Construction of a logistics center using the Public-Private Partnership formula

Is the Public-Private Partnership model suitable for implementing an investment project involving the construction of a logistics center? Numerous examples of such projects provide the answer to this question. It is a pity that not in our country.
The model of project implementation according to the Public-Private Partnership (PPP) formula was, alongside strong government support and budgetary funds, one of the main success factors in the construction of Italian and German logistics centers.

During the implementation of the logistics center construction program in Italy, private capital was admitted to public funds. At the root of this decision was the conviction that such a solution would positively influence the pace of investment implementation, bring savings in investment funds, and prove helpful in adhering to its schedule and budget, which private investors handle much better. And so it happened. The Germans did the same, where the public sector, as the initiator of the construction of logistics centers, created various models of connections with private investors. It is therefore worth looking at the PPP formula, which currently, in view of Poland’s accession to the European Union, is becoming an important element of co-financing infrastructure investments through financial resources made available to member states under structural funds.

The construction of a logistics center is a long-term, costly investment burdened with a number of risks that may discourage potential investors from participating in its implementation. These risks are particularly visible in cases where initiators intend to carry out an investment project in a traditional way. They concern various aspects of the planned investment project:

• the public sector may fear that the land and infrastructure prepared by it at great expense will not find users
• the private sector may fear excessive costs of an investment aimed not only at commercial goals, which are of interest to private investors, but also at the realization of social goals that do not interest it
• banks may fear that the public sector will not find a sufficient amount of its own funds, which would be a guarantee for them of the project’s viability.

The listed examples are only some of the risks accompanying the planning of long-term investments, which include logistics centers. Therefore, a solution that has proven itself in Western European countries is joint investment by the public and private sectors within the framework of the public-private partnership formula.
Public-Private Partnership (PPP) is a form of long-term cooperation between the public and private sectors in the implementation of investments. The goal of cooperation according to the PPP concept is to achieve mutual benefits in the commercial and social dimension. The result of the cooperation is obtaining greater value and higher quality for a lower price than in the case of financing the investment in a traditional way.

In the case of the PPP formula, both sectors can jointly implement an investment project, even though each of these sectors may have different goals that prompt it to cooperate. The public sector may have the following goals in mind:

• completing a task with a broader social dimension in a shorter time
• reducing the costs of investment implementation and reducing the involvement of own funds
• ensuring optimal financing of the investment over a longer time horizon
• achieving social benefits in the form of an influx of new investments, new jobs, and stimulating economic growth.

The private sector may be interested in pursuing completely different goals:

• achieving measurable benefits from the investment in the form of a return on invested capital
• the possibility of generating additional revenue from operational activities
• reducing investment costs and operating costs
• limiting risk by transferring to the public sector those risks that this sector manages better.

A project implemented according to the PPP formula enables better identification of risks, their allocation, and management than in the case of a project implemented in a traditional way.

The article comes from the magazine “Logistyka”, No. 1/2005.