PPP in Warsaw. Conversation with Grzegorz Kaczorowski, Director at Economic Development Department in Warsaw
What are the benefits of using the PPP formula?
Public-Private Partnership (PPP) – is a way of implementing public tasks, based on a long-term agreement determining the division of tasks and risk between the public entity and the private partner.
In the case of implementation of concession projects, i.e. projects where revenues from third parties will appear later, PPPs can actually relieve local government budgets. Funds from sources other than the public ticket office, which go to the budget of the implemented project, reduce the need to invest from local government money. However, these are the most ambitious projects.
In classic PPP projects, i.e. in the formula of partner remuneration through payment for availability, we spread the expenditure over time. We start paying when the investment is ready and functioning. The decisive factor then is the real effectiveness of public funds involved in the project, which is analyzed before and during its implementation.
Using this formula by postponing investment costs also brings the benefit of an increased pool of projects that can be carried out at a given time. Therefore, the front of implemented investments can be extended by something that the local government would not be able to afford at the moment and which it could not realize.
Another very important issue is the model of operation itself, i.e. cross-sectoral cooperation. Using the partner’s know-how and skills is an art that from the local government’s perspective is worth mastering and at the same time creating a platform of agreement, because it can be a lot to learn by learning effective cooperation in conditions where the parties are subject to the same factors and yet have different conditions.
From a private sector’s point of view, PPP projects should be profitable with market returns on invested funds. The private partner gains the opportunity to develop business and use his knowledge and experience. It also has specific know-how thanks to which it knows how to effectively and optimally perform an investment in terms of its subsequent use. It is the private partner that assumes the burden of managing the investment, including possible renovations, fault repairs, etc. that’s why he wants to optimize the design while guaranteeing its maximum functionality and profitability.
It can therefore be easily argued that both the public and private sectors benefit from the PPP formula.
On the basis of what criteria are priority projects selected for implementation in the PPP formula?
Warsaw authorities want to pursue a long-term policy that is favorable to the city’s residents. Therefore, priority projects are those that, on the one hand, are in line with the city’s strategy and fulfill an important public goal – they are focused on residents and their needs, and on the other hand they have a chance to be implemented more effectively in cooperation with a private partner. The decision about which projects will be implemented in this formula is based on numerous analyzes, including a very important effectiveness analysis. Matters that are very urgent rather will not go on this path, because the ordering process under PPP is generally longer compared to conventional orders. So we reach for projects that have been postponed, enabling the implementation of more investments at one time that cannot wait. Of course, this is not the only factor. There are projects for which PPP is an optimal formula due to the possibility of implementing very diverse goals within one undertaking, which would not be possible in the case of traditional orders. Revitalization projects are such an example. Personally, I am a great supporter of PPP projects as part of revitalization processes, where you can, among others take advantage of the added effect that the city allocates some funds under purely revitalization projects, i.e. more can be done under the same budget. What’s more, it should be noted that among the goals of revitalization is also the improvement of the economic potential of the revitalized area, which fits in perfectly with the commercial goals of the PPP project. In other words – revitalization in PPP gives us a more complete implementation of public goals even in the area where commercial ventures are implemented, because the effect of the whole is a fundamental change in the potential of areas subject to revitalization.
What are the criteria for the selection of the contractor currently?
Here I will refer to the division I mentioned at the beginning, i.e. in the case of concession projects, the price may not be the key importance or even none – there are even self-financing projects. It is a case in which it is worth focusing on the quality of the solutions that are offered, the scope of the project, additional tasks, which the bidder will take on as part of the division of tasks, etc.
In the case of projects with an availability fee, the weight of the price does not have to be decisive, although of course it cannot be omitted. We will not run away from the price criterion, but there are good grounds for saying that they do not have to be decisive. For example, at the beginning of April, we began the proceedings for the selection of a construction partner for the Emilia pavilion, where, first of all, we took into account the benefit that the project brings to the public entity mainly in the context of the effectiveness of project implementation, including the efficiency of using assets or public property.
Why is public-private partnership not so popular in Poland?
The investment needs of Polish local governments over the past few years have been extremely urgent, because we have made up the distance that divided Poland from the more developed economies of Western Europe. Therefore, we used funds that were easier to obtain, i.e. EU funds. Warsaw was the absolute leader in terms of the amount of funds obtained from the European Union. This was also the investment strategy – at the moment when these funds are available, they should be used to the best of their ability and the situation we have now should be sought, where Polish cities no longer diverge in infrastructure development from Western European cities. Paradoxically, therefore, it was the availability of other financing that meant that PPP projects, as more difficult to prepare and control, were not implemented too often. However, for some time it can be said that PPP “returns to the table”. It is said that EU funding will be slowly coming to an end, moving in other directions, which is why it seems to me now is time for local governments to seriously take interest in public-private partnership. What’s more, as mentioned earlier, there are projects that due to their complex or innovative nature are “dream” items for PPPs and which cannot be comprehensively included in traditional ordering modes.
What project currently implemented in the PPP mode stands out in terms of its importance for the urban fabric of the capital?
The most significant project that we will prepare and we are in the course of conceptual and analytical work is the development plan for the quarter of buildings around the Różycki Bazaar in Warsaw’s Praga. This is the largest project we currently plan to implement in the PPP formula, which will have significant value for residents. The next project, which is extremely important, although slightly less spectacular than the revitalization of a large area of the city, as in the case of the Różycki Bazaar mentioned above, is the construction of energy-saving kindergartens. In addition, a smaller but interesting project is the revalorization of the Guard Hall facility. I would like to emphasize that these are real projects and if everything goes well, the undertakings will be announced this year.
Is packet PPP possible?
Package PPP is designed to ensure the implementation of small PPP projects for which the investment market would not have an offer. This solution is particularly beneficial from the perspective of a small town or commune where small projects are implemented more often in terms of budget. Preparation, mainly analytical, and then conducting such a project can be difficult. It is equally difficult to find a partner interested in a small project willing to participate in PPP proceedings. The merger of several entities to implement a package of such projects is therefore a way out towards investors who are ready to enter such PPPs. Small projects are difficult to break through and bring to the point where they could be implemented. Package PPP is therefore a great idea to break the deadlock and get a scale in this package that will interest financial institutions and an investor who has experience in carrying out a project in this formula.
Last Updated on January 14, 2021 by Karolina Ampulska