The ABC of the new improved PPP

The old unworkable law on public-private partnerships 
in Poland has finally been replaced by a new Act. 
But has the new legislation avoided the mistakes of its predecessor?

The previous act on public-private partnerships did not prove to be a successful piece of legislation. Since 2005, when the earlier PPP Act entered into force, not one single project of this kind has been started. Experts say there are several reasons why the previous act has not been applied. The biggest obstacles include the obligation to obtain consent from the minister of finance (regardless of the value of the PPP project), the obligatory analysis (regardless of the size of the PPP project) and some formal requirements for both small and large PPP projects. Some minor drawbacks, such as a number of bureaucratic formalities, the lack of the necessary flexibility or the unclear status of EU funding, have also deterred potential investors.

The newly-adopted PPP Act aims to simplify and deformalize the process, giving more flexibility and control to PPP partners. The Act is based on two core principles: firstly, to give as much leeway as possible for mutual agreements between public and private partners by creating a framework rather than specific regulations; and secondly, to refer to legal concepts existing in other areas of law 
(e.g. commercial law or the civil code), where necessary, rather than creating new regulations.

Less bureaucracy and fewer formalities

One of the most important changes is the reduction in bureaucracy and formalities. Red tape has been considerably reduced in the new PPP Act. In contrast to the previous Act, there is no need for an obligatory analysis of the project. The only requirements to be met in order for the partnership to be valid are the legal obligations concerning (1) the remuneration of the private partner; and (2) the sharing of the project risk between the private and public partners.

Giving partners maximum control

The new PPP Act specifies only the basic elements of the PPP agreement. These include:

    The obligation of the private partner to carry out the project for proper remuneration and to pay expenses in full or in part;

The obligation of the public partner to cooperate in carrying out the project, particularly in terms of its own contribution.

Both parties to the PPP agreement must share the project risk, but the Act does not set any limits on the amount of risk to be taken on by each partner.

Moreover, the purpose of the partnership is no longer specified in the PPP Act. The parties can enter into a partnership whenever it suits their needs. The only obligation is to meet the basic legal requirements concerning the remuneration of the private partner and the sharing of risk.

Protection of the public interest

The public interest is secured in several ways. Firstly, the agreement needs to specify the penalties for non-performance or defective performance of the agreement. The public partner also has the right to regularly oversee the implementation of the project. The scope and particular form of the oversight will be specified in the partnership agreement. Previous regulations required consent from the minister of finance for all investments financed – even if only in part – with public funds. According to the new Act, such consent will only be needed if public involvement in the project exceeds PLN 100 mln.

Other changes

It is now explicitly stipulated that public-private partnership projects can be financed using EU funds. Such a provision removes any doubt as to whether or not EU funding can be used for such projects.

The changes in legislation introduced by the PPP Act include the amendment of the civil procedure code and changes to tax legislation. The former enables PPP disputes to be heard under commercial jurisdiction, which is faster than the standard civil jurisdiction. The latter concerns the maintenance of preferential tax treatment of the parties to the PPP agreement.

It is worth noting that price is not the most important factor when choosing a private partner, but the sum of all other project‑related criteria as well.

Euro-funding

Business organizations say the framework nature of the new Act is one of its biggest advantages. Another improvement is the wide range of projects that can be implemented as public-private partnerships. Business representatives also appreciate the applicability of commercial jurisdiction in legal disputes.

Due to the huge infrastructural needs there are a lot of opportunities for public-private partnerships, since the state and/or the local authorities are not able to fund all the necessary investment on their own. Nonetheless, the use of EU funds also requires partial local funding. Participation by private investors can speed up the construction of roads, buildings or other structures. It is also important in the context of the Euro 2012 football championships.

Let’s hope that the new Act will be widely used in many projects and will allow us to quickly put the previous system behind us. ν

Tomasz Opaliński, legal adviser and senior lawyer in the real estate department of Garrigues Polska