2. Tool of. Financial. Arrangements involvement or funding from more than one agency .... PPP projects that have been successful â the process of selecting ... Good country experience on previous transport PPP projects is ..... Airports. â Tourists and hotels. Joanna WÄgrzyn, Cracow University of Economics ... Los Angeles.
P3 Under Austerity: The Case of Poland PPP prospects in terms of the credit crunch and Euro2012
Joanna Węgrzyn, Cracow University of Economics
How to combine the following issues? Euro2012
Credit crunch Joanna Węgrzyn, Cracow University of Economics
PPP
Searching for a context The desired level of infrastructure
Recession
Infrastructure gap Current level of infrastructure
Joanna Węgrzyn, Cracow University of Economics
EURO 2012
PPP
Presentation Schedule Overal look on
Polisch perspective on
PPP
PPP
Credit crunch
Credit crunch
Credit cruch vs PPP in Poland
Euro 2012
Euro 2012 vs PPP in Poland
Mega sports events
Joanna Węgrzyn, Cracow University of Economics
Impact
PUBLIC PRIVATE PARTNERSHIP
Joanna Węgrzyn, Cracow University of Economics
PPP definition Approach
Example of defionition
Main topics
1. Tool of Governance or Management
cooperation of some sort of durability between public and private actors in which they jointly develop products and services, and share risks, costs, and resources which are connected with these products
cooperation between organisations; risk sharing; new and better products or services as a result
2. involvement or funding Tool of from more than one Financial agency Arrangements
government budgets; value for money ; Models: BOT, BOO etc.
Joanna Węgrzyn, Cracow University of Economics
Authors
Van Ham and Koppenjan (2001)
Hodge i Greve (2007, 2010)
Sellgren (1990) Collin (1998) Campbell (2001)
Apporach
Example of defionition
Main topics
3. Tool of Development Process
collaborative activities among interested groups and actors, based on a mutual recognition of respective strengths and weaknesses, working towards common agreed objectives developed through effective and timely communication
Development Efficiency Collaboration
4. Language Game
PPP is a game designed to Privatisation ‘cloud’ other strategies Public services supply and purposes Source: Khanom (2010)
Joanna Węgrzyn, Cracow University of Economics
Authors
World Bank (1999) ADBI (2000) Agere (2000) Paoletto (2000)
Savas (2000) Greve (2003) Hodge i Greve (2010)
Investment Commitments to New PPI Projects Reaching Closure in Developing Countries, by Region, 1990–2011 400
200 180
350
160 300 250
120
200
100 80
150
60 100
40 50
20
0
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
east asia nad pacific middle east and north africa investments in bln USD
eastern europe and central asia south asia
latinamerica and caribbean sub-sahara africa
Source: World Bank and PPIAF PPI project database. Joanna Węgrzyn, Cracow University of Economics
bln USD
number of projects
140
Investment Commitments to New PPP Projects Reaching Closure in EPEC Countries, 2003–2011 160
35
140
30
25
100 20
80 15 60 10
40 20
5
0
0 2003
2004
2005
2006
2007
2008
number of projects
Source: European PPP Expertise Centre.
Joanna Węgrzyn, Cracow University of Economics
2009
2010
projects in bln Euro
2011
bln Euro
number of projects
120
The number of PPP signed in 2011 in three leading European countries: • UK - 27 projects, • France - 19 projects (The contrat de partenariat - CP) • Germany - 16 projects
Joanna Węgrzyn, Cracow University of Economics
Country Breakdown by Value and Number of Transactions first half of 2012
Joanna Węgrzyn, Cracow University of Economics
PFI in UK
Joanna Węgrzyn, Cracow University of Economics
PPP in France
The contrat de partenariat and equivalents (“CPE”) category comprises all forms of governmentpay PPP arrangements: The contrat de partenariat (“CP”), The bail emphytéotique administratif (“BEA”), The bail emphytéotique hospitalier (“BEH”), The autorisations d’occupation temporaire du domaine public (“AOT”) and the AOT with a lease arrangement (bail avec clause de rachat anticipé or “LOA”).
Source: France. PPP Units and Related Institutional Framework; EPEC 2012 Joanna Węgrzyn, Cracow University of Economics
PPP in Germany
Source: PPP-Projektdatenbank; www.ppp-projektdatenbank.de Joanna Węgrzyn, Cracow University of Economics
Theoretical PPP concepts • M.J. Garvin – effectiveness of PPP • J. Delmon - conductive PPP investment climate
Joanna Węgrzyn, Cracow University of Economics
Effectiveness of PPP by M.J. Garvin PPP programs • The basic objective of a P3 program is to nurture the development of this market and to sustain its existence. • To do so, a P3 program must establish equilibrium among four environments: – – – –
state, society, industry, market.
PPP projects • Projects are the operational expressions of any P3 program. • Each P3 project should seek to provide a marginal improvement in one or more of the following areas: – – – – –
quality of service, price/cost of service, time of service availability, level of environmental impacts, equitable distribution of social benefits.
Joanna Węgrzyn, Cracow University of Economics
P3 Equilibrium Framework Society Industry interests
State
Industry
Social interests
Range of balance
State interests
Marktet interests Market
Source: Garvin (2007) Joanna Węgrzyn, Cracow University of Economics
The context of conductive PPP investment climate by J.Delmon A good PPP cannot be created with only one or two of these elements. Although weakness in some areas can be compensated with strengths in others.
Access to private financing (debt end equity)
Political will, legal and regulatory
Viable PPP
Revenue stream and credit enhancement
Project selection, preparation and implementation Source: Delmon 2011 Joanna Węgrzyn, Cracow University of Economics
PPP IN POLAND
Joanna Węgrzyn, Cracow University of Economics
PPP law regulations and practice in Poland Period
Law
Practice
Before 2005
No PPP regulations
1992 - Gdaosk&Sopot – water supply Kraków – ESCO – complex modernization of citylights 1994 – Kalisz – transport in the city 1993 – Toll road A2 Konin-Nowy Tomyśl
200502.2009
PPP act (PPP sensu stricto)
PPP sensu stricto - lack of investments PPP sensu largo – eg. concession on the basis of public procurement law: 2005 – Kraków underground car park - Plac na Groblach 2008 – Kraków - announcement – underground car park 2009 – Gdaosk- 4 underground car parks
2009now
New PPP act Concession act
Concession on public works Concession on service PPP under concession PPP under public procurement law
Joanna Węgrzyn, Cracow University of Economics
PPP in Poland 2009-2012 concessionpublic public works service procurement concession concession law
PPP under PPP under public concession procurement law
Total
2009
1
19
13
4
5
42
2010
0
33
6
16
9
64
2011
0
13
11
14
4
42
2012
0
14
36
18
18
86
Total
1
79
66
52
36
232
Joanna Węgrzyn, Cracow University of Economics
PPP in Poland 2009-2012 40 36 35
33
30
Project no
25 19
20
18 16
15
13
14
13
14
11 9
10 4
5
6
5
1
4 0
0
0
0 2009
2010
concession-public procurement law
public works concession
PPP under concession
PPP under public procurement law
2011 service concession
Joanna Węgrzyn, Cracow University of Economics
2012
18
PPP projects that have been successful – the process of selecting private partner completed (projects from 2009-2011 period ) 33%
22% 20% 18%
12%
public works concession
service concession
PPP under concession
PPP under public procurement law
29 project , Forum PPP 4/2012 Joanna Węgrzyn, Cracow University of Economics
Total
Question What factors determine the development of PPP in Poland? Access to private financing (debt end equity)
Political will, legal and regulatory
Viable PPP
Revenue stream and credit enhancement
Project selection, preparation and implementation
Joanna Węgrzyn, Cracow University of Economics
Are this political will, law and regulatory? Comparing 2005 and 2009 PPP law under Garvin Equilibrium model
Social interests
Industry Interests
PPP 2009 PPP 2005
State Interests Joanna Węgrzyn, Cracow University of Economics
Market interests
Are this political will, law and regulatory? Additional issues: 1. Distinguishing between central government and local governments 2. Euro2012 The main goal
Measures of action
Consequence
Central governement
Euro zone
Meeting the debt requirements
lack of acceptance for the rising debt on the local level
Local governments
Filling infrastructure gap
Investments
the need to seek new sources of capital
Joanna Węgrzyn, Cracow University of Economics
Is this the county’s past experience? • Project selection, preparation and implementation? • Revenue stream and credit enhancement?
Research findings: 1. 2.
3.
Good country experience on previous transport PPP projects is positively associated with the outcome of the next PPP in that country Bad country experience on previous transport PPP projects is negatively associated with the outcome of the next PPP in that country. The more a country is perceived as corrupted, the less likely it is that the PPP has a positive outcome. The more a country is perceived as having low democratic accountability, the more it is likely that the PPP has a positive outcome. Galilea, Medda (2010) Joanna Węgrzyn, Cracow University of Economics
400
40
350
35
300
30
250
25
200
20
150
15
100
10
50
5
0
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
number of project cancelled, distressed
Source: World Bank and PPIAF PPI project database. Joanna Węgrzyn, Cracow University of Economics
projects-failure
projects-total
PPP projects and their status in Developing Countries 1990–2011
Is this an access to private financing (debt end equity)?
Main issue – the credit crunch
Joanna Węgrzyn, Cracow University of Economics
CREDIT CRUNCH
Joanna Węgrzyn, Cracow University of Economics
The Credit Crunch a sharp reduction in the availability of finance or a sharp increase in the cost of finance.
When and how the recession has started?
Joanna Węgrzyn, Cracow University of Economics
When? • November 2006 - Fed increases interest rates – fall of real estate prices and rise of a number of insolvent borrowers • 15 September 2008 - bankruptcy of the fourth largest investment bank - Lehman Brothers • 29 September, 2008 – The governments of the Benelux countries take control of the largest bank in Belgium Fortis.
What is the outcome? Crisis of confidence in the interbank market. Banks no longer lend themselves due to fear of insolvency. Joanna Węgrzyn, Cracow University of Economics
How? „This is the story of how Washington didn't catch up to Wall Street.„ Faiola, Nakashima, Drew (2008) What Went Wrong? Washington Post, October 15, 2008
“Traditionally, banks have operated under an ‘originate and hold’ banking model, so-called because banks held loans to maturity. Many banks have now moved toward an ‘originate and distribute’ model, where loans are made but then sold to investors” UK House of Commons Treasury Committee ‘Financial Stability and Transparency’ report, February 2008
Joanna Węgrzyn, Cracow University of Economics
Derivatives • Financial instruments or "contract whose value is derived from the performance of underlying market factors, such as market securities or indices, interest rates, currency exchange rates, and commodity, credit, and equity prices. • Derivative transactions include a wide assortment of financial contracts including structured debt obligations and deposits, swaps, futures, options, caps, floors, collars, forwards and various combinations thereof."
Joanna Węgrzyn, Cracow University of Economics
Derivatives and infrastructure investments • Until 1990s infrastructure was considered the unattractive end of the debt markets – due to the perceived high risk arising from the long life of the asset, the consequent difficulty in forecasting revenues, costs related to the asset. • The perception of infrastructure investments have changed with the era of highly structured, often off-balance sheet, finance vehicles and instruments, eg: – SPIVs/conduits (special purpose investment vehicles), – CDS (credit default swaps), – GIC (guaranteed investment contracts)
Source: Infrastructure finance – surviving the credit crunch (2008). PwC Public Sector Research Centre publication Joanna Węgrzyn, Cracow University of Economics
At the threshold of the credit crunch…. …the European infrastructure finance market has been already a bank market with the bond markets playing a small but important role on some primary transactions and a larger role in the secondary (refinancing, securitisation) markets. The infrastructure finance bond market has had a close relationship with the monoline insurance market. Monoline insurers guaranteed the repayments to bond holders in return for a fee, reducing overall project costs and broadening the bond investor base.
Source: Infrastructure finance – surviving the credit crunch (2008). PwC Public Sector Research Centre publication Joanna Węgrzyn, Cracow University of Economics
The impact of the financial crisis on PPPs: • It depends on the phase of development: – Pipeline phase: The PPP is planned, and may even be tendered. However, the public and private partners have not reached financial closure and physical works have not started. – Construction phase: The PPP is negotiated, but the construction of physical assets is still underway and service provision has not commenced. – Operational phase: The PPP is negotiated, the construction phase is completed (if applicable), and services are being provided by the private partner(s).
Source: Burger, Tyson, Karpowicz,Coelho (2009). The Effects of the Financial Crisis on PublicPrivate Partnerships. IMF Joanna Węgrzyn, Cracow University of Economics
Channels of Transmission of the Financial Crisis on PPP Pipeline phase
Construction phase
Operational phase
++ ++ ++
++ +/++
+ +/+
The real effects of the economic slowdown on revenue cash flows
++
+/-
++
Unforeseen exchange rate movements
+/-
++
++
Risk
Financial
Upward pressure on interest rates Decrease in the availability of credit
Real
Decline in stock market prices
Source: P. Burger, J. Tyson, I. Karpowicz, M.D. Coelho, IMF WP/09/144 Joanna Węgrzyn, Cracow University of Economics
CREDIT CRUNCH IN POLAND
Joanna Węgrzyn, Cracow University of Economics
Economic growth in Poland in comparison to other EU countries 20
8
18 6
4
14 12
2 GDP %
Poland in EU GDP% ranking
16
10 0
8 6
-2
4 -4
Poland (rank) -bars
2 12
8
18
10
7
5
1
6
5
8
EU (GDP% 27 countries)
15
0
-6 2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Joanna Węgrzyn, Cracow University of Economics
Poland (GDP %)
Avoiding a decline in GDP in 2009 – justification • Extremely low levels of bank lending and a relatively very small mortgage market; • the relatively recent dismantling of EU trade barriers and the resulting surge in demand for Polish goods since 2004; • the receipt of direct EU funding since 2004; • lack of over-dependence on a single export sector; • a relatively large internal market; • the free-floating Polish zloty; Joanna Węgrzyn, Cracow University of Economics
Austerity and Growth Can we say that there is a clear correlation between change in real GPD and change in government purchases? The test results of the Keynesian proposition say that what has lately passed for policy wisdom (austerity) is instead almost criminal folly.
from 2008Q1 to 2011Q4.
Source: http://krugman.blogs.nytimes.com/2012/02/18/austerity-and-growth/ Joanna Węgrzyn, Cracow University of Economics
Currency Beyond that, there’s a good explanation of Poland’s relative resilience in the crisis compared with most of Europe: currency depreciation When capital was flowing into the European periphery, Poland responded with appreciation rather than inflation — and when the capital flows dried up, Poland quickly regained competitiveness with depreciation, rather than having to rely on slow, grinding “internal http://krugman.blogs.nytimes.com/2012/08/01/poles-apart-2/ devaluation”. Joanna Węgrzyn, Cracow University of Economics
Poland’s success suggests that: (a) big government isn’t so bad (b) sometimes its good to debase your currency.
http://krugman.blogs.nytimes.com/2012/08/01/poles-apart-2/
Joanna Węgrzyn, Cracow University of Economics
CREDIT CRUNCH AND ITS IMPACT ON PPP IN POLAND Joanna Węgrzyn, Cracow University of Economics
Conclusions • The recession did not affected our economy as did it in other countries • However PPP suffered from the credit crunch and its impact on the credibility of the financial system • We can not discuss how the number of PPP initiatives has changed during the financial crisis • All we can tell about polish PPP market is that we have low success rates, and there is high probability that it depends on the credit crunch Joanna Węgrzyn, Cracow University of Economics
MEGA SPORTS EVENTS
Joanna Węgrzyn, Cracow University of Economics
Arguments for hosting sports events • • • •
Employment and wages Sports stadium and their legacy Tourism Infrastructure investment and urban regeneration
Joanna Węgrzyn, Cracow University of Economics
„Economists are usually sceptical of arguments about the public provision of infrastructure for sporting events (…) Agents that endorse the construction of new sports stadia or the staging of mega-events usually do so out of naivety or self-interest. (…) This costs are not nearly compensated by either the revenues earned during the event or the legacy of large stadia or obscure facilities left behind (does London really need another velodrome?).” Andrew K Rose (Haas School of Business, University of California, Berkeley)
Source: http://www.voxeu.org/article/why-bid-olympic-games Joanna Węgrzyn, Cracow University of Economics
Economics of Happiness • Researchers focus on identifying the factors of well-being. • G. Kavetsos, S. Szymanski (2008) – links between happiness and sporting events – Hypothesis: Hosting major sporting events raises reported happiness – Their findings suggest a significant and positive short term feelgood effect, but they find little systematic evidence for long term benefits, either before or after event. Joanna Węgrzyn, Cracow University of Economics
Types of infrastructure investments • Sports infrastructure – – – –
Sports facilities Access roads to the facilities Car parks Facility surroundings
• Infrastructure not directly related to the event – – – –
Roads/highways Railway Airports Tourists and hotels Joanna Węgrzyn, Cracow University of Economics
The summer Olympic Games 1997-2008 - the share of private and public sources of funding 100% 90% 80% 70% 60% 50%
public private
40% 30% 20% 10% 0% Munich 1972
Montreal 1976
Moscow 1980
Los Angeles Seoul 1988 1984
Barcelona 1992
Atlanta 1996
Sydney 2000 Athens 2004 Beijing 2008
Source: Wasilczuk, Zawadzki (2011) Joanna Węgrzyn, Cracow University of Economics
Expenditure on infrastructure stadium in preparation for the biggest football event in Europe and the sources of funding Portugal 2004 Germany 2006 Austria and Switzerland 2008 [bln Euro] [bln Euro] [bln Euro] Stadion public private total Stadion public private total Stadion public private total Algrave 37,96 0 37,96 Berlin 196 46 242 Innsbruck 30 0 30 Aveiro 49,47 0 49,47 Dortmund 0 36 36 Klagenfurt 66,5 0 66,5 Braga 93,63 0 93,63 Frankfurt 84,5 41,5 126 Salzburg 70 0 70 Coimbra 41,45 0 41,45 Gelsen-Kirchen 0 192 192 Wiedeń 37 0 37 Guimaraes 27,84 0 27,84 Hamburg 11 86 97 Bazylea 2,42 70,17 72,59 Leiria 57,83 0 57,83 Hannover 24 40 64 Berno 6,04 60,93 66,97 Lizbona/ da Luz 22,6 90,3 112,9 Kaiserslautern 29,4 18,9 48,3 Genewa 19,14 38,28 57,42 Lizbona/ Jose 17,91 79,79 97,7 Kolonia 25,5 92 117,5 Zurich 11 60,2 71,2 Alvalade Porto/ do Bessa 7,79 37,62 45,41 Lipsk 63,2 27,4 90,6 Total 242,1 229,58 471,7 Porto do Dragao 18,08 98,48 116,56 Moanchium 0 280 280 Total 374,58 306,19 680,77 Norymberga 56 0 56 Stuttgart 51,6 0 51,6 Total 541,2 859,8 1401
Source: Wasilczuk, Zawadzki (2011)
Joanna Węgrzyn, Cracow University of Economics
EURO 2012 IN POLAND
Joanna Węgrzyn, Cracow University of Economics
Euro 2012 - history • September 27, 2003 - Lwów - cooperation agreement between the Football Association and FFU • April 18, 2007 - selection of Polish and Ukrainian offer • September 3, 2007 - The draft of law on Euro 2012 • September 19, 2007 signing of the Act. • This law: – specified entities carrying out projects related to the EURO 2012 (such as PL.2012 Sp., that was responsible for coordinating all activities related to the preparation for the event from the local and central government), – simplified and shortened the time to obtain a building permit, – specified government guarantees.
Joanna Węgrzyn, Cracow University of Economics
Why the law was important? Cracovia Stadium &Prioress’s tooth
Dates: 2007 - the contest for the architectural concept 03.2009-construction permit 09.2010 – official opening
Joanna Węgrzyn, Cracow University of Economics
Stadiums form EURO 2012 in Poland • Main stadiums – Gdaosk – Poznao – Warszawa – Wrocław
• Additional stadiums – Kraków – „Wisła” – Chorzów – „Stadion Śląski” Rozporządzenie Rady Ministrów z dnia 12 października 2007 roku w sprawie wykazu przedsięwzięd Euro 2012 (Dz. U. z 2007 r. Nr 192, poz. 1385). Joanna Węgrzyn, Cracow University of Economics
Projected cost of stadium constructions for Euro 2012 and the sources of their funding [bln PLN] City
Costs
central budget
municipal budget
Gdansk
0,866
0,144
0,722
Poznan
0,639
0,11
0,529
Warszawa
1,915
1,915
0
Wroclaw
0,857
0,11
0,747
Total
4,277
2,279
1,998
Joanna Węgrzyn, Cracow University of Economics
Projected infrastructure spending for Euro 2012 in Poland [bln PLN] 63,45
17,26
9,76 3,88
roads
railway
transport
Source: Borowski 2010 Joanna Węgrzyn, Cracow University of Economics
airports
Roads build in Poland in 5 year periods 500
475,1
450 399,6
400 350
[km]
300
282,3
250 200 139,4
150
135,5 110
100
82,4
77,2 70,1
57,4
50 0
0
14,6
26,8
25,1
27,2
4,7
10,1
1993-1997
1998-2002
0 1983-1987
1988-1992
Single carriageway express roads
Express dual carriageway road
Source: http://stadiony.klszarak.org/scc_a_s.swf Joanna Węgrzyn, Cracow University of Economics
2003-2007 Highway
2008-2012
Foreign tourists in collective tourist accommodation by selected countries in 2009-2012 2009
January December
2010
700 000
February
600 000
2011 2012
500 000 400 000
November
March
300 000 200 000 100 000
October
Dynamics [t/t-1]
April
0
January September
May August
Decembe r
Novembe r
February
1,15 1,1
March
1,05
June July
1,2
1
October
April
0,95
Number of tourists Septemb er
May August
June July
Joanna Węgrzyn, Cracow University of Economics
2010/2009 2011/2010 2012/2011
EURO AND ITS IMPACT ON PPP IN POLAND Joanna Węgrzyn, Cracow University of Economics
Euro 2012 and PPP examples City
Cracow
Project
Lubicz - Basztowa Underground passage reconstruction with the commercial pavilions
Project type
Concession on building works
Value
2 000 000 - 2 600 000 PLN or 500 000 – 520 000 EURO
Broad date
07/07/2011
The starting date of construction
03/2012
End of construction works
09/2012
Operating phase
12 years Joanna Węgrzyn, Cracow University of Economics
Before
Joanna Węgrzyn, Cracow University of Economics
During Euro 2012
Joanna Węgrzyn, Cracow University of Economics
Now
Joanna Węgrzyn, Cracow University of Economics
Euro 2012 and PPP examples City
Wroclaw
Project
The underground parking facility
Project type
Concession on building works
Value
€ 11.2 million
Broad date
II kw 2009
Podpisanie umowy
16/07/2010
The starting date of cnostruction
07/2012
Construction period
construction is to be completed by July 2013
http://www.ebrd.com/pages/project/psd/2011/42414.shtml Joanna Węgrzyn, Cracow University of Economics
Joanna Węgrzyn, Cracow University of Economics
Conclusions • Economists are skeptical about long lasting effects of mega sports events • Polish case is not probably a exception • However we it could be said that Euro 2012 accelerated some infrastructure investments (eg. Higways) – but this hypothesis need to be verified • Connection between EURO 2012 and PPP investments in 2009-2012 are meaningless • However EURO 2012 strengthened the local authorities interest in the sports infrastructure (eg. Łódź). Joanna Węgrzyn, Cracow University of Economics
Summary Strengths
Weekness PPP
in Poland Opportunities Joanna Węgrzyn, Cracow University of Economics
Threats
THANK YOU FOR YOUR ATTENTION
Joanna Węgrzyn, Cracow University of Economics