This content is from: Local Insights

Selected issues in financing PPPs – Part I

Poland started its adventure with public private partnerships (PPPs) in 2005. The then enacted Public-Private Partnership Act introduced the concept of PPPs into the Polish legal system. It was, however, overregulated and missed the required secondary legislation.

Soon after its introduction, the Act created doubts and uncertainty on the part of public partners, who quickly started to look for alternative solutions instead of trying to plunge into the potentially dangerous sea of the PPPs. Ultimately, the Act fell into oblivion.

Understanding that the classic public procurement model to execute infrastructure investments had reached its limits, as well as the need to limit public spending, the Polish legislator decided to revive the concept of PPPs by entirely remodelling the legal framework.

The new Public-Private Partnership Act was enacted at the end of 2008 and entered into force in February 2009. It is shorter, gives greater flexibility to public partners, and allows the parties to determine the allocation of risk in the project as they see fit.

Four years after the new Act took effect, we can say that it has helped PPPs in Poland to finally get up to speed. Pending projects, including the recently completed tender for the construction of a waste incineration facility in western Poland, allow us to look at key issues that may arise when financing PPPs.

Public partners require private partners participating in PPP tenders to submit so-called hard commitment letters that detail the terms of financing, even at the early tender stage. This may prove barely feasible for a number of potential lenders. The timeframes of the tender procedure are often too narrow to conduct a comprehensive review of the project, structure the financing and obtain the credit committee sign-off on the transaction in time for the submission of the offer by the private partner. Even if that was possible, the selection of the financing bank before winning the tender might not be the best option for the private partner, either.

Firstly, the private partner would need to engage significant resources in assisting the potential lender(s) during the structuring phase and, to a lesser degree, in negotiations of the terms of the financing itself. All this would have to be carried out concurrently with the work on the PPP tender offer (which in larger projects may include extensive negotiations of the contract with the public partner). This creates a potential risk of distracting the private partner from the main goal – winning the tender. Secondly, even if such multitasking was feasible from the organisational perspective of the private partner, it could have a significant impact on the costs of the private partner's participation in the tender – and this is still before obtaining the mandate. To keep the engagement of resources and costs at reasonable levels, the private partner could consider limiting discussions to only one lender – this, in turn, would adversely affect the selection of offers and, as a result, its ability to optimise the costs of financing.

For these reasons, it would seem reasonable for the private partners to be prepared to rely on an interim basis on their own (corporate) financing, which would be replaced with funding by a commercial lender(s) only after they have ultimately won the tender.

Borys D. Sawicki

© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.

Instant access to all of our content. Membership Options | 30 Day Trial