Polish-ing up

Andrzej Debiec partner, Inez Handzlik, lawyer, Hogan Lovells

Since Sita Zielona Energia was chosen as the preferred bidder in the first and largest PPP deal in Poland’s energy from waste sector – in the city of Poznań – the market has become a hot topic in the country.

PPP was introduced into the Polish legal system in 2009 and is still considered quite an innovative approach. It has been most popular for smaller or medium undertakings such as parking lots, swimming pools and other sport venues, apartment construction works or healthcare buildings. Most of the projects have been conducted through concessions and were between £1m-10m in value.

Without any doubt, Poznań’s experiences will spark the initiation and conducting of major PPP undertakings in Poland, for example the Łodź waste-to-energy facility tender, which is to be announced in mid-2013.

The idea should become more popular, especially given that as Poznań was the first
PPP project of this range in Poland, a set of pilot documentation was created by all interested parties. Studies presented by the Polish Agency for Enterprise Development show that Polish legal regulations are not a significant obstacle for the development of PPP in Poland. They show that over 33% of public institutions are considering delivering at least part of their plans through PPP. Also, public partners should become more eager to consider performance of more expensive projects financed upfront by the private sector.

As in every case, there are some challenges in supporting the development of PPP processes in Poland. State public procurement law, which applies to PPP projects, requires further adaptation to the procedure of choosing a private partner because at present such projects cannot be considered as typical public procurement tenders.

Private partners are usually chosen through competitive dialogue, which is not very well known and relatively rarely applied in typical public procurement tenders in Poland. One of the major problems is that the companies which participate in the tender proceedings cannot conclude PPP contracts by their respective SPVs. Currently, in order to take part in a public procurement proceeding in Poland, the SPV must obtain references and certificates (such as documents showing possession of financial capacity and equipment) required by the tendering authority, from its mother company.

In the private sector’s view, these requirements unnecessarily complicate the accessibility of the proceedings. The fact that the Polish legal system does not foresee a step-in possibility for banks or any other entities in PPP projects is also considered a problem for the market. For example, in the case of insolvency of the original private partner, the public partner is legally forbidden to allow for taking over the agreements with subcontractors and completion of the undertaking by such investors.

It is therefore very important, especially for foreign investors, to carefully choose advisers who will be aware and competent in handling the procedure. Proper choice of advisers is a relevant issue also in terms of public entities preparing the undertaking. The experiences of motorway projects in Poland, which have not been entirely successful, show that careful consideration of the structure and project financing can be the key to success.

PPP projects are supported in many ways, in particular by a variety of EU grants and budgetary funds. When preparing or considering participation in a PPP procedure, both public and private partners should reconsider whether financial means from institutions such as the European Bank for Reconstruction and Development or the European Investment Bank are available on conditions preferable to those presented on the commercial market. Such strong support on the public institutional side can be assessed as very encouraging for the Polish market.

What bodes well for the future is that appropriate changes in law are already prepared by the Ministry of Regional Development on the basis of the materials prepared by the French Chamber of Commerce, supported by various competent advisers. The Polish Public Procurement Office, together with the relevant legislation bodies, are also very active and open to dialogue concerning required changes.

As was shown in the statistics published by the European PPP Expertise Centre, the aggregate volume of PPP transactions that reached financial close on the European market in the first half of 2012 was 41 and totalled €6bn (£5.2bn). The structure is gaining more and more followers in Poland and is predicted to become one of the most popular cooperation platforms for private and public sectors.