Poland Structure of the Economy

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Poland - Structure of the Economy

Structure of the economy

Although Poland possessed abundant supplies of some natural resources, the structure and administration of the centrally planned system had long caused misallocation of those resources and of investment funds among the economic sectors. In addition, the cutoff of critical industrial inputs from the Soviet Union required major restructuring and rebalancing of all sectors.

Power Generation

In 1989 the electric power generation industry comprised seventy enterprises. Between 1980 and 1991, the industry's power production increased from 122 billion kilowatt hours to 135 billion kilowatt hours. By 1990 a large proportion of obsolete or aging generation machines and equipment required replacement. Modernization was especially critical to achieve efficient utilization of fuels and to reduce transmission losses through the national power grid. A wide range of technical improvements and higher energy prices were expected to reduce losses and waste in 1992, making possible a subsequent reduction in annual power generation to 128 billion kilowatt hours. Estimates of energy price increases necessary to achieve conservation ranged as high as five times the subsidized levels of the late 1980s. Meanwhile, obstacles to energy conservation included the lack of meters to measure consumption, widespread use of central heating without charges proportional to consumption, and the high cost of new generating equipment, such as boilers, needed to upgrade generation efficiency.

During the communist period, hydroelectric power stations were not expanded because of the easy availability of the lignite burned in conventional thermoelectric plants. All hydroelectric stations existing in 1992 were built before World War II. Plans in the 1980s called for construction of three nuclear power stations. The first, at Zarnowiec in south-central Poland, was scheduled to open in 1991 and be at full production in 1993. After long years of construction and controversy, however, doubts about the safety of the station's Soviet-made equipment (similar to that used at Chernobyl') caused the first postcommunist government to abandon the project. Some 86 percent of participants in a 1990 referendum voted against completion. A second station had been started near Klempicz in west-central Poland, but work on it was stopped in 1989. The third station never passed the planning stage, and in 1992 Poland remained without any nuclear power capacity. It had, however, joined its Comecon partners in investing in large nuclear stations in Ukraine, from which Poland received power in the 1980s.

The World Bank's advice on restructuring Poland's power industry included reorganization into four or five companies with seventeen regional subsidiaries responsible for power distribution. All these companies initially would be state owned but eventually would be privatized.

More about the Economy of Poland.

Oil and Gas

After rising sharply in the early 1970s, domestic oil production dropped and remained at about 350,000 tons per year into the 1980s because no new deposits were discovered. Domestic oil had never accounted for more than 5 percent of total consumption, but even this figure had dropped sharply by 1980. Under these circumstances, the Soviet Union supplied between 80 percent and 100 percent of Poland's imported oil, with some purchases from the Middle East when market conditions permitted. Poland received Soviet oil through the Druzhba Pipeline, which remained the chief source of imported oil in early 1992. The line supplied the major refinery at Plock. Oil arriving by ship from other sources was processed at a refinery near Gdansk. In 1992, however, the pattern of Polish oil imports changed markedly. Because the Druzhba Pipeline was considered subject to political pressure and delivery taxes by the countries through which it passed, and because Russian crude oil was high in environmentally undesirable sulfur, Poland cut imports from that source from 63 percent in 1991 to 36 percent in 1992. The gap was to be filled by North Sea (British and Norwegian) oil imports, which rose from 19.5 to 26 percent in 1991, and by the Organization of Petroleum Exporting Countries (OPEC) imports, which rose from 17.5 to 38 percent in 1992. To accommodate more North Sea oil, the transloading capacity of the North Harbor facility at Gdansk was doubled in 1992.

Domestic natural gas provided a much higher percentage of national consumption than did domestic oil. Although pipeline imports of gas from the Soviet Union rose sharply in the 1970s and early 1980s, reaching 5.3 billion cubic meters in 1981, domestic output remained slightly ahead of that figure. Domestic natural gas exploration was pursued vigorously in the 1980s, but equipment shortages hampered the effort. By 1991, however, Polish experts declared the country potentially self-sufficient in natural gas; in 1990 and 1991, large-scale agreements with United States firms brought about new exploration in Silesia and made possible extraction of gas from Poland's many intact coal seams. New domestic gas sources opened the prospect of reducing reliance on coal and saving the hard currency spent on the 7 billion cubic meters of gas imported (mostly from the former Soviet Union) in 1991. No natural gas was imported from the West in 1991, nor did plans for 1992 call for such imports. At the end of 1991, a new agreement with Russia maintained both oil and gas deliveries from that country at approximately their previous levels. (Some 5 million tons of oil were delivered from Russia in 1991.) At the same time, plans called for linkage of Polish and German gas lines as early as 1993, making Poland's gas supply more flexible.


In 1992 coal continued to play a central role in the Polish economy, both in support of domestic industry and as an export commodity. In 1990 about 90 percent of the country's energy production was based on hard coal and lignite. The two largest mines extracted over six million tons each in 1991, but the average mine produced between one million and three million tons. Compared with coal mines in Western Europe, Polish mining was quite inefficient because of isolation from technical advances made in the 1980s and, more recently, lack of investment funds for modernization.

Because the communist regimes ignored profitability in establishing quantitative output targets, coal output was expanded irrespective of costs, and inefficient mines were heavily subsidized. At the same time, the extensive type of mineral exploitation called for by central planning caused a very high ratio of waste (about 24 percent of output) as well as heavy environmental damage. Under the new planning system, a lower annual output is expected, but production operations are to be justified by profitability.

At the end of the 1980s, some eighty-four shaft mines and four large open-cast lignite mines were in operation. Plans for the 1990s call for closing many of those mines. In 1991 annual coal output declined from the 193 million tons mined in 1988 to 140 million tons, and output was expected to remain at the lower level in 1992. During the same period, extraction of lignite declined from 73 million tons to 69 million, with 70 million tons the maximum annual output expected for the next few years. In 1989 about 16 percent of Poland's coal and 19 percent of its coke were exported. In 1990 these shares increased to 19 percent and 26.6 percent, respectively, because a recession reduced domestic demand for coal.

The postcommunist governments abolished centralized allocation of coal and partially liberalized prices. By 1992 a relatively free coal market had been created, and subsidies were gradually reduced. This process also abolished the central administrations for coal mining and for electricity generation that had ensured state monopoly of those industries and perpetuated wasteful resource management. The reform program made both coal mines and power generation plants autonomous state enterprises fully competitive among themselves. To offset the loss of subsidies, price increases of as much as 13 percent were contemplated, although the planned rise of 5 percent had already aroused strong objections from industrial customers. The 1991 economic restructuring program of the Bielecki government envisaged establishment of ten independent and competing coalmining companies, several wholesalers, and one export agency. Following the World Bank's advice, a holding company for lignite mines was also considered.

By the end of 1991, however, the Polish coal industry was in serious economic trouble. Fifty-six of sixty-seven mines ended 1991 showing losses, and only seven showed profits sufficient to cover all obligations. In 1991 government subsidies dropped from their 1990 total of 9.1 billion zloty to 5.9 billion zloty, but individual mines still received as much as 2.2 billion. Liquidation, already accomplished at six mines by 1992, cost between 0.6 and 1.5 billion zloty per mine, not counting the economic cost of added unemployment (coal mining in Poland is much more labor intensive than in the West). An alternative solution, combining individual mines into complexes, had been attempted in the 1970s efficiency campaign but did not have the expected impact. In mid-1992, mines and power plants had large coal surpluses that seemingly could not be alleviated by domestic consumption. At that point, the disparity between low domestic demand and continuing supply threatened to raise unemployment by forcing more mines to close.

Fishing and Forestry
Banking and Finance

Fuels and Energy

Poland's fuel and energy profile is dominated by coal, the only fuel in abundant domestic supply. Because of lopsided and uneconomical dependence on this single fuel, the fuels and energy sector of the economy was a primary target for reorganization and streamlining in the early 1990s. In 1989 production of coke and extraction and refining of gas and oil accounted for 4.9 percent of Poland's total industrial base. Electrical power generation accounted for 2.9 percent. However, these statistics were downward biased by the very low, heavily subsidized prices of the products of those industries. Higher, market-established prices of fuels and electricity were expected to induce more economical fuel consumption, as were modern fuel-saving technologies in industry, construction, and transportation and gradual elimination of the most heavily fuel-intensive industries. By 1991 official policy had recognized that making such changes was less expensive than continuing the cycle of higher energy demand and production characteristic of the centrally planned economy.

You can read more regarding this subject on the following websites:

Poland Economic Structure | Economy Watch
Economy of Poland - Wikipedia
Poland Overview - World Bank Poland
Poland GDP - composition by sector - Economy - IndexMundi
Poland Economy 2018, CIA World Factbook

Poland Country Studies index
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