The PPP predicament
The Polish economy has come a long way since 1989 and continues to record solid growth in spite of the inclement global economic climate. However, in order for the economy to develop according to its potential, a number of investments need to take place, especially when it comes to infrastructure. Public-private partnership (PPP) has long been mooted as an efficient way to tackle some of these investments, but poorly constructed legislation has kept PPPs from being implemented.
Deputy Minister of Economy Adam Szejnfeld announced during last week's WBJ Business Breakfast that draft legislation regarding PPP had passed through inter-ministerial consultations. Work on the new law is quite advanced, he stressed. Contrary to the existing legislation, the new draft on PPP allows much more freedom for investors.
"It creates a framework for the citizens to operate within. They are free to do whatever they want to as long as it is legal," he stressed, adding that the new law reflected the present government's liberal approach to economy.
The new law, Szejnfeld said, will be voted on the Sejm in the near future.
Wrestling with legal jargon
The restrictions of the current law on PPP stem from the formerly prevailing sentiment that participants in such partnerships must, by nature, be dishonest, Szejnfeld said. Thus regulations ended up being complicated, unclear and imbalanced as they tried to account for every criminal eventuality possible. Szejnfeld noted that distrust of legislation and business was common in Poland.
"This lack of trust grew to a level where, in reality, there's no longer a lack of trust but rather a conviction that every case in which a government official meets with a businessman, or a politician meets with a businessman, that these meetings lead to some form of criminal activity," he said.
Szejnfeld pointed out that what Poland needed was a new law that addressed these concerns and gave potential PPP partners the power to choose when, how and how long their partnership would last.
However, the draft legislation is still meeting resistance from the business community. Marian Mazurek, managing partner at M. Mazurek i Partnerzy, a company with 15 years of experience working on PPP projects, didn't see the new law changing the future of PPP for the better. He spoke out at the WBJ Business Breakfast, saying that the new regulations were still hard to read and contained a number of unfortunate loopholes.
The potential is there
Meanwhile, there are plenty of investment opportunities in Poland, in a number of sectors. According to Irena Herbst, director of the Center for PPP at PKPP Lewiatan, transport is the most popular area, especially in light of the ongoing preparations for the Euro 2012 soccer championship. Improvement of road infrastructure, in particular, has the potential to boost Poland's international standing in terms of PPP. Herbst expressed the hope that the country would take advantage of innovation and improve its PPP track record, which to date has been practically non-existent.
According to Herbst, countries can be divided into three stages in terms of PPP, from least to most developed. Poland falls into the first stage, along with countries such as the CzechRepublic, Hungary, China, India and Croatia. The Netherlands, Italy, France, the US and Canada can be categorized as part of the second phase of PPP, while only the UK and Australia can be described as third-stage countries.
Cooperation within the framework of PPP differs from a purely private-sector investment in the sense that the public and private partners share the rights to the investment and the fruit thereof, Herbst pointed out. The public authorities look after the quality of the project, while the execution and management lies with the private side.
The Swedish view
This arrangement may not be the case for every country. For example, Sweden doesn't have laws governing PPP, according to Per Magnusson, managing partner at Magnusson law firm.
"Basically, the view is that there's a pure financial benefit and a need for the public sector to interact with big infrastructure projects," said Magnusson. He added that private firms had trouble making large-scale investments and getting a decent return on the investment in a reasonable amount of time. Fears that projects will be mishandled will always exist, but, in the bigger picture, such projects have the potential to burnish the country's international image and result in significant revenues for the public.
The result of proper PPP procedures, participants agreed, will result in a Poland where the regular citizen benefits from economic and structural developments.
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"Up until this point, the law seemed to have assumed that the potential participants of public-private partnerships are dishonest. Therefore the regulations tried to predict potential irregularities. That's why the law was complicated and unclear. It was authorities-oriented, rather than citizen-oriented. "With the new law, we move the focus from the authorities to the citizen. [Last week], the committee of the Council of Ministers adopted the draft. We can expect that it will be accepted during the next sitting of the government and then it will go to be voted on in the Sejm. "This will hopefully show how strong the
determination of the present government is to strengthen the trust of the
citizen and the trust towards the entrepreneur. We believe that laws should not
be instruction manuals. They should, instead, guide citizens' actions. The new
law takes into consideration both sides interested in PPP. The present draft of
the bill is very short and stipulates the conditions for the agreement very
generally. It also points out how the partnership is to be realized."
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"The Swedish approach to PPP has been somewhat different from that of other countries. There is a realization that big infrastructure projects need public funding, but there's also a realization that operating these projects is not something for the public sector to do. "A new agreement between the City of Stockholm and Anschutz Entertainment Group [AEG] ensures that the property that will host all the venues is still held by the government, meaning the City of Stockholm. The operation, however, is a separate entity that is operated by a private company. This private company is owned by AEG. "Effectively, there's an arrangement that the private operator has a lease in which they have the right to lease the venue and pay rent to the city of Stockholm. This rent is dependent on the success of the operation. The same applies to the new football stadium. It is going to be built and funded by the City of Stockholm; however, the City of Stockholm will not operate this football stadium, but instead it will be leased out." |
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"There are three stages of development of PPP, from the first and least advanced, to the third and most developed. The third-stage countries include Great Britain and Australia, where investments within the framework of PPP are very popular. PPP projects in Great Britain allow about 17 percent of project investment costs to be saved on average. The positive experience of Australia and Great Britain with PPP is an example that may stimulate the development of this form of financing in other countries. Poland is in the first-stage group of countries, together with such countries as the Czech Republic and Hungary, although in these countries PPP is at more advanced stage than in Poland. Let us hope that within the next three-to-four years that Polandwill be in stage three." |
WBJ would like to thank Magnusson, PKPP Lewiatan, MaMaison Le Regina Hotel and Get It language consultancy for their support in arranging the Business Breakfast
