PFR to finance the construction of the Kraków bypass worth close to PLN 1 billion

PFR to finance the construction of the Kraków bypass worth close to PLN 1 billion

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The Polish Development Find will finance a key infrastructure investment project in Kraków. Trasa Łagiewnicka is a section of the city’s outer ring. It will help to reduce congestion in city centre and connect the southern districts of Kraków. According to the Strategy for Responsible Development, infrastructure investments are a priority of the Polish Development Fund.

The investment project will create a four-kilometre-long modern thoroughfare connecting the existing street Grota-Roweckiego with the Witosa / Halszki / Beskidzka hub. The project includes the construction of two three-lane roads and tramway tracks; the drilling of three tunnels of ca. 1.5 km in total length; the construction of collision-free junctions, a new integrated rail/tram/bus stop and passenger service centre; a footbridge for pedestrian and cyclists; two new bridges (including a railway bridge); the reconstruction of the Wilga River bed; and the construction of bus stops, pavements, cycling paths, and noise barriers. The construction work is scheduled to begin in 2017 and finish in 2020.

“Trasa Łagiewnicka is an example of a modern transportation network designed to best serve the economic needs of Kraków and the region and to improve the quality of life for their inhabitants. The expansion and modernisation of the transportation network helps to improve the competitive position of the regions of Poland and the whole country. A focus on local government investments is crucial to step up economic growth in 2017-2018,” said Mateusz Morawiecki, Deputy Prime Minister and Minister of Economic Development and Finance.

The investment will decrease congestion in the city centre of Kraków (including the Trzech Wieszczów area) by creating a direct connection between the southern districts. The thoroughfare will take traffic between the districts out of city centre, reducing pollution emissions.

“Kraków’s third ring, of which Trasa Łagiewnicka is an important part, will improve the quality, throughput and speed of city transport. It will also improve safety by reducing traffic in the historical centre of the city,” said Paweł Borys, President of the Polish Development Fund.

The investment project has been designed jointly by the Polish Development Fund and the city of Kraków under an agreement. The city was responsible for the large part of the concept and design as well as budget projections, while PFR developed the legal structure and financial model of the project and arranged funding. PFR provides more than PLN 200 million of funding. PFR’s financial instrument is of key importance to the investment project.

The construction of Trasa Łagiewnicka will also be co-financed from other sources. Bank Gospodarstwa Krajowego, a member of the PFR Group, will provide a loan of nearly PLN 300 million. The European Investment Bank approved a loan of nearly PLN million under the Juncker Plan in December 2016. The city has applied for nearly PLN 100 million of subsidies from the Infrastructure and Environment Programme to cover the tramway part of the project. The application is under review by the Centre for EU Transport Projects. The total budget of the investment, including financing in the construction phase, is estimated at ca. PLN 1 billion.

PFR invests in infrastructure

The main objective of PFR funds when financing infrastructure, which is typically capital-intensive, is to ensure the bankability of investment projects, i.e., the fulfilment of criteria that open the door to bank debt. As a result, it is possible to raise possibly least expensive market funding for the project through bank debt.

The instruments deployed by PFR funds to pursue their investment objectives include, first, equity instruments i.e. investment in shares of project companies that operate infrastructure projects. Second, they also include debt subordinated to senior bank debt. Such participation of PFR infrastructure funds and the application of their financial instruments in project companies ensures that 60 to 80 percent of the infrastructure budget can be financed with bank debt.

“In the last 18 months, the PFR Group has financed more than PLN 10 billion of infrastructure investments, including a large share of projects implemented by Bank Gospodarstwa Krajowego and the Polish Agency for Enterprise Development,” said Paweł Borys.

Infrastructure projects implemented by the PFR Group include one of the biggest investments in Pomorze – a deep-water quay of the Gdańsk container terminal; investment in the development of national rail transport in partnership with PESA Bydgoszcz; revitalisation of pre-war tenement houses in Radom’s Miasto Kazimierzowskie; and modernisation of student dorms of Collegium Medicum, Jagiellonian University, Kraków.

Bank Gospodarstwa Krajowego, a member of the PFR Group, offers debt financing of infrastructure projects. BGK works with the National Road Fund and provides financing of projects implemented by the General Directorate of National Roads and Motorways. The Polish Agency for Enterprise Development provides co-financing for road projects in Eastern Poland to improve the transportation grid connecting regional cities. The Eastern Poland Operational Programme includes investments that will improve the transportation grid connecting regional capitals of Eastern Poland to the national road network, improving their position as job markets. The investments will improve competitiveness and boost business activity in the macroeregion.

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