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The Warsaw Voice » Law » July 29, 2009
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Special Economic Zones In Pursuit Of Investors
July 29, 2009   
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Current legal regulations on investing in special economic zones (SEZs) do not fully match the needs of the moment. They need adjustment, not only because this is a time of economic crisis, but equally because organizational and logistical considerations prompt the sop of concessions to investors.

The planned amendments to the regulations are unlikely to change much in the current state of things. However, much could be done on the basis of existing regulations with the wholehearted commitment of a SEZ manager and knowledge of the appropriate solutions.

"SEZ regulations" facilitate mechanisms whereby a SEZ, insofar as that is what its manager wants, "can attract" or should one say "can pursue" an investor. Attractive real estate for investment purposes is often made up of land which neither lies within a SEZ's borders, nor is it earmarked for investment purposes. Moreover, it is typically land belonging to a plethora of owners.

Significant amendments to the Special Economic Zones Act were introduced in 2008, with executive acts coming in train in December that year. To give a spur to investing in SEZs, their maximum size was increased from 12,000 hectares to 20,000. The amendments also made provision for private land to be incorporated in SEZs, albeit by way of exception, for example, when an investment promising a set number of new jobs or outlays of a given value is conditional upon its incorporation. By and large, these amendments were conceived as incentives for investments that will generate new or considerably improved goods, processes or services, and for investments in specific services (such as R&D, IT and so on).

The ongoing legislative endeavors are aimed at harmonizing the requirements incumbent on SEZ investors with the market realities of today. Among other things, it is planned to reduce, by half on average, the criteria concerning the number of new jobs and the value of investment outlays that must be met for a SEZ to function on private land.

However, even without these and further amendments, the regulations as they stand could be put to good use, with profit for would-be investors and the economy alike. Flexible SEZ managers eager for big investments can do much to attract investors to their domains. They have the power to make judicious concessions to investor expectations, like the possibility of purchasing real estate desired by the investor directly from the SEZ manager.

A SEZ manager is in a position to attract a potential investor by acquiring land that is that investor's object of desire. This is particularly useful when, as so often happens, the land has a number of owners who must be dealt with. If this land's designation is other than for investment purposes, then the manager must see to it that the local land planning assumptions are changed accordingly. The acquisition of land from a private person must usually be preceded by a notarized preliminary agreement with a reservation clause that the manager has the right to pull out of the agreement, or that it is to be a single bid sale offer. Upon its purchase, the real estate is then incorporated into the SEZ by way of expanding its borders. In the final stage, the manager, by way of combined tender, that is together with the permission to operate in the SEZ, transfers the property to the investor.

By the same token the regulations concerning the criteria for incorporating private land in a SEZ are inapplicable, which makes it considerably easier for investors to invest.

The acquisition of land (not just private) by the manager makes its incorporation into the SEZ easier. The manager also has the option of a privileged and simplified way of purchasing land as opposed to other would-be buyers. For example, the Agricultural Land Agency may transfer the ownership of land at its disposal which is earmarked for investment purposes by free donation. Moreover, SEZ managers are exempted from competitive tendering requirements in acquiring real estate from the State Treasury and local governments, if their properties lie within the borders of their SEZ. However, the interplay of purchasing real estate, changes in local planning provisions, and the expansion of a SEZ's domain requires knowledge and experience.

All in all, a successful SEZ manager must be proactive, well-informed and flexible. He must know what to do to attract investors, and then do it. He does not need to make huge financial outlays to succeed. He just has to be smart.

Krzysztof Sajewskipartner at Salans international law firm
Magdalena Osóbka-Morawskaassociate at Salans international law firm
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