Copper city strives to diversify
For the past 30 years, copper giant KGHM Polska Miedz has brought prosperity to the town of Polkowice in western Poland. But this summer, the town of 25,000 has begun to turn its back on its benefactor.
Polkowice's mayor and city council have decided to take a forward view - 30 years forward to be exact. That's when two KGHM mines, Rudna and Polkowice-Sieroszowice, within the Polkowice gmina will likely run out of copper. That will mean the loss of thousands of jobs and millions of zloty in tax revenue for Polkowice.
Unlike many other one-industry towns around Poland faced with a downturn due to economic change, Polkowice isn't trying to hold on to or bolster its main bread winner. Instead, it's looking to diversify.
"We can't sit in KGHM's pocket forever," said Polkowice Mayor Emilian Stanczyszyn. "We should learn from the experience of other mining towns, like Walbrzych, and take the necessary steps before it's too late."
This thinking prompted Stanczyszyn and the city council four years ago to undertake a strategy of finding new investors and developing what it hopes will be the town's industry of the future - tourism.
Now both these projects are coming to fruition. Aquapark, a new, city-financed theme park of swimming pools and water slides opened this spring. And last week Volkswagen broke ground to build two new factories in Polkowice's part of the Legnica Special Economic Zone (SSE).
The city hopes that the first will bring new consumers to town, while the second will provide a new job base and act as a magnet for other businesses that have nothing to do with the mining industry.
Finding new taxpayers is especially important for the town because 30% of its 1998 budget revenue of zl. 95 million ($27.2 million) came from KGHM. When the copper mine's subsidiaries and contractors are added in, the company accounts for about 90% of Polkowice's budget.
The town has already learned that this cash cow may one day run dry and so is looking for more varied financing sources.
When talking about the sea-change now underway in Polkowice's economic development, residents point to the mayor as the driving force behind the town's vision for the future.
The 35-year-old Stanczyszyn became mayor four years ago, after working for two years in city hall. He originally studied electric engineering, receiving a degree from Wroclaw Polytechnical University. He then received a degree in business administration and followed this up with a number of courses on investment, finance and banking.
Stanczyszyn's studies convinced him that the gmina should be run like a company and by professionals. As a result, all members of the city board have a degree in management or finance.
Despite his business orientation, Stanczyszyn's engineering background has also influenced his thinking, namely that Polkowice's economy should be supported by three pillars: KGHM, tourism and new industries located in a special economic zone.
"That's because three-legged structures prove to be the most stable ones," he said.
The zone
Putting together the second pillar was no easy task because it required political rather than financial capital. It was also a hard sell.
Polkowice is not an impoverished area, which are usually the locations of choice for the special zones. For example, its budget revenue per capita is zl. 5,102, while Warsaw's is just zl. 776.50.
The town argued to government officials that it needed the zone if it was to have a future. Officials also used a recent loss to their advantage. In 1996, the town lost a new General Motors factory to Upper Silesia's Gliwice.
"We understood that without the zone we won't get anywhere," said Stanczyszyn. "Having the choice, all investors would choose special economic zones, due to the tax reasons."
With the nearest other zone in Walbrzych just 100 kilometers away, Polkowice argued that no one would come to its area without the tax breaks included in a zone. Special economic zone investors receive a 0% tax rate for the first 10 years of operation and a 50% break for their next 10 years.
Ultimately, Polkowice was successful and the Legnica Special Economic Zone was established in 1997. It consisted of three parts: 66 hectares in Legnica, 109 hectares in Polkowice and 207 hectares in the former Soviet airbase in Krzywa.
"I consider the successful battle for the zone one of my biggest achievements as Polkowice's mayor," Stanczyszyn said.
Poland's eventual inclusion in the European Union (EU) could lead to the elimination of many special economic zones. However, since Legnica was established before June 1997, it is considered one of six old zones that are likely to survive, lawyers said.
"I would say that the investors who are in the old zones are legally safe," said Tom Ruhan, a lawyer with Werdynski i Wspolnicy. "Even if the government decides to change the law, there will be grounds for a lawsuit."
But tax advantages were not the only reason Volkswagen decided to come to Polkowice.
"We choose this place because of very good infrastructure and its excellent location," said Friedrich Erhardt, a Volkswagen board member. Another reason was a qualified labor pool and the presence of technical and economic high schools, he added.
Others agreed that location is likely to play more of a role in Polkowice's future than tax breaks. "They are lucky to be in a right place," said Zyta Gilowska, an expert with the Institute for Market Economics, who is opposed to special economic zones.
Volkswagen plans to invest $190 million into two plants that will eventually employ 1,020 workers. Construction of the first plant, which will produce diesel engines, will start this week, while the second factory, which will be called Sitech and will manufacture car seats, is to begin in March 1999. Both factories are expected to start their operations in the middle of 1999.
Overall, officials believe that within 18 months the zone will create up to 2,000 new jobs.
"Volkswagen's success will be crucial for Polkowice," Ruhan said. "If everything goes according to schedule, the city can expect an avalanche of other investors and eventually will become independent from KGHM."
The jury will be out for some time though on the question of whether Stanczyszyn's second pillar can support even some of the revenue weight currently borne by KGHM.
"We have to wait for at least four years for an evaluation," said.
The wet way
Although Polkowice isn't known as a popular tourist destination, the city believes that with the right inducements it can at least get some of the thousands of motorists who pass it each day to stop for a while.
Developing a tourism revenue base will be dependent on these motorists. But again, Polkowice will seemingly benefit from its location. The town is situated on international route E-65, which starts in Swinoujscie on the Baltic coast and runs to Prague. In addition, it's only 100 kilometers from Wroclaw and 200 kilometers from Berlin or Prague. In 1995, for instance, 13,700 cars a day drove past Polkowice.
"We estimate that per year 2 million-2.5 million people, or consumers, drive by," said Dariusz Sekula, Polkowice's spokesman. "So we want to do everything to make them stay, even for half a day."
The town unveiled the first part of this scheme in May - Aquapark. The city-owned facility consists of a complex of swimming pools as well as a physiotherapy center. The recreation center cost zl. 55 million ($15.7 million) and is able to accommodate 500 visitors an hour or 4,000 daily.
Aquapark was profitable in its first two months of operation. In June and July it brought in about zl. 600,000 in revenue each month while costs were just zl. 300,000 each month, according to the company.
The city is hoping that the second stage of its tourist-inducement strategy will be as successful. This would consist of Polkoland, its working title, a recreational center that will include a stadium, skating rink, golf course and tennis court among other amenities.
In addition, in Paulinow, which is four kilometers from Polkowice, the city plans to build an artificial lake and horse riding facilities. However, investment plans for both projects have yet to be drawn up and approved by the city council.
Future bound
While the zone and tourism are the main planks in Stanczyszyn's strategy for charting Polkowice's future, they're not the only activity underway in the town. The city has also started to refurbish the Old Town and its surroundings. The town's center is now a large construction site, but this is a welcome development.
"Now the investments are visible," Sekula said. "For the last few years we were investing into everything that was invisible."
Either way, the city's investment program has been substantial. It has risen from zl. 19.6 million ($10.8 million) in 1993 to zl. 73 million ($27 million) in 1997 and more than zl. 65 million ($18.6 million) this year.
The city has already modernized roads, replaced its water supply, sewage and electrical systems and improved heating systems in city-owned housing buildings.
The city now has a neat look with roads and houses that wouldn't look out of place in Western Europe. "Polkowice has changed enormously," said Jerzy Jurasz, who has lived in the town since 1968. "Thirty years ago we only had a market square, city hall, church and a few houses."
Local businesses also said that each year they see more and more customers. "All the time my shop is doing better and better," said Maria Dwojak, the owner of a paint and finishing supply store since 1993.
Ironically, much of Polkowice's economic improvement has been at the expense of nearby Lubin, a 100,000 resident city that used to be the area's business base. Now Polkowice is becoming the fiscal power.
"Right now all we do we do in Polkowice and 80% of our staff is from Polkowice," said Marek Blaszkow, president of construction company Interbud, which is located in Lubin. "It's been like this for the past four years."
Polkowice's optimistic residents are confident their town will continue to grow in importance and that even with upcoming local elections the development strategy won't change. City government is currently controlled by the Alliance for Polkowice's Citizens, a group of about 30 different organizations, with Freedom Union as a major force and Stanczyszyn as a member. But even if it is unseated by the opposition Democratic Left Alliance (SLD) the strategy is not likely to change.
"We would want the present mayor to stay," said Andrzej Kulczycki, head of the SLD's election committee in Polkowice. "And we would want to continue the present policy."
Polkowice's mayor and city council have decided to take a forward view - 30 years forward to be exact. That's when two KGHM mines, Rudna and Polkowice-Sieroszowice, within the Polkowice gmina will likely run out of copper. That will mean the loss of thousands of jobs and millions of zloty in tax revenue for Polkowice.
Unlike many other one-industry towns around Poland faced with a downturn due to economic change, Polkowice isn't trying to hold on to or bolster its main bread winner. Instead, it's looking to diversify.
"We can't sit in KGHM's pocket forever," said Polkowice Mayor Emilian Stanczyszyn. "We should learn from the experience of other mining towns, like Walbrzych, and take the necessary steps before it's too late."
This thinking prompted Stanczyszyn and the city council four years ago to undertake a strategy of finding new investors and developing what it hopes will be the town's industry of the future - tourism.
Now both these projects are coming to fruition. Aquapark, a new, city-financed theme park of swimming pools and water slides opened this spring. And last week Volkswagen broke ground to build two new factories in Polkowice's part of the Legnica Special Economic Zone (SSE).
The city hopes that the first will bring new consumers to town, while the second will provide a new job base and act as a magnet for other businesses that have nothing to do with the mining industry.
Finding new taxpayers is especially important for the town because 30% of its 1998 budget revenue of zl. 95 million ($27.2 million) came from KGHM. When the copper mine's subsidiaries and contractors are added in, the company accounts for about 90% of Polkowice's budget.
The town has already learned that this cash cow may one day run dry and so is looking for more varied financing sources.
When talking about the sea-change now underway in Polkowice's economic development, residents point to the mayor as the driving force behind the town's vision for the future.
The 35-year-old Stanczyszyn became mayor four years ago, after working for two years in city hall. He originally studied electric engineering, receiving a degree from Wroclaw Polytechnical University. He then received a degree in business administration and followed this up with a number of courses on investment, finance and banking.
Stanczyszyn's studies convinced him that the gmina should be run like a company and by professionals. As a result, all members of the city board have a degree in management or finance.
Despite his business orientation, Stanczyszyn's engineering background has also influenced his thinking, namely that Polkowice's economy should be supported by three pillars: KGHM, tourism and new industries located in a special economic zone.
"That's because three-legged structures prove to be the most stable ones," he said.
The zone
Putting together the second pillar was no easy task because it required political rather than financial capital. It was also a hard sell.
Polkowice is not an impoverished area, which are usually the locations of choice for the special zones. For example, its budget revenue per capita is zl. 5,102, while Warsaw's is just zl. 776.50.
The town argued to government officials that it needed the zone if it was to have a future. Officials also used a recent loss to their advantage. In 1996, the town lost a new General Motors factory to Upper Silesia's Gliwice.
"We understood that without the zone we won't get anywhere," said Stanczyszyn. "Having the choice, all investors would choose special economic zones, due to the tax reasons."
With the nearest other zone in Walbrzych just 100 kilometers away, Polkowice argued that no one would come to its area without the tax breaks included in a zone. Special economic zone investors receive a 0% tax rate for the first 10 years of operation and a 50% break for their next 10 years.
Ultimately, Polkowice was successful and the Legnica Special Economic Zone was established in 1997. It consisted of three parts: 66 hectares in Legnica, 109 hectares in Polkowice and 207 hectares in the former Soviet airbase in Krzywa.
"I consider the successful battle for the zone one of my biggest achievements as Polkowice's mayor," Stanczyszyn said.
Poland's eventual inclusion in the European Union (EU) could lead to the elimination of many special economic zones. However, since Legnica was established before June 1997, it is considered one of six old zones that are likely to survive, lawyers said.
"I would say that the investors who are in the old zones are legally safe," said Tom Ruhan, a lawyer with Werdynski i Wspolnicy. "Even if the government decides to change the law, there will be grounds for a lawsuit."
But tax advantages were not the only reason Volkswagen decided to come to Polkowice.
"We choose this place because of very good infrastructure and its excellent location," said Friedrich Erhardt, a Volkswagen board member. Another reason was a qualified labor pool and the presence of technical and economic high schools, he added.
Others agreed that location is likely to play more of a role in Polkowice's future than tax breaks. "They are lucky to be in a right place," said Zyta Gilowska, an expert with the Institute for Market Economics, who is opposed to special economic zones.
Volkswagen plans to invest $190 million into two plants that will eventually employ 1,020 workers. Construction of the first plant, which will produce diesel engines, will start this week, while the second factory, which will be called Sitech and will manufacture car seats, is to begin in March 1999. Both factories are expected to start their operations in the middle of 1999.
Overall, officials believe that within 18 months the zone will create up to 2,000 new jobs.
"Volkswagen's success will be crucial for Polkowice," Ruhan said. "If everything goes according to schedule, the city can expect an avalanche of other investors and eventually will become independent from KGHM."
The jury will be out for some time though on the question of whether Stanczyszyn's second pillar can support even some of the revenue weight currently borne by KGHM.
"We have to wait for at least four years for an evaluation," said.
The wet way
Although Polkowice isn't known as a popular tourist destination, the city believes that with the right inducements it can at least get some of the thousands of motorists who pass it each day to stop for a while.
Developing a tourism revenue base will be dependent on these motorists. But again, Polkowice will seemingly benefit from its location. The town is situated on international route E-65, which starts in Swinoujscie on the Baltic coast and runs to Prague. In addition, it's only 100 kilometers from Wroclaw and 200 kilometers from Berlin or Prague. In 1995, for instance, 13,700 cars a day drove past Polkowice.
"We estimate that per year 2 million-2.5 million people, or consumers, drive by," said Dariusz Sekula, Polkowice's spokesman. "So we want to do everything to make them stay, even for half a day."
The town unveiled the first part of this scheme in May - Aquapark. The city-owned facility consists of a complex of swimming pools as well as a physiotherapy center. The recreation center cost zl. 55 million ($15.7 million) and is able to accommodate 500 visitors an hour or 4,000 daily.
Aquapark was profitable in its first two months of operation. In June and July it brought in about zl. 600,000 in revenue each month while costs were just zl. 300,000 each month, according to the company.
The city is hoping that the second stage of its tourist-inducement strategy will be as successful. This would consist of Polkoland, its working title, a recreational center that will include a stadium, skating rink, golf course and tennis court among other amenities.
In addition, in Paulinow, which is four kilometers from Polkowice, the city plans to build an artificial lake and horse riding facilities. However, investment plans for both projects have yet to be drawn up and approved by the city council.
Future bound
While the zone and tourism are the main planks in Stanczyszyn's strategy for charting Polkowice's future, they're not the only activity underway in the town. The city has also started to refurbish the Old Town and its surroundings. The town's center is now a large construction site, but this is a welcome development.
"Now the investments are visible," Sekula said. "For the last few years we were investing into everything that was invisible."
Either way, the city's investment program has been substantial. It has risen from zl. 19.6 million ($10.8 million) in 1993 to zl. 73 million ($27 million) in 1997 and more than zl. 65 million ($18.6 million) this year.
The city has already modernized roads, replaced its water supply, sewage and electrical systems and improved heating systems in city-owned housing buildings.
The city now has a neat look with roads and houses that wouldn't look out of place in Western Europe. "Polkowice has changed enormously," said Jerzy Jurasz, who has lived in the town since 1968. "Thirty years ago we only had a market square, city hall, church and a few houses."
Local businesses also said that each year they see more and more customers. "All the time my shop is doing better and better," said Maria Dwojak, the owner of a paint and finishing supply store since 1993.
Ironically, much of Polkowice's economic improvement has been at the expense of nearby Lubin, a 100,000 resident city that used to be the area's business base. Now Polkowice is becoming the fiscal power.
"Right now all we do we do in Polkowice and 80% of our staff is from Polkowice," said Marek Blaszkow, president of construction company Interbud, which is located in Lubin. "It's been like this for the past four years."
Polkowice's optimistic residents are confident their town will continue to grow in importance and that even with upcoming local elections the development strategy won't change. City government is currently controlled by the Alliance for Polkowice's Citizens, a group of about 30 different organizations, with Freedom Union as a major force and Stanczyszyn as a member. But even if it is unseated by the opposition Democratic Left Alliance (SLD) the strategy is not likely to change.
"We would want the present mayor to stay," said Andrzej Kulczycki, head of the SLD's election committee in Polkowice. "And we would want to continue the present policy."
