Poland has made halting progress in developing a PPP market, and has struggled to cope with a lack of domestic experience in putting together bankable deals. Against that backdrop, the Zl1.1 billion ($360 million) Poznan energy from waste project is a pioneer. Poznan is the first energy-from-waste project to be procured as a PPP in Poland, but also the first Polish PPP to reach financial close outside the transport sector.

Poznan city council’s Department of Public Utilities and Housing brought the project to market in 2011. The design, build, finance and operate PPP contract covers the construction and 25 years of operation of of a 210,000 tons per year energy from waste plant. The project falls under Poland’s 2007-2013 waste management and air protection infrastructure initiative.

The project sponsors – Marguerite Fund and Suez Environment subsidiary SITA Polska – are using local currency financing from three Polish banks to build the plant. The project is also a milestone for the Polish banking sector, with two of the participating lenders – PKO and BGK – making their debut to project finance lending. Laurent Chatelin, investment director at Marguerite Fund, says, “We had to educate the lenders on project finance and as a result managed to get long tenor (over 22 years door to door) and tight debt cover ratios.”

The Zl803.2 million debt package comprises a single term loan and three other facilities. A club of three Polish banks – Pekao (part of UniCredit), PKO BP and BGK – will provide the ZL735.2 million term loan which is split into two tranches. BGK is facility agent and security agent.

Tranche A is Zl665.2 million, has a tenor of 20 years from commercial operations and its underwriters are PKO and Pekao. BGK is underwriting a 22-year post-completion tranche B of ZL70 million. The debt is priced at between 250bp to 355bp over the Warsaw Interbank Offered Rate.

In addition to a single term loan, the banks will provide a ZL20 million EU refund loan, a ZL36 million VAT loan and a ZL12 million working capital facility. The EU refund facility would draw in the event that the city does not get an EU grant for the project. The ZL 214 million in equity is split 50:50 between Marguerite and SITA Polska.

The city named the Marguerite and SITA consortium preferred bidder in January 2013, after it submitted a bid 30% cheaper than the second-placed bidder. Chatelin says that the consortium was able to submit such a low bid thanks to an attractively-priced O&M contract and the long-dated project finance package. The consortium submitted a fully underwritten best and final offer that included documentation to which all project parties had agreed.

Poor quality professional advice had contributed to several failed PPPs in Poland. Chatelin says one of the factors behind Poznan’s success was the involvement of the mayor of Poznan, who had made improving infrastructure a priority. “The mayor had the intelligence to properly select advisers for the project and listen to their advice,” Chatelin says. He adds “Poznan has been adopted as a blueprint for PPPs in Poland. It will most likely be used as a template for other PPPs in the waste sector.”

The plant is expected to be commissioned in 2016 and will reduce the disposal of waste in local landfills, in accordance with the EU Landfill Directive and Poland’s Waste Law.