Borrowing time

Fine-tuned financial engineering is what Warsaw needs to generate enough money to support its development needs

Dariusz Klimaszewski, head of the Infrastructure and Investment Committee of the Warsaw City Council, who met with the AmCham Infrastructure Committee in December, said that with hosting the Euro 2012 European Football Championship, Warsaw has a strong stimulus and a clear timeframe for upgrading its public infrastructure so that it is up and running to accommodate the tens of thousands of football fans who will come to Warsaw from all over Europe to see the kickoff match.

The current city council, in power for the last three years, has managed to implement investment projects worth PLN 6 billion so far. In total, the city has to launch infrastructure projects worth an estimated PLN 12 billion.

Some of the projects have provided new stimulus for urban development. Klimaszew-ski said that expansion of the city’s Metro system, in a sense, precedes the growth of the city itself.
The city council is not the only institution that is busy upgrading public infrastructure in Warsaw to match the needs of the rapidly growing city. Road projects, such as expressways of major significance for the country’s transportation system, are financed by the General Directorate for National Roads and Motorways (GDDKiA), a government agency. In the aggregate, investment projects undertaken by the city and the province of Mazovia amount to PLN 20 billion.

Not all projects will be completed by the time the soccer championship starts. One of them is the second line of the Warsaw Metro system, which will join the east and west parts of the city center through a tunnel under the Vistula River. Because the seven new Metro stations will require open spaces above them, which will then be covered with concrete roofing, construction of the new line needs to be coordinated with Euro 2012 so that the Metro construction sites do not impede city traffic during Euro 2012. “During the event there will be tunnel excavations underway, including underneath the Vistula River, but not station works,” said Klimaszewski. “By 2013 the central section of the new Metro line will be open.”

He added that the Metro station to be built near the National Stadium poses major engineering challenges. “The Stadium station will be housed inside a big vault submerged in mud and water.”

While we will have to wait well after Euro 2012 to see the new Metro line shuttle folks between the two halves of Warsaw divided by the Vistula, there is a good chance that a rail link will be in service between the city center and Okęcie airport a few kilometers off. “Currently an underground train station is under construction under Terminal Two of the Warsaw airport,” Klimaszewski said.

The Okęcie link is also significant because a new financial and conference center is being constructed near the airport to supplement the existing hotel and conference infrastructure for Euro 2012 and after.

Klimaszewski said that Polish State Railways (PKP) is one of the main players in creating the new face of Warsaw’s transit infrastructure, not only because it operates the railroad but also because it owns the train stations. The company managed to find a private investor for reconstruction of the Warsaw West train station, but so far has failed to find an investor to support revitalization of the East station.

With additional road construction projects, including Poland’s largest-ever road junctions, traffic control systems, and hospital extensions to match emergency standards for the soccer event, Warsaw is stretching its budget extremely thin. According to regulations governing municipalities in Poland, a city’s debt must not exceed 60% of its annual income.

According to Klimaszewski, the city needs to resort to some fine-tuned financial engineering to find the money it needs to support all necessary infrastructure and management projects. To do this, Warsaw has selected Deloitte as its financial advisor in putting together deals with private investors under the Public-Private Partnership Act.

Another source of money for Warsaw may be privatization of municipal companies, such as SPEC (generator and distributor of municipal heating), as well as the city’s cleaning agency, a taxi company and an outdoor advertising company (Warimpex).

Sale and leaseback is another financial instrument that Warsaw is looking into with interest, and hopes it may work. “It is a financial method successfully applied by the Kraków council,” Klimaszewski said. “When Kraków Mayor Jacek Majchrowski took office, the city was near its debt limit. But Kraków is still developing well. This is because the city has a committee charged with preparing municipal real estate for sale. Another thing is that the city pays low fees for leasing back the property for the initial period of the contract, the first 5 to 6 years. After that, the fee goes up.”

Klimaszewski added that investors from all over the world, including China and France, have expressed interest in such financial arrangements in Warsaw: “It is good for investment and pension funds, among other types of investors, because it can keep Warsaw solvent. I hope many of you private sector companies will take that opportunity.”

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