Facilitating partnership

Public Private Partnerships (PPP) have been attracting increased attention of late. This is because the Ministry of the Economy and the Ministry of Infrastructure are working on a new law on PPP

Until now, PPPs have been very rarely employed to deliver public projects in Poland, though they offer an extremely attractive way of implementing some investments. Private entrepreneurs use their own resources and experience to deliver a socially desirable project and in return, after it's completion, they benefit from the income it generates. By assuming the economic risk associated with the success of the project, a private entity is capable, as evidenced by the experiences of European states, of completing it faster and operating it at lower costs than a public entity, as the latter is usually unable to control investment costs efficiently enough. What distinguishes PPP from government-led projects is that the entrepreneur takes on a major part of the economic risk, for the success of a given project in the public sphere.

Bolstering current regulations

At present, there is no single legal act that would comprehensively regulate the principles of cooperation between the public and private sector under PPP projects, though there are some regulations of this type which apply only to specific infrastructure projects, such as the Toll Motorways Act of October 27th 1994 for example. According to Irena Herbst, Deputy Minister of the Economy, the bill on Public Private Partnerships will be filed with the Sejm (Lower House) before the end of this year. The Ministry of Infrastructure has even established a Public Private Partnership Section within its Infrastructure Financing and European Funds Department, to help create conditions for the development of the PPP concept in Poland.

Down with the barriers

The bill on Public Private Partnership prepared by the Ministry of the Economy is meant to become a comprehensive legal act regulating the conditions of cooperation between the private and public sector when delivering PPP projects. Its primary aim, however, will be to remove the legal barriers that prevent public entities from making long-term investments. Amendments will be made to the applicable provisions of the Public Finance Act or the Government Orders Act and these changes will consist, among other things, in making it possible for local governments to incur extensive long-term debts. At present, the methods of calculating such authorities' debts under the Public Finance Act, often result in them exceeding their admissible debt limit, which accounts for 60 per cent of their annual income. The new law should also solve problems related to the VAT imposed on annual fees, paid by public entities to investors, who finance and operate projects from their own funds. New regulations will also be passed on the VAT imposed on infrastructure projects (which were earlier operated by an entrepreneur, for example for 20 years) which are transferred by a private to a public entity. Another issue that needs to be addressed by the new law is the abolition of the requirement that tenders are organized by private entities using public funds, when they want to sub-contract services. The obligatory but expensive and time-consuming bidding procedure can often distort even the best PPP business plan. Another unnecessary complication, under present legal circumstances, is the requirement to obtain the authorization of the President of the Office for Government Orders (UZP), for a public entity to enter into an agreement for a period longer than three years.

PPP the only way

In a typical PPP project, after the end of the period specified in the PPP agreement, during which the project is to generate profits for the entrepreneur, the project is transferred to a public entity, e.g. a borough, and becomes its property. The benefits derived are that the private entity collects income from the project and residents can enjoy having a new water supply and sewerage system much earlier than if they had been provided by the state budget or local government. This construction refers to only one form of PPP that is frequently used in Europe however. Its English abbreviation is BOT (build, operate, transfer). The BOT concept is also used in Poland: for example Stalexport built and operates a section of the A4 Motorway (Katowice - Kraków) under the terms of the Toll Motorways Act. The participation of a public entity in such an investment often consists in it contributing the property the project is to be delivered onto. For example, in the form of a contribution made to a company established together with the private investor. The projects that can be implemented as PPPs surprise with their diversity. They can include railways, roads and waterways, telecommunications systems or social facilities. Even the prison system which would seem to be the state's domain may be successfully delivered by a PPP, as has happened in the United Kingdom, for example. A model example of a successful project based on Public Private Partnership is the Sparta Airport in Athens, where the guarantees for the repayment of the credit for the construction of this airport were given by the state. A PPP law may offer a big opportunity for delivering necessary, overdue, and highly capital-consuming investment projects such as underground railway construction, for example. With the current predicament of the state budget and the still unimpressive local government budgets, one can hardly imagine how such projects might be financed without recourse to Public Private Partnerships.

Jacek Jachowicz jest radca prawnym

White & Case W. Danilowicz,

W. Jurcewicz i Wspólnicy