Polish Investments wants to focus on infrastructure projects Shutterstock

Macroeconomic data in recent months have left no doubt that the Polish economy is experiencing a sharp downturn. Unemployment is fast approaching 14 percent, domestic demand, which accounts for 62 percent of Poland's GDP, is down and exports have been affected by the slowdown in the euro zone. Poland's PMI readings have shown deterioration in the industrial sector for nearly a year now.

It was in this context that Prime Minister Donald Tusk announced last October the creation of Polish Investments, a special-purpose vehicle meant to exploit state assets to finance investments and give the economy a boost.

"This will be possible without affecting the safety of the state's finances, meaning without increasing the budget deficit or public debt. It will be possible thanks to the active use of capital, which today is frozen," said Mr Tusk in his speech to parliament.
 

About to take off

Polish Investments is scheduled to take off in Q2 of this year. The SPV will create companies responsible for preparing and carrying out large projects, especially in the infrastructure sector. It could even be listed on the Warsaw Stock Exchange in the future.

After having played the role of a private equity fund, the SPV will withdraw from the newly formed company, letting private entrepreneurs to take over control.

By 2015, the government aims to pour zł.40 billion into the SPV, with the funds coming from the liquidation of state assets, mostly in companies where the State Treasury still has a stake. For example, the Treasury recently sold a stake in PKO BP, raising zł.4.4 billion for the first phase of the program.

Treasury Minister Mikołaj Budzanowski said the priority now is to get the project going organizationally and work on a list of potential investments. "Projects are to wait for the money coming from the sale of shares in state-owned companies, not the other way around," Mr Budzanowski told reporters last month.
 

What do experts think?

"SPVs are not a new idea, they were used in the 1930s and 1940s. Their economic value is rather positive if they adhere to the rules of transparency, but there will be a battle between interest groups for this money and that battle will wade into politics," said Jan Filip Staniłko, an analyst at the Sobieski Institute.

Mr Staniłko said the government needs to set out its priorities for the Polish Investments program.
"Right now, we have a vehicle but we do not know in which direction it is going. The government needs to decide where it wants to channel the capital," he added.

Mr Staniłko thinks it would be sensible to co-finance the building of Poland's planned nuclear facilities or to take over financially troubled banks, but that shale gas investments, for example, should be left to foreign capital, which has the necessary know-how in that area.

Meanwhile, Stanisław Gomułka, chief economist from the Business Center Club, said the SPV is an alternative way for the government to continue public investments.

Mr Gomułka, who served as deputy finance minister in the current coalition, said the Polish government, in its public finance convergence report, informed Brussels that public investments in Poland would decline from 5.8 percent of GDP in 2011 to 3.8 percent in 2015.

That would mean the government spending roughly zł.53 billion on public investments in 2015, compared to the zł.88 billion it spent in 2011, Mr Gomułka said. The government is now trying to bridge that gap, he added.

Mr Gomułka also thinks the Polish Investments SPV will be of little help to Poland's troubled SME sector. "The projects are for big companies, because the SPV will be involved in projects worth zł.250 to zł.600 million," he said.

Moreover, he called the amount that Polish Investments is supposed to invest over the next three to four years zł.40 billion "insignificant."

"That is not enough to fill the gap resulting from the drop in public investment. The prime minister was just trying to make a political statement that his government is doing something to keep investments going," Mr Gomułka said.

But Przemysław Kwiecień, chief economist at X-Trade Brokers, took a different stance, saying "in such times of economic slowdown any potential help is welcome. We are in a tough period now because Poland is in between EU budgets and does not yet know how much exactly it will receive in 2014-2020," he said.

Mr Kwiecień and Mr Gomułka agreed though that the SPV's success will depend greatly on whether economic logic or political sentiments would be used when selecting projects to be funded.
 

Loan guarantees from BGK

There will be another aspect of the government's investment program, organized through the only fully state-controlled bank in Poland, Bank Gospodarstwa Krajowego (BGK).

The Treasury aims to recapitalize BGK with zł.40 billion by 2015. The money is to be used to extend guarantees to SMEs that have problems raising financing in the private sector.

The plan is to make BGK capable of guaranteeing up to 60 percent of such a loan. Mr Gomułka believes these guarantees will be more "useful" to businesses as they could really help out some cash-starved SMEs.

Mr Kwiecień is rather optimistic about the SPV's future, mainly due to BGK's involvement in the process. "It is better that a bank will be making decisions and not some government agency. Maybe this will ensure the decisions made will be based on economic principles," said Mr Kwiecień.

With Polish Investments due to begin activity in a few months, it will soon be clear just how sound the decisions are.

Remi Adekoya