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Polish local governments start spending KPO funds, fear time is too short

ECONOMYPolish local governments start spending KPO funds, fear time is too short

“The funds from the National Recovery Plan (KPO) and the new EU budget, which is also starting to be spent now, may be our last chance to secure such substantial external funding,” says Magdalena Czarzyńska-Jachim, the Mayor of Sopot. She points out that Polish local governments already face significant delays in spending the funds from the National Recovery Plan, making the 2026 deadline a potential challenge. “As local government, we primarily expect very quick competitions and programs. We also expect at least part of the loan component to be shifted to the grant component, or a government declaration that these loans might be partially forgiven. Without this, it will be very difficult for us,” emphasizes the Mayor of Sopot.

While other EU countries have been spending funds from their National Recovery Plans for over two years, Poland is just beginning to utilize these resources. Previous disbursements were delayed due to a prolonged dispute between the former United Right government and the European Commission over judicial independence. As a result, Poland now faces significant delays in spending KPO funds and implementing the planned investments and reforms. European Commission President Ursula von der Leyen announced the unblocking of these funds only at the end of February this year, following negotiations with the new government.

“All European cities, except Polish ones, have long been using funds from the National Recovery Plan for development. We have also been waiting for these funds for a long time, and we are only now starting to spend them. In Sopot, we have already secured funds from the KPO to increase the availability of nursery places, but we are still waiting for the ‘Green Cities’ component,” says Magdalena Czarzyńska-Jachim to Newseria Biznes during the European Financial Congress in Sopot.

According to the Ministry of Funds and Regional Policy, Poland will be able to use a total of PLN 253 billion under the National Recovery Plan, of which PLN 109 billion are non-repayable funds, and PLN 148.6 billion are preferential loans. These funds will be used to carry out 56 investments and 55 reforms aimed at strengthening the Polish economy post-COVID-19, making it resilient to future crises, and setting it on new development paths. It is estimated that the implementation of the KPO in 2024 will increase the real GDP level by an additional 0.5 percent, and by 2027 we will gain an additional 0.9 percent.

In addition to KPO funds, Poland will also receive record cohesion policy funds for the 2021–2027 financial perspective. This amounts to a total of EUR 76 billion, or over PLN 340 billion, the largest budget among EU countries. Funds from the EU cohesion policy have been allocated to national and regional programs. Local governments will receive about PLN 150 billion (EUR 33.5 billion) from this pool, which is a record financial boost intended to improve transport accessibility, revitalize the labor market, and support small and medium-sized enterprises.

“KPO funds are primarily for green transformation, but also for modern technologies and services for residents. Here, we definitely want to strengthen smart cities, that is, new technologies in city management. We also intend to invest heavily in digital competencies in our schools, with particular emphasis on teachers,” lists Magdalena Czarzyńska-Jachim. “However, everyone is probably most looking forward to projects related to greening cities, that is, green transformation.”

According to EU requirements, the majority of KPO funds are to be allocated to climate goals (46.6%), digital transformation (21.3%), and social reforms (22.3%).

In April this year, the Bank Gospodarstwa Krajowego (BGK), based on an agreement with the Ministry of Funds and Regional Policy, launched “Loans supporting the green transformation of cities,” a financial instrument funded by the National Recovery Plan. The budget for this project is EUR 8.9 billion, or about PLN 40 billion, and local governments will be able to finance everything that makes a city clean, green, modern, and more resident-friendly, such as the construction or revitalization of parks and bike paths, greening urban spaces, zero-emission public transport, thermomodernization and revitalization of buildings, investments in renewable energy sources (RES), or projects aimed at adapting to climate change and preventing biodiversity loss. The preferential loans will be granted for 20 years, with the possibility of forgiving up to 5% of the capital and a low interest rate of 0 or 1%. Importantly, local governments will also be able to finance ongoing projects with these funds. The BGK program will be open for applications until the third quarter of 2026, on an open and continuous basis until the funds are exhausted.

This month, organizers and operators of public transportation can apply for support to purchase new tram rolling stock, which should also be adapted for people with disabilities and reduced mobility. The funds allocated for this purpose amount to PLN 866 million.

“As the local government side, we make a strong appeal to the government to allow us to refinance from the KPO also those projects that we have already completed during the time when the KPO was in force in other countries but the funds were not yet available to us. These are investments that fully meet the milestones,” says the Mayor of Sopot. “Without this refinancing, it will be very difficult for us to obtain these funds. Especially since for local governments these are mainly loans – advantageous, but still loans, which limits our ability to obtain them.”

The fact that many KPO-funded programs are based on loans rather than non-repayable grants can pose a significant problem for some local government units (LGUs), whose current financial situation is not very good. In practice, the barrier may be raising funds for their own contribution or the need to find money for VAT. Local governments also point out that the time to use billions from the National Recovery Plan may be too short, as most of these funds must be spent by 2026. Meanwhile, two years is not much time to prepare a project and implement it, especially for large investments.

“As local government, we primarily expect very quick competitions and programs. We also expect at least part of the loan component to be shifted to the grant component, or a government declaration that these loans might be partially forgiven, because without this it will be difficult for us. This is in the interest of all of us – the government, local governments, and above all our residents – to effectively use every zloty from the KPO allocated to Poland,” says Magdalena Czarzyńska-Jachim. “This is the last moment. The funds from the KPO and the money from the new EU budget, which is also starting to be spent now, are our last chance to secure such substantial external funding. After that, we will no longer be such a significant beneficiary. Therefore, we must do everything to, first of all, obtain these funds, and secondly – and more difficult – to manage to spend them.”

Due to the over two-year delay in implementing the National Recovery Plan, the coalition government conducted its review at the beginning of the year, aiming primarily to minimize the risk that Poland will not be able to use all the funds from the KPO and will not receive all the reimbursement of payment requests from the European Commission. The new version of the KPO is already mostly agreed with the EC and is expected to be approved in the summer.

The government also plans to negotiate with the European Commission next year to extend the deadline for settling expenditures from the KPO. The negotiations would be conducted in a coalition with other interested EU member states that, like Poland, may have difficulties completing all the projects planned in the KPO on time.

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