Environmental Regulation in Transforming Economies: The Case of Poland by Piotr Jasiński & Helen Lawton-Smith

Author:Piotr Jasiński & Helen Lawton-Smith [Jasiński, Piotr & Lawton-Smith, Helen]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9780429831690
Google: Is-CDwAAQBAJ
Goodreads: 43329314
Publisher: Routledge
Published: 1999-02-01T00:00:00+00:00

Financial and policy leverage

Foreign participation can exercise financial leverage over the Polish power sector in three main ways:

it can represent the extra additional incentive which makes a project possible;

it is an opportunity to enhance the association between donor and private-sector financing; and

it can play the role of an indirect financial leverage when it contributes to opening a new area for lending.

Simultaneously, the intake of capital can have a significant policy leverage. Policy leverage is taking place directly when the project cannot be implemented without important change in sectoral policy and indirectly when macroeconomic or sectoral policies are essential to the sustainability of the project activity. A degree of innovation is embodied not only in the technology diffused or in the management of this technology, but equally in new approaches for institutions and regulation.

Options for the internal financial support of energy activities in Poland appear limited by the insufficient capacity within the industry to raise cash flow due to its poor asset basis and the uneconomic pricing of output (Favrat, 1996). The possibility for the electricity companies to raise funds in the domestic capital market was equally limited over the period researched. Access to commercial funding was characterised by high interest rates and relatively short maturity (ten years) and an insufficient capital basis, given the size of the industry's financial requirements. In addition, publicly guaranteed commercial financing was strongly decreasing in importance, thus mirroring worldwide trends. Given budgetary constraints and the perception of relative surplus capacity in the power sector, government loans were not on the agenda, neither were sovereign guarantees in the energy sector. This disengagement of the state in a still small and fragile domestic financial market acted as an investment disincentive in an industry characterised by capital intensity and associated with the provision of public services.

The limited potential of local funding exerted a significant constraint as is illustrated in the case of the Opole power plant retrofits. Opole faced difficulties with the local authorities because of pollution through air, noise and water: the number one generating block was denied an operating licence on environmental grounds in June 1993. The power plant signed a contract in 1991 for the construction of three wet Flue Gas Desulphurisation units (FGD) with German partners, but the project was held up by financing issues.19 The Polish commercial bank guarantee necessitated a government guarantee for the total sum, but the final guarantee decision by the Government was only taken in the spring of 1994. In the meantime, to continue operation the power plant had installed dry FGD (Polish Rafako technology) for two units, a technology which only achieves a 40-50 per cent desulphurisation rate (compared with 90 per cent with wet technology).

Catalysing private infrastructure finance The Polish energy sector and more particularly the electricity subsector represents a large-sized infrastructure development market but it has to compete for private capital with countries which might offer either a more stable financial basis, more favourable ownership patterns, or simply a more investment-friendly political setting. Increased recourse to

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