Pole vaulting

Not one project followed in the three years after Poland’s first PPP law in 2005. Now it's jumping into pilot hospitals PPPs and road concessions. Craig MacDougall at Davis Langdon asks why

As yet PPP in Poland has been subdued. Notwithstanding a number of road projects the market has been relatively inactive, despite recent government moves advocating PPP and a smoother course for PPP. However, along with 2009’s new PPP Act, this inactivity is expected to change as the market opens and investment is identified.

The PPP Act of 2005

Perception and scepticism, from within Poland and for those looking to invest, were obstacles when PPP models in Poland were first considered. From within Poland, the perception of PPP among the population was that it could and would be open to corruption. From an external investor perspective, the tag of corruption that could be associated with a winning bid was not attractive. Thereafter, the initial PPP Act of 2005 was not considered investor friendly, evidenced in that three years after its launch, not a single PPP project was undertaken, despite a few inquisitive investors and consortiums.

However, the amended PPP Act of February 2009 emerged, which sought to eliminate some of the procedures and restrictions that the initial Act had in abundance. This later Act appears more flexible, and seemingly allows the much needed principles of partnership (ie negotiation and co-operation), which should attract those investors that have been following this developing market, as well as those new to the marketplace.

The PPP Act of 2009

Under the 2009 Public-Private Partnership Act (the New Act), there are two distinct commercial arrangements - the PPP Model and the Concession Model.

As expected, both models operate on a partnership basis between pubic and private sector, with the private sector responsible for delivering the project. The most significant difference between the two commercial arrangements is that under the PPP Model, the private partner revenue stream is guaranteed; whereas under the Concession Model at least 51% of the private partner revenue stream is via facility generated income, and therefore a risk to an extent. However, in practice this should not be too different from a typical availability-based project (a school) and a revenue-based project (a toll road).

Local governments now have autonomy to announce projects in their municipalities, whereas previously, the Minister for Finance had the final say on whether a PPP project could progress. So the new Act should be able to move PPPs forward, following initial pilot schemes at local levels.

Disconcerting at the moment is the value of PPP agreements concluded since the new Act was launched in February 2009. To 31 December 2010, it is estimated at PLN373m (approximately US$123m), which is not a substantial amount given the government’s desire to develop the country’s infrastructure. However, the value of projects announced by the government in the same period amounted to PLN2.4bn net (approximately £506.4m), which forms a good basis to generate interest in the country’s plans for infrastructure investment.

Project sectors

Projects planned under the new Act consider various sectors including sports facilities and car-parking through to waste projects, with a few health projects also currently planned.

A number of projects have been identified by local governments including a waste plant for Poznan at around $210m*, which has attracted 11 initial responses; three hospitals in Bytom at around $30m; student halls of residence for the Medical University in Lublin at around $7.5m; a two-storey underground car-park with associated infrastructure in Wroclaw for $18m; an agricultural biogas plant for $5.4m; and social housing and service outlets in Boleslawiec for $7.1m. The municipality of Zyweic, recently appointed a preferred bidder for a new hospital under the PPP Model, which will be the first healthcare project.

It is a reasonable start to attract different classes of investors, as well as different operator experience. Again, this is assumed to be deliberate to reduce the threat of corruption through alternative operators and investors.

A possible reason for the spread in sectors, areas and general low value is to utilise this initial tranche as pilot schemes, and assuming they are successful, the public perception should become positive for the new Act. Thereafter, projects of greater value may be released.

Could the ramp up of infrastructure and investment be a direct result of Poland co-hosting (with Ukraine) the 2012 European Football Championships? This definitely looks like it helped to kickstart these developments. However, while there is little chance that the recently announced projects will impact on the Championships, it will be important to take advantage of the labour and experience gained from the tournament’s associated infrastructure projects in the country as these come to an end.

PPP or concession model

All projects under PPP consider varying degrees of risk. However, at the present time the PPP Model with guaranteed revenue is the model that appears most attractive, albeit the Concession Model has projects that will fit with specific municipalities and private partners. For example, Lower Silesia is considering a pilot project for 2,500km of regional roads, and Tuszyn-Pyrzowice is considering a section of the A1 highway as a project. This is the most likely fit for the Concession Model, with the PPP Model seemingly focused on hospitals and the general accommodation sector. While much of this is not necessarily new, it does hopefully mean that there is a pipeline in place for us to get started on.

*It is worth noting that labour costs in Poland are substantially lower than across the UK and Western Europe, therefore project capital costs will appear substantially lower than in the UK and Western Europe (noting that operational documents may wish to factor in increased costs over the Contract Terms).