Czech companies: Ending government energy subsidies will drive up construction prices

Ending government energy subsidies for companies will lead to higher prices for construction materials, and construction firms therefore expect further cost increases that will ultimately be reflected in the final prices of new projects. The companies and construction associations contacted by ČTK said so. The government began paying the subsidies last year, when energy and fuel prices surged after the start of the war in Ukraine. The support is likely to end next year.

"The end of the subsidies is primarily significant for manufacturers of construction products and materials; they are the first to be affected. And, of course, it affects construction as a whole, because ultimately prices will rise or construction contracts will remain at their current levels," said Jiří Nouza, president of the Czech Association of Construction Entrepreneurs.

He said that competition could also influence developments, but only to a limited extent. "If competition is taken to an absurd extreme, it could lead to the possible collapse of the 'weaker players', and the cycle of economic damage will begin again," Nouza said.

According to construction companies, the end of the subsidies will, for example, lead to higher brick prices. This is also why brick manufacturers are currently modernizing their facilities, which could help save on energy-related costs, said Jan Fiala, secretary of the Brick Association of Bohemia and Moravia.

"Unfortunately, we have to get used to the fact that prices from 2020 will not return. The current decline in construction output will allow brickmakers to modernize their production plants without putting material supplies to customers at risk," Fiala added.

According to Daniel Urban, head of the Steel Union, the end of state energy support is just another step that will lead to higher steel prices and weaken the competitiveness of Czech steelmakers in the domestic and European markets. "Other factors include an increase in corporate income tax, the end of the tax exemption for fossil fuels used in metallurgical processes, and zero crowns allocated to compensate for indirect costs related to allowances under the European Union Emissions Trading System. The draft state budget and consolidation package are outright anti-business, which is a big surprise and disappointment for us," Urban said.

Radim Mana, a spokesperson for Metrostav, also believes that the end of the subsidies will affect the entire construction sector. He said it should not be overlooked that the renewed rise in fuel prices will also feed into construction costs, increasing transport expenses. For similar reasons, construction company Vinci Construction has begun investing in renewable energy sources at its sites.

"Government support provided temporary relief, but we never relied on it. We looked for ways to deal with the situation ourselves, including with a view to the future," said Iveta Štočková, a spokesperson for Vinci Construction.

At the beginning of October, the government announced that from January it would stop subsidizing energy prices for both businesses and households. According to Industry Minister Jozef Síkela (STAN), this will make electricity up to ten percent more expensive for households than this year. The potential price increase is mainly due to part of the renewable energy surcharge being shifted back to consumers. They will again pay a fee of 599 crowns for every megawatt-hour of electricity consumed. The state has paid 56.4 billion crowns in subsidies to offset high energy prices. According to an estimate by the Energy Regulatory Office (ERÚ), total costs for supporting renewable energy sources will amount to around 36 billion crowns next year.

A combination of pandemic measures, disrupted logistics, high global demand, and rising energy and emissions allowance prices after 2020 drove up construction material prices significantly. In 2021, prices rose by several dozen percent. Although construction materials and steel have seen year-on-year price declines this year, they were still 40 percent more expensive in June than at the beginning of 2021, according to the ÚRS CZ price system.

According to the latest data from the Czech Statistical Office, construction output in Czechia slowed its year-on-year decline to 0.2 percent in August, from 2.1 percent in July. Analysts contacted by ČTK had previously agreed that the decline was mainly due to insufficient demand, and therefore investors' reluctance to start building new projects. They said construction costs are being driven up by high interest rates and inflation, as well as the prices of construction work and materials.