The abolition of the government’s energy allowance for companies will lead to a rise in the price of building materials, and construction companies expect a further increase in costs, which will subsequently be reflected in the final prices of new projects. The government started paying the allowances last year, when energy and fuel prices soared after the start of the war in Ukraine. The support is likely to end from next year.
“The end of the allowances is primarily crucial for producers of building materials and materials, they are the first to be affected. And, of course, it affects the construction industry as a whole, because it will ultimately make construction contracts more expensive or keep prices at current levels,” said Jiri Nouza, president of the Union of Construction Entrepreneurs. According to him, the development may also adjust the competitive struggle, but only partially. “If the competitive struggle is brought to an absurd level, it may then result in possible bankruptcies of ‘weaker pieces’ and the carousel of economic damage starts anew,” Nouza said.
The end of the allowance, for example, will make bricks more expensive, according to builders. According to Jan Fiala, secretary of the Brickmakers’ Association of Bohemia and Moravia, this is also why brick producers are currently looking at modernising their operations, which could also save energy costs.
“Unfortunately, we have to get used to the fact that the prices of 2020 will not return. The current decline in construction production will allow brickmakers to modernise their production plants without jeopardising the supply of material to customers,” Fiala added.
According to the head of the Steelworkers’ Union, Daniel Urban, the end of state support for energy is just another step that will lead to an increase in steel prices and a deterioration in the competitiveness of Czech steel mills on the domestic and European market. The draft state budget and consolidation package is downright anti-business, which is a big surprise and disappointment for us,” Urban said.
Metrostav spokesman Radim Mana also thinks that the end of subsidies will affect the entire construction industry. According to him, it cannot be forgotten that the prices of construction work will also be affected by the renewed increase in fuel prices, which will increase transport costs. For similar reasons, the construction company Vinci Construction has started investing in renewable energy sources at its sites.
“We were temporarily relieved by the government support, but we did not rely on this support in any way. We were looking for ways to solve the situation ourselves, even with a view to the future,” said Iveta Štočková, spokesperson for Vinci Construction.
The government announced in early October that it would stop contributing to energy prices for both companies and households from January. According to Industry Minister Jozef Sikely (STAN), this will make electricity more expensive for households by up to 10 percent compared to this year. The reason for the possible price increase is mainly the transfer of part of the fee for renewable energy sources back to consumers. For every megawatt-hour of electricity consumed, they will again pay a fee of CZK 599. The state has paid CZK 56.4 billion in contributions to compensate for high energy prices. The Energy Regulatory Office (ERO) estimates that the total cost of supporting renewable energy sources next year will be about CZK 36 billion.
The combination of anti-pandemic measures, suspended logistics, high global demand and rising energy prices and emission allowances after 2020 has significantly increased the prices of building materials. By 2021, their price has risen by higher tens of percent. Although building materials and steel have seen year-on-year price declines this year, they were still 40 per cent higher in June than at the start of 2021, according to the CRS CZ price system.
According to the latest data from the Czech Statistical Office, construction output in the Czech Republic slowed to a 0.2 per cent year-on-year decline in August from 2.1 per cent in July. Analysts earlier agreed that the decline was mainly due to insufficient demand and thus investors’ scepticism to start building new projects. According to them, high interest rates and inflation, as well as the price of construction work and building materials, are increasing the cost of construction.
Source: CTK
