How Poles Are Celebrating 100 Years of Independence

In Poland, every 11 November is National Independence Day, commemorating the day Poland regained its independence in 1918, following what historians refer to as the partitions, where Russia, Austria and Prussia annexed parts of Poland so that it disappeared from the map of Europe for 123 years.

To celebrate the day, Poles participate in a variety of events, such as military parades, national runs (wearing the official state colours) and, for gym lovers, 100-push-up challenges. They also indulge in baked goose with apples. Some get carried away and choose to celebrate in more radical ways – which is not always appreciated by law enforcement (let us not deliberate on that).

This year, 11 November is a Sunday – is it bad luck for Polish employees, who enjoy long weekends? Not at all. The Polish parliament has decided that the 100th anniversary is so seminal, 12 November will be a day off.

The introduction of an additional day off during the calendar year – and possibly also during the settlement period – means it is necessary to reorganise work and set new work schedules, etc. Therefore, some employees will be happy to have a long weekend, but for HR departments and production planners, etc., it might be nightmare.

It is worth mentioning that, in this case, the statutory provisions regarding working during public holidays are applicable – in accordance with the Polish Labour Code. In any working time system that provides for working on Sundays and holidays, employees are entitled to the total number of non-working days in the adopted settlement period equivalent to at least the number of Sundays, holidays and non-working days in the average five-day working week falling during that period.

 

Central Sea Port PPP Project in Poland – “Anchors Aweigh and Full Speed Ahead”

Large-scale public-private partnership (PPP) projects are not common in Poland. However, the amendment to the PPP law, which came into effect in September 2018, should change this.

Therefore, we welcome the fact that, recently, the Port of Gdańsk announced a tender for a PPP advisor for the Central Sea Port Project (available in Polish). Thus, the “anchors are aweigh” for this project, which is estimated to cost between €1.4 billion and €2.14 billion, consisting of a new quay to be equipped with two berths, enabling ships carrying various types of cargo to be serviced.

The contracting authority is seeking an advisor comprising a multidisciplinary team of (i) engineers, (ii) financial experts and (iii) lawyers for a multiyear contract that will run through the proposed tender for a private partner to commercial and financial close.

Assessment of the Advisor’s Quality

Interestingly, 50% of the assessment of offers will be based on cost and 50% on quality, with the latter being based on a written opinion prepared by the bidder to be delivered with the bid, addressing which proposed scenario for the project is the best legal and financial solution. The contracting authority attached a statement of facts describing the proposed scenarios and the questions to be covered by such opinion.

Under Polish law, the “quality” criterion can be used to assess offers, including the assessment of opinions prepared by the bidders. The National Appeals Chamber emphasises that when assessing the quality of legal opinions, the contracting authority ought to specify very detailed criteria to be considered in the assessment. This, however, always gives rise to controversy, because while it is rather easy to ascertain the quality of coffee that may be shipped to the Port of Gdańsk, for example, it is not as easy to assess the quality of an advisor’s work product.

Therefore, because “quality” – which is, in essence, evaluative – is one of the offer criteria, the contracting authority may find it daunting to impartially, clearly and exhaustively satisfy the bidders that the factual basis of the selection made is correct and defensible, drawing on the specified criteria.

Contrary to an Old Saying, the Egg May Actually Be Smarter Than the Chicken

It is imaginable that in complicated matters, but ones that are quite common to the contracting authority, the contracting authority using its ample experience is able to verify the “quality” of the opinions concerning issues that are its bread and butter and which it may entrust to third-party contractors. Yet, with an intricate PPP project (and given the history of PPP in Poland), an open-ended question arises as to how the tender commission will assess such offers and the opinions therein.

If it accepts the task, will that mean it assumes its expertise is equal to if not greater than that of the applying consortia of technical, financial and legal advisors? The tender commission of the contracting authority will assess, among others:

  • The “adequacy” of the legal provisions cited and the “correctness of the applicable provisions’ construction”. The latter may, if history is any indication, lead to a rather serious discussion among lawyers as to which interpretation is the most correct, all the more so if the bidders should doubt the competences of the “judge” that the contracting authority would become.
  • The contracting authority also intends to assess the “correctness of risk identification” on the part of the future advisor. One might wonder if the contracting authority knows which risks are reasonable and which are not. The question may be posed: why is it looking for an advisor in the first place?
  • Finally, the contracted entities’ opinions will be assessed as to whether they have been drafted in “approachable, communicative and clear” language. At this point, another question arises – which the contracting authority may undoubtedly be formally asked – whether it is aware of any infallible formula like, for instance, the Sèvres metre measurement. What are the tender commission’s style preferences? Are they closer to Marcel Proust in The Guermantes Way or would they rather opt for the concise novels of Thomas Mann?

From the outset, the advisor selection procedure (or rather the procedure for the assessment and selection of the advisor) is worthy of attention. The contracting authority may extricate itself from a potentially uncomfortable situation by awarding each bidder 50% of the points for the quality of its opinion, meaning that the selection would be based on price alone. Otherwise, there is a risk that the National Appeals Chamber and perhaps, in case of adversarial action, the Circuit Court in Gdańsk will make (at the contracting entities’ prompting) a game-changing (and bold) attempt to determine the interpretation of the terms “adequate”, “correct construction of the laws”, and “approachable, communicative and clear” language. The potential definition of the characteristics of the Polish language will be particularly ground-breaking in the Polish legal environment.

 

RES Auctions in Poland Ready to Take Off

The RES auctions are fast approaching – the first one, for existing installations, is due to start on October 17.

The long-awaited RES auctions start tomorrow. This year, the President of the Energy Regulatory Office has divided the auctions into two rounds: 17-25 October for existing installations and 5-20 November for new installations.

The auction system is based on periodically held auctions during which renewable energy producers offer to generate a certain amount of energy for a guaranteed price over the course of 15 years. The Ministry of Energy has determined the amount of energy it intends to contract through the system. The auctions are divided into five “baskets”, with the bidding for each basket to be held on a different date:

  • The first basket is for installations burning biogas from a variety of landfills (e.g. waste and biogas from sewage treatment plants)
  • The second basket is for hydro energy, geothermal and offshore wind farm installations
  • The third basket is for installations utilizing agricultural biogas only
  • The fourth basket is for onshore wind farms and photovoltaic power plants
  • The fifth basket is for hybrid RES installations

 Volumes for This Year

The government intends to earmark the most energy – a staggering 45 million MWh – for the fourth basket auctions. It plans to spend approximately PLN 15.75 billion on it. It is planned to contract 1,000 MW from wind farms. The second most widespread type of RES preferred by the auction system in 2018 is photovoltaics, of which 750 MW is anticipated to be contracted.

As per the auction system, the lowest bids will win. However, bids may not exceed the reference price, which ranges from PLN 570/MWh (for agricultural biogas plants) to PLN 310/MWh for onshore windfarms of up to 1 MW. For wind farms exceeding 1 MW, the reference price is PLN 350/MWh, while for photovoltaic plants exceeding 1 MW – PLN 400/MWh.

What Happens After the Auction?

Having won the auction, the owner will have a certain amount of time to launch its operations: two years for photovoltaics and four years for any other RES installations.

Investors planning to participate in real auctions could enter a mock auction, held in September 2018. Those planning to invest in wind farms placed offers within the PLN 225- 350/MWh range. They were chiefly projects of up to 26 MW, which constituted 60% of the bids placed, the share of larger projects of 26-50 MW was 25%, while that of the biggest projects beyond 51 MW – 15%.

Dispersion

As may be assumed, the idea behind the regulator listing auctions for many installations up to 1 MW in PV was to create a market for small local investors or their local consortia. As the winning projects from 2016 show, planning is one thing, and convincing the other party – local entrepreneurs – to implement such plans is another. This will be discussed below.

Auctions and Projects From 2016 – Constructing or Selling?

After the last RES auction, which took place in 2016, many projects on the market have still not begun the installation of RES and many of them are now for sale. Owners attempted to dispose of them at a discount, while those who could not secure financing for their investment disposed of winning projects to avoid paying penalties. The Energy Regulatory Office emphasizes that, according to the bid placing principles, an offer made during the 2018 auctions is binding on the participant – it may not modify or withdraw from it, while severe penalties will be imposed for failing to complete the project.

Investment Funds Join the Game

The offers of installation sales of the winning auctions have appeared on the market largely due to the entry of investment funds. This is even more interesting since just being admitted to the auction required a complete set of documentation and building permits and the securing of financing of such an investment.

Actually, immediately after providing the results of the auction, investment funds can start the investment process (in relation to the auction from 2016), taking over entities that have installations along with won auctions.

Share Deal?

Transferring ownership of a winning installation is possible applying the provisions of the Code of Commercial Companies, through a share deal, because the RES Act does not stipulate the manner in which to transfer the rights and obligations arising from winning a RES auction onto other entities.

The obvious shortcoming of a typical acquisition of a company with a virtual project that won the auction is the necessity to conduct thorough due diligence to consider regulatory, corporate and fiscal risks if such an entity has also had a long history or has operated in other types of industries.

Offshore in Poland

Following rather firm and promising declarations made by the Polish government with respect to the development of offshore wind farms, this dynamic has lost momentum in the recent weeks. According to the Ministry of Energy, the draft bill is to be announced this year, so that it can be legislated and passed in the first six months of 2019.

Yet recently, the Government Plenipotentiary for Strategic Energy Infrastructure has informed that offshore projects will not be included in the support system and should be commercial projects. Given that energy prices in Poland have increased by several dozen percent for the industry (nearly 85% of manufacturing in Poland draws on coal-fired plants), it is unlikely that no support from state on such projects will be an obstacle.

What Can Be Expected?

If, after this year’s auctions, history repeats itself, next year (2019) may see several hundred megawatts worth of projects won through auctions. Many investment funds will build or supplement their portfolios. Large-scale energy will rather appear on the sea and without the financial backing of the state. It is not expected that Poland will be able to fulfill the EU renewable energy generation obligations for 2020.

Will One of the CEE Countries’ Governments Take an Example From Malta or Lichtenstein in Developing Blockchain Regulation?

Many countries inside the European Union are still struggling to come up with clear regulations that would provide a predictable set of rules for the blockchain technology. However, smaller nations like Liechtenstein and Malta have sorted it out. Continue Reading

Renewable Energy in Poland – More Optimism In Holiday Season

TSolar Power Energyhe long-awaited amendment to the Renewable Energy Sources Act (RES) is now in effect.

Before the holiday season, on June 29, 2018, the President signed into law the long-awaited amendment to the RES. It was published later that day (fast track), thus the provisions regarding RES installation were effective as of July 1, 2018, with the remainder taking effect, generally, on July 14, 2018.

The first trigger for introducing the amendments was the need to execute the European Commission Decision conditionally allowing the Polish auction-based model of supporting RES. While at it, certain previously flawed provisions were fixed and several new solutions were added.

Depending on the point of view, the outlooks vary. Generally, it seems that the amendment is beneficial to renewable energy producers, yet there is still a lot to be desired in the long run.

Continue Reading

Poland’s Mega-investment Project Doubles in Size

Motion Blurred Train

The Polish government has announced details of the high-speed rail network to be built in connection with its Central Communications Port (CCP) project. The PLN 40 billion (€9.25 billion) planned rail network is even more ambitious than the PLN 35 billion (€8.10 billion) airport project.

With a target date of 2027, the CCP involves:

  • Construction of new hub airport 40 km from Warsaw
  • Reconfiguration and extension of Poland’s rail network with CCP as its hub
  • Extension of the nearby A2 motorway along with numerous ring roads
  • Transfer of major operations from Warsaw’s existing Chopin airport to CCP
  • Development of a new city neighboring CCP

Continue Reading

Poland’s New Split Payment Mechanism Affects Financing and Factoring Transactions

On July 1, 2018 the so-called split payment mechanism was introduced into the Polish legal system. Split payment refers to the splitting of invoice payments in B2B relations between a supplier’s current bank account and a VAT account, which is automatically opened by banks as an account directly linked to current accounts. Funds constituting the VAT portion of an invoice payment are transferred to and from such VAT accounts. The split payment mechanism in Poland is not obligatory.  Purchasers of goods or services can decide whether they want to split their payments in two parts, with the net amount transferred to the supplier’s current account and the VAT amount credited to the VAT account. The use of the funds on VAT accounts is restricted by law.

The introduction of split payment into Polish law has significant practical implications for financing, especially factoring and all secured transactions where an assignment of rights is used. Continue Reading

Poland’s New Law on the Central Communications Port Takes Effect, But Questions Remain

Loading AeroplanesPresident Duda has signed the new law on the Central Communications Port (CCP) (see our summary of the new law here and it will take effect on 20 June 2018. However, questions remain on the scope of Poland’s mega-investment project.

Prime Minister’s Volte

A key element of the plan for CCP is that the existing Warsaw Chopin Airport (which is currently used by approximately 16 million passengers annually, with potential growth to capacity of 22-24 million) would close and all commercial traffic would move to CCP, thus creating an efficient hub for LOT Airlines. However, recently, Prime Minister Mateusz Morawiecki and the governing Law and Justice Party candidate for Warsaw Mayor Patryk Jaki both stated in interviews that Chopin Airport would not close, but its usage would decrease and serve mostly Warsaw citizens and domestic traffic. Although these statements may have been influenced by local government elections, which will be held in the fall of 2018, if they do represent the government’s position, they throw into question a key point of CCP’s economic viability and have unsettled the market. Continue Reading

The Tale of Standardization: The Use of LMA Standard Forms in CEE

Colour coded documentsIf there is a holy book for finance lawyers, at least on this side of the Atlantic Ocean, it would be the Loan Market Association (LMA) standard form.

Aimed to improve liquidity and efficiency in the syndicated loan markets in EMEA, the recommended standard forms developed by the LMA are here to stay. Although intended as a non-binding recommended form to be used as a starting point for negotiation only, boilerplates and other provisions proposed by the LMA have become widely accepted market standards.

English law governs the LMA standard documentation. In fact, it is not a single form but a selection of different forms for various types of transactions, including investment grade, real estate or leveraged transactions. While Germany, France and Spain enjoy their own LMA-based primary documents governed by their respective local laws, CEE jurisdictions are still in the basket of the developing markets for which the LMA produced its developing markets standard documentation. Standard forms for developing markets are governed by English law, based on the assumption that international lenders are likely to opt for legal documentation governed by a globally recognized legal framework instead of the law of the borrower’s jurisdiction.

So, what is the practice of using LMA standard forms like in Poland, the Czech Republic, Slovakia and Hungary? Continue Reading

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