credit crunch in poland

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2. Tool of. Financial. Arrangements involvement or funding from more than one agency .... PPP projects that have been successful – the process of selecting ... Good country experience on previous transport PPP projects is ..... Airports. – Tourists and hotels. Joanna Węgrzyn, 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