22:27 29 February 2024
Post by: WBJ

Public-Private Partnerships: Powering Modern Warsaw's Growth

The WBJ sits down with Director Grzegorz Kaczorowski to delve into the dynamic landscape of public-private partnerships (PPPs), driving infrastructure development and community enrichment in Poland's vibrant capital city.

Public-Private Partnerships: Powering Modern Warsaw's Growth
Hala Gwardii, CBR Events

What is a public-private partnership?

A public-private partnership (PPP) is one of the ways of addressing public needs through cross-sector collaboration. It is part of the public procurement system, where projects are carried out jointly by private and public sector entities on a contractual basis. These partnerships set forth task allocation and risk sharing between the involved parties. Unlike traditional public procurement, public-private partnerships allow for a more comprehensive and long-term implementation of selected projects.

Hala Gwardii, CBR Events

What encourages investors to participate in PPP projects and what criteria are taken into account when selecting a partner? 

Primarily, the allure lies in implementing projects that are commercially beneficial and ensure long-term profitability. The key benefit often revolves around the public component, along with the gradual distribution of profits over time. This aligns with companies seeking stable and enduring investment opportunities. However, participation in PPPs requires partners to have experience, financial capacity and the ability to deliver complex projects, which may constitute an initial barrier.

In the process of selecting a partner, public institutions will often require experience and set reasonable criteria for the selection of participants in the proceedings, thus paying attention above all to economic potential and previous experience in implementing similar investments. This limits the number of participants to the most competent actors, and is usually done by setting conditions and pre-selection criteria. 

When evaluating applicants for a PPP project, experience is considered alongside the quantity and caliber of references, as well as the alignment of past projects with the subject of the procedure. In the pre-qualification process, we assess the companies' achievements in the relevant field. At a later stage, once the tender is selected, the scope of responsibilities (which in the case of extensive projects includes both design and execution, as well as financing and subsequent maintenance of the facility), as well as elements like the project implementation concept, including architectural urban design, functional and quality solutions, etc., also become important. 

Różyckiego Bazaar

What makes Warsaw an attractive city for PPP projects?

Firstly, Poland's capital city is one of the country's main economic and business centers, which means it has huge investment potential. Secondly, Warsaw has a stable and predictable business environment, which is crucial for long-term PPP investments. The city's credibility as a project partner is confirmed by its high ratings, ensuring investors of transparent and efficient procedures, as well as support from the city administration. It is also worth emphasizing that Warsaw, as the largest metropolis in Poland, has a dynamically developing infrastructure and a growing demand for public services. Cooperation under PPP enables the implementation of key projects, such as the development of sports, educational or cultural infrastructure, often without burdening the city budget with full investment costs. This makes PPPs an attractive formula for both the public sector and the private investor.

Underground car park at Plac Powstańców Warszawy

So why do so few companies still choose to participate in PPP proceedings?

One of the main concerns of potential partners is that of the long waiting period for a return on investment. It often exceeds the standard 3-5 years typical in business. Additionally, financing issues pose a challenge, especially for smaller entities. Medium-sized companies may find it difficult to obtain long-term bank financing and are also concerned about the high cost of collateral. These factors mean that larger companies, with a more stable financial position, are in a better position to carry out such projects, while smaller entities approach them with apprehension.

Cooperation with a reliable public entity, such as the City of Warsaw, as part of the PPP can certainly increase the credibility of the project in the eyes of banks. Indeed, this implies a sound basis for the project and may work in the company's favor when assessing financial risks by banks. However, the final assessment depends on the individual policies of the financial institutions and the details of the loan agreement.

And what makes up the negotiation/dialogue process with potential partners?

In the context of implementing projects under the public-private partnership (PPP) model, a key aspect is defining and communicating our, i.e. the city's, needs. This approach allows us full control and flexibility in shaping the project through the competitive dialogue, including the possibility of adjusting the degree of public sector participation, modifying the objectives and scope of the project. One of the key aspects at the initial stage is to consider the concept proposed by the potential private partner, which should respond to the needs we have identified. The PPP model enables the realization of investments both on the basis of ready-made construction projects and the initiation of enterprises aimed at revitalizing degraded areas or developing undeveloped land, the so-called greenfield. The remuneration of the private partner is also an element subject to negotiation and although we do have preliminary assumptions regarding costs before the partner selection procedure, the financial parameters of the project may change during the negotiations. This is a natural part of the process, allowing the terms and conditions of cooperation to be adapted to current market conditions and the expectations of both parties.

What projects are currently being implemented in Warsaw under PPP?

One of the key projects is the construction of a four-story car park at Powstańców Warszawy Square, under a concession agreement with Immo Park, concluded in March 2020. The facility, providing 420 parking spaces, is being financed solely by the concessionaire and is expected to open early next year. The value of the concession is approximately PLN 86 million and, after the concession period, the facility will become the property of the city.

Another major project is the Targowa Creativity Centre, managed by the Polish Chamber of Commerce under a PPP agreement signed in 2019. The project functions as an urban business incubator, offering support for start-ups and creative businesses, as well as opening up to the needs of the local community. The centre operator follows a substantive program, including proprietary business services, incubation and acceleration program, which promotes the development of new business initiatives.

Also worth mentioning is the innovative concession contract for the construction and maintenance of more than 1,500 bus shelters, already signed in 2014 for a period of 106 months. This project was one of the first such large PPP projects in Poland. It assumed that the investment costs, estimated at around PLN 100 million, were covered by the concessionaire. In return, the concessionaire obtained the right to exploit the advertising space on the bus shelters. Significantly, therefore, in connection with this project, the city not only did not incur any costs, but also shared in the profits from the sale of advertising space.

Polonia Stadium

And what PPP projects does the city still have in the pipeline?

Among the upcoming projects, the most noteworthy is the planned renovation and development of Hala Gwardii, where we are already finalising the procedure with the existing operator as the bidder. This project assumes that the city does not bear the costs associated with the renovation of this historic space, while the private partner will be responsible for the entire investment, reaping the profits from the operation. The scope of work includes not only the renovation of Hala Gwardii, but also the reorganisation of the road system around the Hall, the development of Wielopole Square and the construction of an underground car park. An important element in this case will be the preservation of the character of the facility and the reopening of the underground parts of the Hall to users and customers.

The second project, where we are already completing the procedure, is the construction of modern, energy-efficient kindergartens to replace the existing Stolbud-Ciechanów-type buildings. The private partner will take care of the demolition, design and construction of the new facilities, as well as their maintenance for 20 years. The partner's remuneration will be a fee for accessibility borne by Warsaw, and kindergartens will remain under the care of the city in terms of recruitment and educational program.

A third important project at a similar stage concerns the modernisation of the Polonia Centre complex at Konwiktorska Street 6, including the construction of a multi-purpose sports hall and Sports Support Centre. Here, the private partner will be responsible for financing, construction and maintenance of the new infrastructure. The investment also provides for the modernisation of the stadium, including the renovation of the stands and supporting infrastructure.

A number of other projects are in the pipeline, including in the revitalisation area. These include the reconstruction of the Emilia furniture pavilion in a new location, the revitalisation of the Praga North area, including the city-owned part of Różyckiego Bazaar, the development of the Praski Park area, as well as the revitalisation and development of the Bema Fort area. 

What market trends are influencing the selection of facilities and the concept of their development under PPPs?

Examples of initiatives such as the Targowa Creativity Centre, Hala Gwardii or Bema Fort, which is still in the preliminary concept phase, show that in the face of growing social needs, our city is moving towards creating spaces that are friendly and attractive for both residents and visitors. This is linked to our observations of consumer trends and residents' expectations of quality of life and the way they use urban space. Understanding these needs goes beyond the traditional list of administrative tasks and includes our aspirations to create a place where people want to live, work and spend time. Being residents of Warsaw ourselves, we, too, experience the benefits of such an approach. The basis of this process is the aim to increase the quality of life and offer such a cultural, entertainment and lifestyle offer that will distinguish Warsaw from other European metropolises. 

Realising this vision requires bold decisions and investments that translate into long-term value for the entire community. An example of such an approach is the resignation from the sale of a valuable plot of land in the city centre in favour of creating a market hall that will give the city a unique character and meet the expectations of residents in terms of quality of life. We are therefore moving away from focusing solely on the commercial use of urban space to creating places that live and grow along with the needs of the community. Public-private partnerships are proving to be an excellent tool here, enabling projects that both enrich the city and provide quality living space for its residents.   

Grzegorz Kaczorowski 
Director of the Economic Development Department at the City of Warsaw

Grzegorz Kaczorowski is a seasoned professional in economic development and project management. With a law degree from the University of Gdańsk, he has been deeply involved in Public-Private Partnership (PPP) initiatives since 2009. Specializing in coordinating and executing PPP and Concession-based investments, particularly in multifunctional urban development, Kaczorowski is a prolific author with publications in specialized press focusing on PPP challenges. He brings extensive managerial expertise and serves as a seasoned trainer in project management and business law, notably within the realm of large-scale investment projects.

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