Ready for Action

Poland’s PPP market is ripe for investment. It has been said before, but Marina Formoso explores why this time could be the right time

The end of EU funds for infrastructure projects in 2020 will urge Poland to look at new formulas of finance, and experts believe this will include the PPP formula. The PPP model in Poland has political support, especially after the approval of several reforms of the law in recent years. However, local governments still need training and international investors can miss out on attractive projects.

In previous years, Poland has largely relied on EU funds to develop its main infrastructure projects such as highways, railways, and inland waterways, as they were, are eligible for the scheme. During 2007-13, Poland became the second largest recipient of EU funds, with around EUR46.5bn of financing under the EU’s infrastructure and environment programme. The 2014–20 EU budget proposal earmarked another EUR 27.4bn for key road connections, environmentally friendly transport and energy efficiency projects.

However, that latter EU budget is likely to be the last to feature such abundant resources for the development of transportation infrastructure. As a result, the Polish government is being called on to look at other financing sources such as PPP.

“Everybody is saying that Poland will have fewer funds in the future, so we can see the agenda is moving towards PPP because it’s additional finance. We will definitely see more PPPs when the EU funds dry out,” says Marta Fredrych, an associate at Baker McKenzie.

“A good macroeconomic environment and political support towards PPPs add to the expectation that many new PPP projects will be starting in the coming years,” says Malgorzata Olech, senior associate at Squire Patton Boggs.

Perhaps with this in mind, efforts have been made to update the country’s PPP law and bring it up to international standards. Last September, the government approved a bill introducing the so-called ‘PPP test’, consisting of an analysis comparing the procurement of a project under a PPP versus under a traditional scheme. This process is complemented by a ‘certificate’, for which the Ministry of Investment and Economic Development can approve the test and also determine if a project was eligible for the scheme.

The idea behind this bill was to create awareness at a local government level of the existence of the PPP scheme. The government also wants to eliminate barriers to the implementation of PPP projects – an initiative that has been positively received by experts. “The main concept of this update is to guide local governments towards PPPs and in case they don’t want to use the scheme to justify why it is not eligible for them. We believe this is going to increase the number of PPPs,” explains Marcin Bejm, head of infrastructure and project finance at CMS Poland.

And there is much to be positive about when it comes to the potential in the market, particularly given the attitude of the government towards PPPs. For a start, the Ministry of Investment and Economic Development will contain a PPP unit – albeit one that has limited capacity to launch PPP projects itself. This is because investments in a particular sector depend on the decisions of each individual ministry, where ministers may not always be as enthusiastic about PPPs.

Despite having had PPP plans for well over a decade, Poland has always struggled to get schemes off the ground. At one time, it was renowned in the investor community as the PPP car park capital, with few projects that the market could get excited about – especially at a time when markets such as the UK were pumping out a host of enticing schemes.

As a result, Poland has suffered over the years from a lack of knowledge in PPPs – something that is exacerbated when one considers that local governments also play an important role when procuring infrastructure projects. “Experts say that the government should try the PPP formula more often just for the sake of practising and getting more experience in PPPs,” says Michał Zieniewski, local partner at law firm White & Case Poland.

“Local governments have been traditionally concerned about the complexity of the PPP formula and are not experienced in running competitive dialogue procedures smoothly. However, to new local governments elected last autumn, I would suggest they use co-financing offered by the ministry to hire advisory services.

Hopefully, we will see some decent PPPs coming up in the near future.” In this vein, the Ministry of Development has recently appointed a group of advisors to oversee the procurement process for several road PPP projects in the areas of Kuyavian-Pomeranian Voivodeship and Wloclawek.

However, despite the positive climate, this has not yet translated into a pipeline of projects large enough to attract the attention of international investors. While the pipeline may suggest that there are 137 PPP projects – with a total value of PLN51bn (EUR11.9bn) – the vast majority are small projects with a value of less than PLN50m (EUR11.6bn) each.

Although small, the fact that local governments are considering PPP is being seen as a positive and demonstrates that a number of municipalities that are ready to experiment and think about investments with PPP scheme. “When we look at the pipeline, the most interesting project is the EUR170m incineration plant in Olsztyn, which will be the main source of heat in the town,” says Bejm. “On March 21 international and national bidders submitted offers, for a project that is expected to be key in Olsztyn.” There are four significantly large road projects in the pipeline: the S6 beltway of the Tri-City Metropolis; the S6 Koszalin – Bożepole Wielkie road; the S6 western bypass of Szczecin; and the S10 Bydgoszcz – Toruń road. These projects will be procured on design, build and finance contracts under a 30-year concession on an availability basis – thereby avoiding tolls.

Other larger and well-known projects include the Central Communication Port near Warsaw; an EUR8bn airport with capacity for 100 million passengers, which also includes the construction of rail and road infrastructure; and the EUR2.1bn Central Port in Gdansk.

“I think international infrastructure players are quite enthusiastic about these opportunities, but at the same time, they must be realistic about the pace at which these projects may be launched. One of the road projects is expected to be launched in 2019 and we are waiting for this to happen,” says Zieniewski. Bejm also warns that the slow pace of progress can make investors look the other way despite planning a big pipeline. “There are many projects on the table and we know that there is another pipeline waiting to be announced. It is good that the government has started to be more and more involved with their own projects but still we suffer from a very slow pace of work as well as a lack of adequate know-how in the public entities.”

However, others are urging greater patience. “We would not criticise Poland for being slow,” says Fredrych, adding: “Procurement processes take one to two years everywhere in the world. “We think the Ministry of Investment and Economic Development is doing the right things: the new PPP unit has just published PPP document templates for everyone to have; it is conducting training programmes for local governments, which include conferences with the private sector; and it is also sponsoring several viable projects,” she concludes. “We think all this effort will help a lot to speed the processes.”