International law firm CMS has advised on a waste-to-energy PPP project in Olsztyn, Poland. The value of investment, consisting of a thermal waste processing installation to produce electricity and heat from municipal waste, and a peak load boiler house to ensure heat production during peak demand periods, is approximately PLN 800m net. This is the largest project in the PPP formula carried out so far in Poland in the municipal sector, which is also part of the green transformation policy.
On the part of the public sector, the project was sponsored by Miejskie Przedsiębiorstwo Energetyki Cieplnej sp. z o.o in Olsztyn, which entered into a PPP agreement with a special purpose vehicle owned by infrastructural fund, Meridiam, and the Spanish concern, Urbaser. The Olsztyn waste-to-energy plant is the second project developed jointly by Meridiam and Urbaser. The first project of these companies was implemented in Spain (Zubieta) and became operational in October 2019.
“The use of public-private partnerships to implement local government investment projects is a very beneficial solution from the perspective of the local government units. Currently, when local government budgets are depleted due to the COVID-19 pandemic, the possibility of implementing investment projects in cooperation with a private partner, providing savings and cost predictability, is particularly attractive” – said Marcin Bejm, partner who heads the energy and projects department at CMS Poland.
A new heat and power plant in Olsztyn using RDF as fuel will replace the coal-fired units. Energy stored in waste will be returned to the residents in the form of heat supply. The use of coal in the Olsztyn district heating system is to fall from the current 98% to 39%, and 50% of heat is to come from renewable sources. According to local government estimates, the new investment will cover the demand for hot water for about 100,000 inhabitants of Olsztyn.
CMS lawyers advised a consortium of Polish and foreign institutions financing the project, which included Bank Pekao S.A. as the facility agent and security agent, the European Investment Bank, mBank S.A., Bank Ochrony Środowiska S.A., Erste Group Bank AG, Standard Chartered Bank AG and Kommunalkredit Austria AG and Kommunalkredit Austria AG as the mandated lead arranger, sole bookrunner and underwriter. The project was financed in the project finance formula and included PLN 172m support from the EU Operational Programme Infrastructure and Environment provided through the National Fund for Environmental Protection and Water Management. CMS lawyers also advised on the intercreditor agreement and the secondary syndication of the financing.
The project was the first energy project in Poland to receive a “Green Loan” worth PLN 490m.
The scope of work for CMS law firm included, firstly, developing a mechanism for support of the project by the City of Olsztyn, proposing amendments to the PPP contract and other project agreements (EPC contract, O&M agreement, interface agreement) to ensure their bankability, financial structuring of the project, negotiating direct agreements and preparing and negotiating full documentation for financing, including collaterals.
Comprehensive legal advice on the project agreements was provided by the CMS energy and projects team led by Marcin Bejm (partner). The team at the investment structuring stage included lawyers Piotr Gałązka, Patrycja Styczyńska, Wojciech Szopiński and Alicja Smyklińska, and Adam Kędziora (senior associate).
Advice on obtaining financing was provided by the CMS banking and finance team led by Michal Mężykowski (partner). At the financing closing stage, the work was led by Konrad Leszko (senior associate), with support from Roksana Pietrzak(senior associate), Piotr Lipinski(lawyer), and Karol Ścibor(lawyer). On UK law aspects the team was supported by Ana Radnev (partner).
