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The number of Public Private Partnership (PPP) projects currently underway in Poland suggests that the market has finally recognized the number of public project opportunities and that the applicable legal framework is considered acceptable. This article aims to highlight the current PPP legal framework and changes planned by the Polish government to boost this growing trend.

Currently, there are 83 ongoing PPP projects in Poland, with 129 more in development. Projects range from the development of underground car parks in Warsaw, through the provision of management, maintenance, and operation of collective water supply services in the Pomerania District of Poland, to construction of thermal waste conversion plants in the Wielkopolska and Pomerania areas. The value of projects also differs significantly, ranging from relatively small thermal plants to large highway projects, thus making PPPs appealing to both mid-size and large-scale investors. A PPP market related to energy-efficiency projects is another future possibility. With the EU directive of 25 October 2012 (2012/27/EU) in place, calling for each Member State to increase energy efficiency by 20% by 2020, the PPP sector is likely to speed up.

PPP – as defined by EU guidelines – is understood as cooperation between the public and private sectors for the development and operation of infrastructure, driven by limitations in public funding and efforts to increase the quality and efficiency of public services. In Poland, the PPP legal framework is statutory and consists of the Public Private Partnership Act of 19 December 2008 (PPP Act); the Act on Concessions for Works or Services of 9 January 2009 (Concession Act), and the Public Procurement Law of 29 January 2004 (Public Procurement Law).

The PPP Act is a cornerstone regulation which sets out key rules governing cooperation between a contracting authority (such as a local self-government unit or another public finance sector entity) and a private partner, i.e., a domestic or foreign entrepreneur. The PPP Act allows this cooperation to be based either solely on a contract or effected through an SPV in the form of a corporate entity (either a limited liability vehicle or a joint-stock company) or a partnership. Under the PPP Act cooperation between a private and public partner shall be laid down in a civil law contract, with the PPP Act setting out key elements of the agreement, including (i) the form of regulation regarding the private partner’s remuneration; (ii) the allocation of risks and responsibilities between the private investor and its public partner; and (iii) the private partner’s asset contribution.

The key feature of the PPP Act is that it provides rules for a private partner selection. These rules differ depending on the type of project involved. If the private partner’s remuneration consists of the right to collect profits from the PPP project (e.g,. through a toll highway), the selection and PPP contract’s content are determined by the Concession Act, which sets out a fairly uncomplicated four-step selection procedure. Where, however, the Concession Act is not applicable, the somewhat more complicated procedure of the Public Procurement Law kicks in.

Despite the growth in the number of PPP projects in Poland, there remain ways the PPP system in the country can improve. The average value of a PPP project in Poland is over 2 million EUR – less than the average in France, Spain, or the UK. To catch up with other EU countries, in February 2015 a set of guidelines for the amendment of PPP-related regulations was adopted by the Polish Government. The proposed changes to the PPP regulations include, among other things, doing away with the requirement that a contracting authority notify the head of the Public Procurement Office if a PPP contract is to be concluded for a period of more than 4 years or exceeding the value specified in the governmental regulation. Additionally, the guidelines aim at providing the contracting authority with significant discretionary powers regarding negotiating over the value of the security provided by a private partner. Finally, the government aims at dispelling ambiguities regarding the character of expenses incurred by the contracting authority due to the performance of a PPP contract, which is supposed to facilitate funding. Although the Government Legislation Center has recommended that work on the bill be accelerated, with the 2015 elections and the ouster of the ruling coalition around the corner, its fate remains uncertain.

By Patryk Figiel, Head of Projects, and Jakub Dabrowski, Associate, Linklaters

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Over the last four years, the Croatian government has persistently attempted to attract international interest to its numerous infrastructure projects. It has offered international investors a number of such projects, mostly in the energy and transport sectors. The outcome of such investment initiatives was not always as expected, but optimism remains that investor interest in Croatia will not dwindle.

The past two years have been particularly active. The most important driver of the surge has been the energy sector, with oil and gas concessions and an LNG terminal attracting the most interest from international investors. The transport infrastructure sector closely followed, with the social infrastructure sector taking a back seat. 

In the transport infrastructure sector, the most important success story is the new Zagreb Airport. Awarded under the PPP model, the project faced some initial controversy, but has quickly gained popularity and promises to be a flagship infrastructure project for the government. 

This was not the case with the contemplated motorways monetization. Facing strong public resistance to the project and a reported mismatch between investor interest and government expectations, the government abandoned the concession model. Now, advised by the World Bank, it is contemplating alternative models for monetizing its highways, including an IPO of the motorways management company scheduled to be launched in autumn of this year. It remains to be seen whether the alternative model will attract a level of investor interest equal to the government’s high expectations. 

The government’s other racing horse is investment in energy infrastructure. The most important current project is the award of licenses for onshore and offshore oil and gas exploration. The first round of tenders has attracted interest from most important international industry players despite initial delays caused by cross-border environmental consultations. The offshore tender also suffered a setback when a couple of preferred bidders withdrew from the project faced with unresolved border issues between Croatia and Montenegro. The onshore tender did not face any such problems, but the governmental approval process was delayed and the government announced it will not sign the contracts until after the elections which are scheduled for early November. Despite all obstacles (including low oil prices), both projects still promise to be success stories for the government. 

The government also started actively preparing project documents for the construction and operation of a new LNG terminal on the island of Krk. Through a series of tenders, the government has selected well-known international legal, financial, and technical advisors to provide help identify and engage the preferred bidder. It is expected that the initial round of tenders for selection of contractual counterparts will be launched in the first half of 2016. 

In contrast to the Energy sector, investments in social infrastructure, especially under the PPP model, are still few and far between, and the PPP model for construction and operation of social infrastructure in Croatia remains heavily underutilized. Currently, there are only a few PPP projects available in the market despite the obvious appetite of international investors. The market perception remains that some of these projects have not been very well prepared, resulting in significant delays and the failure to secure proper commitments from investors. 

The proper preparation of large infrastructure projects remains the single most important condition for the success of a project. Croatia, as a young democracy, has often not had the experience or the resources to properly prepare projects on its own. Nonetheless, the Croatian government and its bodies have historically been reluctant to seek external help in the form of qualified international consultants capable of providing the requisite support. The support of such consultants is sometimes still viewed as redundant, the view being fuelled by various state bodies arguing that the internal capacities within the state are sufficient to properly prepare and execute any project. Sadly, experience has shown on many occasions that this is simply not so. 

Fortunately, recent trends indicate that the Croatian government has finally realized there is value to be found in engaging experienced advisors for its flagship projects. Many success stories are based on the benefits the government gained from such support. The hope thus remains that the Croatian government will continue to utilize the support of experienced advisors as a means to a very important end: the benefit of all of its citizens gained through well-prepared and thought-out projects. 

By Ronald Given, Partner, and Sasa Jovicic, Senior Associate, Wolf Theiss

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

There has been a complete lack of public-private partnerships in Romania to date. For the last five years Romania has been struggling to develop a legal framework for public-private partnerships which would allow the country to tap into private investors’ money for key development projects. The process is far from over.

Romania’s current public-private partnership law (Law no. 178/2010) is not used in practice, mostly because of its unclear provisions regarding key topics such as public partners’ financial contribution to projects, the guarantees for financing institutions in case of a project’s failure, and a clear distinction between projects that can be marketed as public-private partnerships versus projects that can be marketed as concessions. In addition, ongoing political debates over the shortcomings of the existing law have led to the initiation of another public-private partnership law, which is currently in the process of being adopted. 

Even with the draft law that is set to abrogate the existing law, a number of potential problems exist, suggesting that the large degree of uncertainty that dominates the process of tendering public-private partnership projects in Romania may continue even after its adoption.

Contributions by Public Partners

The draft law allows public partners to contribute to public-private partnerships and take associated risks only if their doing so does not impact Romania’s public debt and budgetary deficit thresholds. Therefore, at the investment stage, public partners can contribute only EU funds to projects. Throughout the projects’ operation and maintenance lifespan, public partners can make payments out of public funds subject to compliance with Romania’s public debt and budgetary deficit thresholds. 

The challenge may lie, however, in aligning the timing and bureaucracy around accessing EU funds. The Romanian public partners have yet to prove that they have the capacity to access EU funds in a timely way to support projects developed as public-private partnerships.

Amendments to Substantiation Studies

Substantiation studies make or break public-private partnership agreements. These studies cover topics such as risks and risk allocation, compliance with Romania’s public debt and budgetary deficit thresholds, and necessary investments. The draft law requires that these studies be approved by different governmental entities through a process that can be burdensome, and may need to be amended as private investors are selected. The current wording of the draft law reads that each amendment of these studies triggers new approval processes that suspend the public procurement procedures. If the amendments are not approved, the procedure is to be terminated.

Lawmakers have not taken into consideration the fact that interested private investors could propose alternative offers, which may or may not result in the alteration of substantiation studies. As a result, this provision in the draft law may cause some companies to question the value of investing time and money in a process that can be suspended or terminated due to cumbersome bureaucracy.

Unilateral Termination by Public Partners

Subject to damages payable towards private investors, the current draft law allows public authorities to unilaterally terminate agreements with private investors for exceptional circumstances concerning the public interest, such as public health, environmental protection, quality and safety standards, tariff affordability for users, and the need to ensure unrestricted access to a certain public service. 

This right of public partners remains one of the most controversial points of the draft law, both because of the lack of clear definitions of “exceptional circumstances” and “damages,” and because of the Romanian public partners’ track record of constantly changing their minds.

Replacement of Private Partners

A final point for consideration is that the draft law permits public partners to replace private partners whenever those private partners or project companies do not fulfill their obligations. The replacement may not require new public procurement procedures for selecting another private investor. 

Providing public partners with a mechanism to replace private partners without having to run new public procurement procedures for selecting another private investor may lead companies not to participate in any public-private partnership programs. The reasons are many, chief among them the Romanian authorities’ poor track record of conducting transparent public procurement procedures and finalizing agreements, and the unwillingness of companies to invest time and money in bidding on projects from which they can later be excluded for reasons outside their control.

If it proceeds, these issues may be addressed during the implementation of the draft law. But in addition to the need for a stable and clear legal framework, public-private partnerships in Romania require political commitment, mostly because of the significant social and political impact of these projects. To encourage the involvement of companies that hold the expertise needed for the successful completion of public-private projects, the political class must ensure that the projects benefit from clear and transparent rules and regulations or risk losing the participation of these companies.

By Claudiu Munteanu-Jipescu, Partner, and Diana Poputoaia, Senior Associate, Dentons

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

It has been almost four years since the adoption of the new Serbian PPP and Concessions Act. The principal idea of the legislators at the time was to liberalize the process for awarding PPP/concession projects both in terms of governmental oversight (previous legislation involved active participation of the Government of Serbia in several steps of the award procedure) and in terms of the entities allowed to act as grantors (public companies (javna preduzeca) may act as public partners under the new PPP and Concessions Act whereas, under earlier legislation, public companies were not considered as concession grantors – the concession agreements were signed by the Government of Serbia or, in case of development of communal facilities for the purpose of performing communal activities, municipalities). So far, not a single significant infrastructure project in Serbia has been realized through a PPP/concession scheme. 

The main hurdle which potential grantors faced in development of PPP/concession projects was the lack of experience and guidance in identifying and realizing potential PPP/concession projects. The PPP Commission – the governmental body tasked with, inter alia, assisting and consulting authorities in the implementation of best practices for the development of PPP/concession projects – was relatively inactive and limited its activity to the administrative role of reviewing and approving submitted PPP project proposals.

A pilot concession project sponsored by the EBRD for the development of an underground garage in Sabac in 2012-2013 failed to attract a single bidder, presumably because of the unwillingness of the municipal authorities to assume certain risks usually expected from grantors in these kinds of projects. 

The lack of experience and know-how as well as the complexity of PPP/concession procedures meant that the decision makers in the higher echelons of the governmental and municipal authorities avoided using PPP/concession procedures and opted for simpler and more straightforward procurement procedures for developing large infrastructure projects. The availability of soft loans from international financial institutions contributed as well to this trend. The standard procurement procedures in Serbia were plagued with bidders’ challenges and unfair business practices (most notable in this regard was Alpine, whose entire business model in Serbia was based on dumping prices).

So, it was not until Serbia faced strong budget constraints and an inability to borrow further that the authorities turned to the structures prescribed under the PPP and Concessions Act for large infrastructure projects. 

The primary example of this new approach is the Vinca waste-to-energy project. In order to replace the existing waste management system with a modern one, the City of Belgrade decided to employ a PPP DBFOT (design-build-finance-operate-transfer) structure. The private partner to be selected in the competitive procurement process will be tasked with development of a waste treatment and disposal facilities with an annual capacity of 480,000 tons of residual municipal solid waste and about 100,000 tons of construction and demolition waste. The project will include the production of electrical and/or heating energy from waste, as well as the closing and rehabilitation of the existing landfill. The PPP contract award is planned to take the form of a competitive dialogue. The process is currently in the pre-qualification phase, with the dialogue phase to begin in early November.

The fact that this project is being structured and managed by the experienced team of the IFC and other international advisers guarantees that the project will meet international best practices. Therefore, it is not surprising that the largest companies in the waste management sector are participating in the process. 

The successful realization of this trailblazing project will pave the way for other upcoming projects, such as the Belgrade airport and Belgrade water utility projects. It should also raise the awareness of foreign investors, especially the large infrastructure funds, of investment opportunities in the Serbian infrastructure. Finally, it should bring an end to the non-transparent practice of awarding infrastructure projects directly and without the tendering process, as required by various intergovernmental agreements. We have seen this practice more than once in Serbia, and the results have rarely delivered the required infrastructure in a short time and for the market price.

By Dragoljub Cibulic, Partner, BDK Advokati/Attorneys at Law

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Hungarian Ministry of Justice acknowledged the recent criticism aimed at the difficulties regarding the enforcement of monetary claims in the country and plans to amend the relevant laws to make creditors’ lives easier. As currently envisaged, these amendments will in the near future change such fundamental laws as the Civil Code, the act on court enforcement, and the act on insolvency and bankruptcy proceedings. This article provides a summary of the envisaged amendments.

Civil Code

The current provision of the Civil Code stipulates that the security interest must be terminated in case of a transfer of the loan agreement, even if the security provider has given their consent. The amended law would foresee that the security interest does not terminate under any circumstances and the consent of the security provider will only be required if the debtor’s position changes. It will be possible to implement a change in the creditor’s position without the involvement of the security provider.

With the intent of stimulating the market for mortgage-backed instruments, the proposed amendment of the Civil Code might re-introduce the non-accessory mortgage. Such instruments had relied on non-accessory mortgages that were transferable without the transfer of the underlying loan. However, the Civil Code abolished such non-accessory mortgages when it entered into force on 15 March 2014, causing a hiccup in the market for such instruments.

Enforcement Act

The amendments also envision an entirely new act regarding enforcement procedures. It is not certain which of the several concepts currently floating around will actually make it into legislation. However, the various concepts currently being discussed all have in common the aim of strengthening the powers of creditors. It would be very surprising if some of the ideas currently discussed (eg that the creditors should have the right to freely choose among the bailiffs) were to survive the drafting of the new act; however, others will almost certainly end up being implemented. The most notable examples of this latter group includes proposals that secured creditors should have influence over the sale of the debtor’s assets and that creditors should receive detailed information on the debtor’s available assets.

Act on Liquidation and Bankruptcy proceedings

The legislator also plans to enhance the position of the creditor in insolvency proceedings by amending the relevant act. In the envisioned amendment of the bankruptcy proceeding, creditors may also have the right to initiate the proceeding (NB: currently, only the debtor may apply for the bankruptcy proceeding) and will have the opportunity to comment on the debtor’s reorganisation plan or even prepare an alternative one. Debtors would be obliged to file the reorganisation plan together with their bankruptcy application. In liquidation proceedings, secured creditors would be granted stronger powers during the sale of the debtor’s assets. This may even include the secured creditors being able to proceed with the sale of the encumbered asset by way of self-help.

By Gergely Szalóki, Attorney at Law, Schoenherr

Herbst Kinsky has advised ams AG — a global manufacturer of high-quality sensor and analog IC solutions — on its acquisition of a 100% stake in CMOSIS International NV, a supplier of high quality and advanced off-the-shelf customized and full custom CMOS image sensors, from TA Associates. Beiten Burkhardt represented ams in merger notification matters, while TA Associates was advised by Travers Smith, London, and Baker & McKenzie, Brussels. The value of the transaction was EUR 220 million, which was settled in cash.

Ams is listed on the SIX Swiss stock exchange and has its headquarters in Unterpremstatten, near Graz, in Austria. The company’s research and development centers are located in Austria, the USA, and 11 other locations. Ams employs over 1,800 employees in 20 countries and sells is products all over the world. Consolidated sales in 2014 amounted to EUR 464.4 million

Founded in 2007 with headquarters in Antwerp, CMOSIS has about 110 employees at sites in Belgium, Germany, Portugal, and the United States. CMOSIS expects 2015 annual sales of around EUR 60 million.

Partner Phillip Dubsky led the Herbst Kinsky team, supported by Alina Regal and Associate Alexander Weber. 

The Beiten Burkhardt team advising on merger control matters was led by Jan Cotta and Georg Heinrich.

The Travers Smith was led by Partner Paul Dolman, and Baker & McKenzie’s team in Brussels was led by Partner Dominique Maes.

Image Source: cmosis.com

The Vilnius office of bnt is advising and representing German Lufthansa Technik AG on claims it has filed in the insolvency proceedings of the Lithuanian carrier Air Lituanica.

Air Lituanica ceased operations on May 22, 2015, and filed for bankruptcy on June 8, 2015. the Vilnius Regional Court started bankruptcy proceedings in late August of this year. The airline is indirectly owned by the city of Vilnius, and was set up by the former municipality of the Lithuanian capital. 

Lufthansa Technik is a leading manufacturer-independent provider of maintenance, repair, and overhaul services for aircraft, engines, and components. The Lufthansa Technik Group consists of 32 companies with more than 25,500 employees. It is a 100% subsidiary of the Lufthansa Group.

The bnt team advising Lufthansa Technik includes Partner Frank Heemann and Advocate Rasa Grambaite-Pusciene.

Image Source: airlituanica.com

Bezen & Partners has advised Akfen Gayrimenkul Yatirim Ortakigi A.S. (Akfen GYO) in the refinancing of a EUR 205 million real estate investment trust.  

Akfen GYO one of the top business groups in Turkey, and owns real estate in Turkey, Russia, and Cyprus. The EUR 205 million refinancing of the company’s real estate investment trust will allow Akfen GYO to continue working on its existing real estate investment projects in those countries. 

The Bezen & Partners team was led by Senior Partner Yesim Bezen and Senior Associate Can Ozilhan.

Squire Patton Boggs has advised Raiffeisen Bank International AG Vienna on a EUR 25 million multi-jurisdictional factoring transaction for Lasselsberger, s.r.o. and LB Minerals, s.r.o.

A cross-border team from Squire Patton Boggs’ offices in Frankfurt, Bratislava, Prague, Paris, and Warsaw advised on the Czech, French, German, Slovak, and Polish law aspects of the sale and servicing arrangements for a portfolio of trade receivables originated by Lasselsberger, a leading European producer of raw materials, building materials, and ceramic tiles.

“The new and innovative aspect of this transaction is to merge factoring and securitization techniques and to create a ‘securitization inspired factoring receivables purchase agreement’,” explained Frankfurt Financial Services Partner Jens Rinze, who led the Squire Patton Boggs team. “This is attractive to enterprises that are used to factoring as a refinancing tool but do not address the domestic factoring markets for their refinancing needs but the more international markets.”

The full team advising Raiffeisen Bank International included Prague-based Senior Partner Val Papirnik, Bratislava-based Partner Jana Pagacova, Warsaw-based Partner Peter Swiecicki, and Paris-based Partner Christopher Wilde, along with Paris-based Counsel Aymeric Malphettes, Prague-based Senior Associates Marketa Lukesova and Hana Cekalova, Warsaw-based Partner Jacek Wisniewski, and Warsaw-based Associates Dominika Kupisz and Malgorzata Olech.

Fort has advised EfTEN Kinnisvarafond AS on its acquisition of a B-class office building located ay 11 Menulio street in Vilnius from UAB “Litectus“ (SEB bank‘s real estate company for distressed properties). Litectus was represented by Valiunas Ellex. The acquisition represents EfTEN’s first investment in Vilnius.

Fund manager EfTEN Capital AS established EfTEN Kinnisvarafond in 2008. The fund invests in commercial real estate properties in Baltics, and currently has a commercial real estate portfolio of 22 properties in Estonia, Latvia, and Lithuania. The fund’s gross asset value stood at EUR 208 million at the end of October 2015. 

The total area of the 10-story office building on Menulio street, which was built in 2009 (and refurbished 2011 – 2013 a, is over 8 800 square meters — including over 5,600 square meters of office space. It also has 136 parking places. The property’s main tenant is the local police authority.

According to Viljar Arakas, CEO of EfTEN Capital and EfTEN Kinnisvarafond’s fund manager, the property is an important asset to EfTEN’s real estate portfolio. “Menulio office building is located in Western part of Vilnius, right at the junction of two main streets of the city, [with] has excellent connections to the city and airport which makes it a great location for commercial real estate. [This] new investment in Vilnius, Lithuania will add further value to our portfolio.”