Changing stations

A few months have passed since the signing of a certain agreement between Polish State Railways (PKP) and Slovakian developer HB Reavis. This partnership, for investing in the new Warszawa Zachodnia railway station (integrated with retail and office facilities) gives us the opportunity to take a look at some of the legal barriers that hinder the development of projects of this type

The Warszawa Zachodnia (Warsaw West) station is just one of PKP's current projects involving large international development companies. The value of projects now being prepared by PKP in cooperation with developers exceeds PLN 1.5 bln, with the most important under construction being the transport and shopping centres in Katowice and Poznań. Over the next few years, dozens of railway stations are to undergo facelifts in a rather hurried revitalisation programme motivated by global trends that successfully combine public and commercial needs. The approaching European Football Championships are also playing an additional role in the revitalisation process in Poland. In Poznań, Hungarian investor TriGranit will employ the experience it has gained in a number of other completed projects, such as WestEnd City Center in Budapest and Emonika City Center in Ljubljana, where it has successfully transformed decaying railway stations. Modern stations are friendly places - not only for passengers, but also for the local community in terms of high quality retail and entertainment provision.
Poznań Główny City Center is to be built in an investment of app. EUR 160 mln. PKP will contribute an area of 4 ha to the project, while the TriGranit consortium supplies the necessary capital and know-how. Meanwhile, the costs for developing an integrated centre in Katowice are estimated at nearly EUR 240 mln, but this time the financing and experience are being provided by Spanish developer Neinver. But how many more impressive projects of this scale would have already got off the ground had it not been for the rather byzantine character of Polish law?

Breaking the wall
The problem starts with the regulations applying to PKP concerning the special status of the railway company, in particular as stipulated in the act on its commercialisation, restructuring and privatisation. According to the act, any decision regarding the development of railway properties is subject to the approval of the Minister of Infrastructure. Acquiring a permit from this ministry for any kind of investment activity is a factor that the interested parties - PKP and the investor - have no control over, posing a developmental and financial risk to any potential project in railway areas.
Another example of the specificity of railway land is that of the statutory powers of PKP PLK (the official manager of the rail network) over the property of PKP. This concerns land defined as railway track. A project planned by an investor on PKP land usually requires the additional agreement of PKP PLK, and as a consequence negotiations take considerably longer. The simplest solution to this problem would be to establish the right to build up a plot by developing infrastructure projects above railway lines and railway areas. However, there is no tradition of such enterprises in Poland, which is unfortunate because railway lines tend to cut straight through city centres, where the prospect of land development is exceptionally attractive, both for developers and for local residents. According to Polish law, everything located above or below railway track shares the same legal status as the plot. A private investor therefore has no possibility of acquiring the ownership of a building development located above railway lines. An alternative that is increasingly being suggested is the long-term lease of land. This, however, provides no security for the financing granted on the land, and as a result banks and investment funds do not look favourably on this kind of solution. Legislation that differentiates between plot levels has been successfully functioning in Sweden and the United States for many years, and such "three-dimensional" mechanisms can also be found in Asian cities, where overpopulation has forced up the price of a square metre of land. In such places local law recognises 'spatial plots of land', which are sold independently of those above or below them.

More legal hurdles
We now have before us the prospect of a number of legally complex projects. But so far we have only looked at a few typical obstacles in the way of the development of PKP properties. Other popular ones include the obligation to comply with the vision of the historic buildings conservator (many train stations are pearls of Polish architecture), the exclusion of railway land as so-called 'closed areas' from local spatial development plans and the geodesic status of these properties, which for many years is a legal area that has remained unregulated. This final factor often makes it necessary to launch legal appeals, which are often costly and time-consuming.
These sorts of problems are unheard of or are of marginal significance in business purely between private entities. Due to their untypical nature, there is the need for particular awareness of the issues and a creative business approach from the point of view of both the private investor and PKP. Establishing interests (which sometimes contradict each other) requires professional negotiation. Preventing misunderstandings and embracing the expectations of both parties in the enterprise is a lengthy process, requiring complex legal solutions.

Sitting on a goldmine
Despite the fact that cooperation between public and private entities is still a novelty in Poland, many golden opportunities exist. Polish State Railways has an impressive portfolio of properties, not only in terms of land, but also when it comes to buildings and infrastructure. These include around 50,000 buildings and the 50,000 apartments located in them. All the land, including 19,000 km under railway lines, has a combined area of as much as 100,000 ha, i.e. a 1,000 sq km - or Moscow-sized - plot of land.
Removing administrative and civil law barriers would undoubtedly increase the interest in investing on railway land. It is worth mentioning that PKP itself wants to become active on the financial market, mainly by contributing areas that have not yet found buyers to the Skarbiec TFI and TFI PZU closed funds. The funds would then develop the properties and increase their value. The land manager would then make money when the price of the land it had been entrusted with appreciated, e.g. due to securing a site development conditions decision for the plot. This, however, would require another modification to the act on PKP commercialisation and privatisation.
Despite all this, the signing of investment contracts with developers for new train stations in Warsaw, Katowice and Poznań shows that we are slowly developing the mechanisms necessary for the successful development of projects on railway land. Nevertheless, in order to fully realise the potential of both partners good law is needed. The time for change is now!

Michał Siwko and Rafał Trusiewicz, managing partners of Trusiewicz & Siwko Law Office