds


   In order to speed up the investments carried out via public institutions and financed by
structural funds and Cohesion Funds in 2009 it is important to increase the amount for
qualified expenses, certified by the European Committee, which are planned for this year.


   As a result of intense consultations with the departments and regional governments
responsible for implementing the operating programs of prospects 2007-2013, a possibility
was created, of expending funds from below BPLN 10 to BPLN 16,8 of qualified expenses –
certified by the EC until the end of 2009. At the same time measures will be taken to increase
their actual performance to even BPLN 21,4.


   The efforts to speed up the structural expenses are accompanied also with the package of
anti-crisis actions issued by the European Committee, approved in the Committee
Communication to the European Council and Parliament of 26 November 2008, entitled the


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European Economic Recovery Plan. Several of its important elements concern the changes
providing more flexibility to the implementation of the European funds1. These include:
    •   increasing the advance payment paid within the European Fund of Regional
        Development and the European Social Fund to member states by the European
        Committee in 2009, by additional 2% in relation to allocation, which may contribute
        to the state budget more than BPLN 3 of additional income next year,
    •   allowing the possibility to file payment applications in the so-called “large projects”
        still before the decision of the EC to approve these projects for co-financing.
    •   possibility to prolong the period for qualifying expenses for programs of prospects
        2000-2006 beyond the end of 2008.
    •   implementing the possibility to settle general costs in the programs co-financed from
        the European Fund of Regional Development on a flat rate, as has been the case so far
        in the programs of the European Social Fund – which should contribute to spending
        the European funds faster.
    •   broadening the scale of advance payment options for project beneficiaries even to
        100% of project value.


    Introducing a higher investment relief for newly established companies.


    In order to encourage investments, especially of small Polish companies, the government
will introduce a project of amending the law on income tax from legal entities. It should be
stressed that the increase of employment in small companies takes place faster with new
investments, and the cost of a new job is lower than in large companies. A company starting
its activity may write in all of its investment expenses up to the amount of TEUR 100 during
the years 2009-2010 (right now it’s only TEUR 50 for one year). This instrument would
also cover companies, which started their activity in 2008. Such a tool is meant to be used
during the economic slump, directed at entities which likely to bear the brunt of the crisis.




1
  A condition for implementing the changes proposed in the Committee Communication is a directional approval
of the European Economic Recovery Plan during the European Council on 11-12 December 2008 and then
conducting appropriate changes in the currently binding community Ordinances concerning expending European
funds. It is estimated that the legislation process in the European Institutions (EU Council and Parliament) may
last about 3-4 months.

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   Removing barriers for investments in informatics communications infrastructure


   In order to increase the investment demand, especially in the informatics communications
industry, it is important to as quickly as possible implement the plan of actions developed by
the Committee of the Council of Ministers for IT and Communications including changes of
regulations eliminating the investment obstacles in these sectors. It assumes changes i.a. in the
act on spatial planning and development, the geodetic and cartographic law act, the
Environment protection law act and the Construction Law act. The actions recommended
by the Committee include:


   •   changing the definition of a public benefit investment, so that it covers
       telecommunications investments, which should facilitate obtaining decisions on
       investment location in a given area;
   •   analyzing and removing barriers from the procedure of passing local spatial
       development plans;
   •   creating clear and accessible regulations specifying the conditions of an area’s
       development and fittings, freeing the investment process from one time decisions of
       administrative authorities;
   •   simplifying the procedures related to the local spatial development plans, i.a.
       specifying the requirements in the scope of telecommunications concerning the
       contents of the local spatial development plan, specifying the rules for the
       participation of the investors carrying out a public benefit investment in the costs of
       preparing a local spatial development plan, implementing premises for suspending the
       proceedings, and implementing plan arrangement dates;
   •   adding an ordinance on the matter of technical conditions, which should be fulfilled
       by    the   buildings,   their   location,   installations   providing   access   to   the
       telecommunications networks and services.
   •   broadening and specifying the catalogue for removing the obligation to obtain a
       building permit, so that it explicitly covers elements of telecommunications
       investments. The catalogue of releases covers e.g. construction activities other than
       construction (e.g. re-development      and assembly) concerning telecommunications
       facilities, telecommunications and power terminals as well as telecommunications
       installations;


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   •     specifying the following terms in the act on public roads: “device of technical
         infrastructure not related to the needs of road management or needs of road traffic”
         and “construction facility not related to the needs of road management or needs of
         road traffic,” as to clearly define the status of the lines and other elements of the
         telecommunications infrastructure. Initiating projects as part of public and private
         partnership.


   In order to increase the investment demand in the sectors of telecommunications, power,
construction or services, it is important to initiate projects as part of the public and private
partnership, covering e.g. providing national broadband internet access or creating a next
generation network (NGN) providing internet access with much higher bandwidth (around 10
Mb/s).


   Speeding up works and their better coordination in the area of actions for development
and investments in informatics communications, will be accomplished by the performance of
the program DIGITAL POLAND, meant to integrate the private and public enterprises in
order to quickly improve the national internet access and prepare digitalizing projects,
changing the function of television. The Prime Minister in the coming days will appoint a
special inter-department team for carrying out the Digital Poland programme.


   Preventing the taxation of research expenses


   A system of benefits for entities conducting innovative and developmental activity will be
implemented. Currently it is possible, either via 12 month depreciation, or via one time
deduction, but only once the works are completed. Withholding the settlement of the costs of
conducted development works is especially unfavorable when the process takes several years.
For tax purposes, the taxpayers do not acknowledge the expenses actually incurred for the
development of products, processes, projects, etc, until the process is complete. This is why
providing entrepreneurs the option to fully settle the incurred costs, as they arise, already
during the progress of works, may contribute to significantly supporting development.


   An optimal variant would be to approve a solution where the taxpayers would have the
option to choose between running settlement of research expenses as costs of generating



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income and acknowledging the results of these works as a non-tangible and legal asset,
subject to settlement in the form of depreciating deductions.


   Supporting investments in renewable energy sources


   One of the symptoms of the financial crisis is the banks applying restrictive procedures
when granting loans. This is particularly harmful in case of investments in the field of
renewable energy sources, as they are typically carried out by SPVs, securing the loans with
assets generated during the investment process (Project Finance). These entities are viewed by
the banks as particularly risky, because they do not have a loan history, income from other
economic activities or existing assets which could serve as additional collateral for the loans.


   In this situation it is especially important to develop a mechanism, which would enable
the performance of these investments in RES despite the increased risk. A way to
financially close these investments is to support investments in the form of borrowings
granted from public funds. This will allow to transfer the investment risk to the public partner.
Due to this NFOŚiGW should provide larger financing for these investments by granting
loans and speed up the payment of funds from the payments made by the distributors of
electricity for too low supplies of energy from renewable sources.


   By mid 2009 this should bring the Fund the amount of about BPLN 1. Fast distribution of
these funds by granting loans will allow to launch investments with the total value of BPLN
1,5-2,5 reinforcing the demand i.a. for construction and assembly services.




   Reinforcing the position of the power industry recipients, reinforcing competition and
the position of the regulator in order to protect the economy and households against the
uncontrolled increase of energy prices


   Package of changes to the regulations of the act – Energy law covers three areas of
regulations meant to: reinforce the position of recipients, reinforce competition and reinforce
the position of the regulator. These changes also improve the conditions for the
implementation of the public aid program covering the so-called orphaned costs in the electric



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power industry, which arose after early termination of long term contracts (KDT) – a program
supervised by the European Committee.


   “The liberating package” for the electric power sector proposes the following changes:


   •   Liberalization of electric energy distribution. Current rules are not adjusted to the
       structure created after the vertical consolidation of the electric power sector and are
       unfriendly for recipients. The proposal to order the obligations of entities operating on
       the market, especially to ensure independence of distribution systems operators,
       obligations of sellers to publish their price offers for recipients and the conditions for
       their application, to order the support system for renewable energy and co-generation,
       and most importantly be involved in the wholesale of energy, are key for achieving the
       goal – a balanced development of economy and the electric energy sector in a
       competitive environment. Particularly important is the proposal to make a statutory
       obligation for energy producers to participate in the stock exchange distribution of
       energy, contested by the sector already at the stage of design works. This obligation
       should provide objective conditions for establishing prices in transactions concluded
       on the wholesale market (supervision of the Financial Supervision Committee and the
       President of URE) and minimize the pressure to increase those prices, currently
       created by companies with monopole for their activity. These regulations should also
       improve the conditions for the application of the public aid program covering
       orphaned costs, which today is the subject of speculative behaviors of some producers
       covered with this program, causing the increase in unjustified costs for recipients.
   •   Increasing the rights of energy recipients, improving the efficiency and safety of
       supplying energy. Currently there is a lack of uniform and effective regulations for
       changing a seller in the general legal regulations. The rules for changing a seller
       “forced” by the President of URE and provided for in the technical documents are not
       sufficient for the recipients, especially individuals. It is necessary to establish uniform
       rules in the legal regulations, simplify the procedures for changing a seller, provide the
       recipients changing a seller with continuous supply of energy in unpredicted situations
       (emergency supply), create a legal environment for fast settlement of disputes of
       recipients with companies by an institution of arbitration court appointed to the
       President of URE. The proposal of establishing an independent operator of
       measurements and constantly measuring the energy supplies to each recipient, is an

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          important task from the point of view power safety and efficiency. This is a condition
          for achieving visible energy savings on the level of individual recipients, as well as on
          the national level.
      •   Increasing the rights of the regulator and ensuring his independence. The
          catalogue of the current (passive) tools of the regulator is not adequate to the needs for
          him to have a pro-market influence on energy companies, especially after vertical
          consolidation. The experience of other European regulators – as well as the national
          experience from the market of telecommunications – point to the need to broaden the
          package of regulating tools, which should activate the pro-market behaviors of energy
          companies and energy recipients, and in crisis situations enable the state to make an
          intervention eliminating the risks of significant economic problems. A tool of last
          resort should be the option to establish a maximum price on the wholesale market,
          rights which may be exercised as extraordinary administrative action, especially in
          light of deteriorating economic situation on the global and European markets.


      Implementing these regulations will not increase the encumbrances for energy
companies, and it will contribute to more transparency on the market, weaken the position
of monopolistic companies, reduce their pressure on the increase of prices and thereby the
increase of encumbrances for the industry and households.


      Creating the Social Solidarity Reserve


      For the purposes of important social expenditures the budget will include the Social
Solidarity Reserve – funds obtained from the excise increase (MPLN 1140). It will be used to
finance important social issues, which may be caused with the global economic slump, such
as:
      •   Supporting the income of families living below poverty level, which will be related to
          the new model of family benefits valorization, more suited to the needs of families
          with many children,
      •   Supporting projects helping children so that the action of providing additional
          nutrition covers all persons in need,
      •   Supporting the not self-reliant, especially aged, so that they have basic aid provided
          for.



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   Should the situation change on the labor market, the Labor Fund will reinforce its activity
addressed to the long time unemployed.


   4. Performance of the Plan of Stability and Development


   All legislative projects mentioned in the package (acts and ordinances) will be approved
by the government by the end of December.
   The economic and social situation will be constantly monitored in order to develop
appropriate solutions meant to neutralize the effects of the reduced growth rate and stimulate
development.
   A special team will be appointed, under the direction of the minister of finance, to analyse
the situation and ongoing processes and present recommendations to the Council of Ministers.
The unit’s task will also be to maintain constant contact with social, business and banking
circles in order to exchange information and search for solutions / proposals supporting the
Polish economy.




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