Central & Eastern Europe Special report: Private aye
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4 September 2014
The Polish government has moved to allow private money a much larger input into public projects. Tom Phillips asks whether PPPs are the answer to the country’s economic woes
With the real estate market at a standstill and only small M&A transactions taking place, Polish law firms are welcoming the arrival of new PPP legislation.
A new PPP act and the act on concessions for construction works or services (the concessions act) have been in force in Poland since the beginning of February this year. Both will replace the existing regulations, and many lawyers believe they could kick-start infrastructure investments in the country.
The former PPP act drew criticism for, among other things, imposing too many obligations on the execution of investments, causing many projects to stall or fail to get off the ground at all.
For Poland’s economy the new acts cannot come soon enough, with the country’s concerned economists hoping that the Holy Grail of PPP will revitalise the economy and save it from the uncertain fates facing troubled CEE cousins Romania and Ukraine.
Views from the coalface
Christian Snell, managing partner at Polish firm BSJP Legal and Tax Advice, paints the economic situation in the country as gloomy, albeit with hope on the horizon.
“The situation isn’t the worst, but it is still not good,” he says. “Poland’s doing better than some other countries – Ukraine and Hungary, for example – and the fact that German money is coming in is a good sign that there’s confidence in Poland as a market. However, at the moment no one’s touching new projects and finding money is a problem.”
The ray of sunshine in this fiscal thunderstorm may be infrastructure schemes. Snell believes the hitherto sleeping private equity investors will start buying in the second half of this year, with investors from Germany, France, the Benelux and Scandinavia either already investing, or making moves to invest, in Polish projects, many of them associated with state-owned businesses.
Krzysztof Zakrzewski, managing partner at 145-lawyer Domanski Zakrzewski Palinka, admits that his firm is expecting to see a drop of 10 per cent in fees over the coming year as a result of the stalling markets in the country.
“Polish banks are healthy and not plagued by as much toxic debt as those in Western Europe, but the currency situation is a very important factor,” explains Zakrzewski. “The euro is now at its most expensive since Poland joined the EU. From the mid-year onward we’ll see a wave of problems related to that, as payments in euros are now double what they were six months ago.”
Zakrzewski agrees, however, that PPP is one reason to be optimistic for the rest of the year.
“PPP is promising,” he says. “Construction’s getting cheaper and there are a number of projects that can be done. We have a number of clients who put deals on hold when the crisis began, but they’ll come back.”
PPP – the weapon of choice
Michal Zieniewski, a partner in the finance and projects team in DLA Piper’s Warsaw office and a specialist in PPP law, also welcomes the new legislation; he believes it will breathe new life into the country’s projects industry.
“It’s flexible and it doesn’t overregulate,” says Zieniewski. “The [Polish] government is very much in favour of PPPs and will use PPPs as an instrument to combat the recession.”
In much the same way that PFI gained many supporters in the UK’s Labour Government, PPPs look attractive to the public sector in Poland and other CEE countries because they allow officials to build houses, hospitals and roads, but keep them off government balance sheets.
However, PPPs are not without their dangers, as various schemes in Ireland and the UK have come to realise over the past 12 months. One PPP social housing scheme in Ireland collapsed after the building company pulled out, for instance, and Poland can ill-afford such a situation developing on its home ground.
“Clearly PPP may be a way forward for the public sector. The important thing is to construct the deal so that the liability settles on the private side,” insists Zieniewski. “It’s crucial that the public sector gets proper advice. It needs to make sure it can protect itself against the private sector backing out, which will in turn encourage the banks to lend.”
Eversheds partner Arwid Mednis, who sits alongside DLA Piper’s Zieniewski on a PPP legal panel in Warsaw (one of the more progressive local authorities in the country), is hopeful for the future of projects in Poland. Mednis is involved in arranging tours for potential investors and Polish government ministers of cities where PPPs may take off.
“The political atmosphere is good for PPP projects, the liberal government has changed its attitude,” explains Mednis.
“I think this is a great opportunity for law firms.”