Local governments in Poland and throughout Europe are seeking opportunities for quick and effective development. Just like Kraków, they are choosing the PPP formula to offer residents the highest quality services without overburdening budgets.
Polish cities are developing intensively which triggers major investment needs. The big question is where to get money for the construction of roads, schools, water supply and at the same time not to neglect the maintenance of the existing infrastructure. Each infrastructure project is a burden on the budget (own contribution, loan) and affects the overall investment plans. To respond to these dilemmas, regulations were put in place to facilitate the public-private partnership (PPP) model which generates virtually no costs for the local government at the construction stage. It does not require a time-consuming search for financing and does not affect the local government’s debt ratio. A private partner performing the task receives the first payment only after the residents start using the new infrastructure.
PPP: spending money more effectively
According to the Ministry of Funds and Regional Policy, 165 PPP contracts have been made in Poland since 2009, mainly covering projects in the field of energy efficiency, sports and tourism and transport infrastructure. Not an impressive number yet the interest in PPP is growing year by year. 68 projects are currently being prepared which will potentially be implemented in this formula. Most of them are for the transport infrastructure. They are estimated at a total of PLN 8.3bn.
“There are not many projects of this type on the market right now, but this should change in the coming years. We can clearly see public awareness and practice is being developed in this matter, which makes potential private partners – who are ready and willing to participate in tender procedures – very happy” – says Michał Wójcik, COO with Gülermak, in a recent interview for inwestycje.pl website.
Awareness is growing and advantages seem attractive. What are these? “Number one, from the perspective of public finance: it is cheaper – says Marcin Hanczakowski, Director of Kraków Municipal Road Authority (ZDMK) in an interview for transport-publiczny.pl whose institution is developing the tramway route to Mistrzejowice in partnership with Gülermak. “The amount [approx. PLN 1.3 billion – ed.] includes not only the construction of approximately 4.5 km of the route, but also its maintenance for the next 20 years. Afterwards, the partner will hand us over the route already renovated” – he adds.
“The second advantage is completion time. A private partner is not restricted by various procedures binding on the public sector – it implements the investment faster, with fewer risks, and has wider access to appropriate human resources and new technologies”.
Several European countries can boast of a really wide and effective use of PPP. According to the latest Review of the European PPP Market in 2020, 34 PPP transactions reached financial close. The biggest number of such projects was launched in France (e.g. the RCEA route, consisting of a series of roads connecting the east and west of the country) while the projects performed in Germany were of the highest value (e.g. extension of the A3 motorway). In general, transport sector tasks are predominant and are considered to be the most promising for the PPP model.
The tramway to Mistrzejowice is not the only investment of this type in Europe. The first tramway route is currently being developed in Liege and is scheduled for completion in 2023. For several years, routes built as part of PPP in Zaragoza and Dijon have been successfully operating. Success stories are there and once the investment is completed, it is worth passing on the experience.
Kraków as the role model
The tramway to Mistrzejowice is already today labeled the largest transport project in Poland made in the PPP formula. Kraków is supported by the government in its preparations and partnership while the private partner is approaching international funding institutions. Kraków’s experience will serve as the basis for developing guidelines for other cities planning to leverage on the PPP while implementing their projects aimed at serving the residents.