At its first session this year, the government adopted a draft bill amending the Public-Private Partnership Act. The intention was to improve PPP’s legal environment, increase participation of private capital and enhance efficiency of investment and provision of public services in Poland. The legislator reached for solutions applied with success in many European countries. The most important reforms include the introduction of an obligation to carry out efficiency analysis for performance of a PPP undertaking, facilitation of performance of such projects with the use of existing companies owned by public entities and allowance of targeted subsidies granted by self-government units to private partners with the intention to finance or subsidize investments in performance of self-government tasks.
Efficiency analysis for performance of an undertaking
Under the amendment, before initiating proceedings for the selection of the private partner, the public entity will be obliged to prepare an efficiency analysis for performance of the undertaking. Among others, it will involve comparison of the PPP project with the efficiency of the same task performed in another way, especially with the exclusive use of public funds. When carrying out the analysis, the public entity will have to account for the planned distribution of tasks and risk between the public and the private partner, estimate costs and duration of the undertaking. However, no sanctions for non-compliance with that obligation and no details on the methods of efficiency evaluation have been provided.
The draft envisages, in respect of planned investments whose value exceeds PLN 300 million and which have not been classified from the beginning as PPP, obligatory delivery of an opinion by the Minister of Regional Development. This means that the duty will cover, de facto, road and rail projects. Considering the available budgetary funds, success of such investments may depend on the participation of private capital.
In Poland, set aside the unfavourable legal framework, the development of PPP was impaired by prejudice and stereotypes. Cooperation between public and private entities regarding large investments was associated with shady interests. Sometimes, an additional P was added to the abbreviation – meaning a prosecutor. Now, the government wants to challenge that stereotype. Self-governmental efficiency analysis and ministerial opinion are some of the instruments intended to facilitate performance of investments.
Implementation of PPP projects in the form of company
The present legislative framework permits to implement a PPP project within the framework of a company established specifically for that purpose. The amendment provides that the public and the private partner will be able to carry out the undertaking exclusively in the form of corporation – limited liability or joint-stock company. In addition, the reform enables accession of the private partner to an existing public-sector company through subscription of stocks or shares in the increased nominal capital. The private partner’s admission to the company implies changes in the operation of the latter. Alienation or encumbrance of an immovable property or enterprise, formation of another company, subscription or acquisition of shares or stocks in another company will require consent from all the company’s stock- or shareholders. Upon termination of the agreement, the private partner or company will be obliged to transfer the asset to the public partner.
This is a change in a good direction, but the most important part is that the public entity may consent to the PPP contract being concluded with and performed by a special purpose vehicle whose sole member or members are the private partner(s). The latter’s liability for the damage caused to the public entity will be joint and several, however, only in culpable situations. The amendment might have gone a step further and permitted placement of requests and tenders by special purpose vehicles.
Project Finance
Conclusion of PPP contracts by SPV’s meets the expectations relating to the financing structure. These are long-term contracts, frequently financed by a bank as a part of “project finance.” For that reason, the special purpose vehicle should be separated form the current activities of its parent company so that its possible problems do not affect the implementation of the project. In the event of breach of the PPP contract, it will be possible to take corrective action. In addition, the reform offers solutions which should adequately secure the interests of both the public entity and financing institutions. This refers, among others, to the possibility of concluding direct contracts.
Targeted subsidies for private partners
The amendment provides that a territorial self-government unit – considering the provisions on public aid – will be able to subsidize performance of PPP investments involving performance of public tasks. The present statutory regime permits granting such subsidies only to a narrow group of non-profit entities.
Targeted subsidies are to be granted under a PPP contract. In practice, funds may be deployed for various purposes relating to the performance of the public tasks entrusted to self-government units, e.g. regarding roads, urban space development or construction of sports, educational and cultural infrastructure. Such modification will definitely broaden the range of entities potentially interested in participating in PPP projects. Entities without the capital necessary to independently finance the tasks faced by a private partner may hope for support from the self-government, which will improve competitiveness on the PPP market.
PPP’s legal environment
In addition, the reform introduces a number of amendments to other pieces of legislation. It meets the needs concerning construction of underground car parks as it offers to municipalities the possibility to establish downtown paid parking zones in cities with more than 100 thousand residents. Within such zone, the municipal council will be able to set a parking fee at three times the normal rate. The amount of fee will also be tied to the minimum wage, which means that its growth will trigger an increase in the parking fee. This is going to enhance the attractiveness of underground car parks, whose construction and maintenance are extremely costly.
There are also certain taxes that are going to be abolished. Areas located in public road rights-of-way and buildings thereon will be exempt from property tax. One exception will be constructions relating to business activities other than maintenance of public roads or exploitation of toll motorways. The consequence of the above is that regardless of the legal status of a specific immovable property on which a public road is located, PPP projects relating to its maintenance will not be charged with property tax for the land within the right-of-way. This will reduce costs of the undertaking, which should encourage the private sector to invest in road projects.
An important novelty for public partners is the clarification of terms concerning the scope of investor’s liability for the remuneration of a subcontractor. It will be possible to exclude, in a PPP contract, the joint and several liability of the public entity. It is a step in the right direction, especially that the investor in PPP projects most frequently is a private entity.