New Slovak govt to slash infrastructure spending

By bne IntelliNews July 21, 2010

Tom Nicholson in Bratislava -

The return to fiscal discipline in Slovakia heralded by the centre-right government that emerged from the June 12 elections means several ambitious transport infrastructure projects could be idled or scrapped altogether, according to new cabinet members.

A wide-gauge railway that the outgoing left-wing administration of Robert Fico planned to build across Slovakia to link Ukraine and Austria is almost certainly dead. The new government believes the €4.7bn project has no upside for the Slovak economy and regards it as a product of Fico's pro-Moscow orientation.

For the new railway to make economic sense, according to a study by the Railways Research Institute, it would have to transport 40m tonnes of cargo a year; at the moment the existing Slovak rail line carries only 5m tonnes annually. "The priority for Slovakia is to preserve its existing railway network," said new Prime Minister Iveta Radicova, whose SDKU party heads the coalition. "Building a wide-gauge railway would only mean the loss of jobs at the transfer point in eastern Slovakia," where cargo is off-loaded from Russian freight trains and transferred to Slovak wagons.

A memorandum on the railway project was signed during Russian President Dmitry Medvedev's visit to Slovakia last spring. Some 500 kilometres of new track was to have been laid from 2013 to 2015, and new transfer stations built in Vienna. Fico has warned that if Slovakia abandons the project, Hungary is ready to step in. "Today, the Hungarians are waging an unbelievable battle to get the wide-gauge, so if it doesn't go through Slovakia, someone else will enjoy all the advantages of this enormous project," Fico said on the STV public station in late June.

But with Slovakia's budget in tatters, such appeals are falling on deaf ears. The Finance Ministry, which concealed the deficit situation until after the elections, revealed on July 1 that the first-half central budget shortfall was €2.44bn, more than double the €1.1bn deficit from the same period a year ago. The ministry has also revised its annual deficit target upward from the planned 5.5% of GDP to 7.0%. "Given the current budget situation, we don't have the resources to embark on these kinds of investments," says Deputy Transport Minister Ivan Svejna. "Mind you, even at the best of times, the sense of the wide-gauge project would be questionable."

Taking its toll

The country's ambitious freeway construction programme will also likely be scaled down. The new cabinet agreed on a list of programme priorities in early July that promised to review the public-private road projects completed to date. The Fico government committed to spending €13bn over several decades to complete two stretches of freeway adding over 100 km, while a third project is still to be finalized. "We have nothing against public-private partnerships, the problem is that the cost of the ones done so far have been terribly inflated," says Svejna. "We need to build freeways at a more moderate pace and for a more moderate price. Which means they have to be cheaper than they have been so far, that's the alpha and omega."

One of the main benefactors of the outgoing cabinet's freeway construction programme has been the Vahostav company of Juraj Siroky, an entrepreneur considered close to Fico's Smer party. A Transport Ministry document leaked in the spring showed that the public-private option would cost Slovakia almost €550m more than if the state built the roads on its own.

The electronic toll system that the Fico government introduced to freeways at the beginning of this year will also be scrutinized and partially scrapped. The company that won the tender in 2007 to operate the toll actually submitted the highest bid, and was only declared the victor after the cheaper bids were controversially rejected. The deal is currently being examined by the EU.

Transport Minister Jan Figel has already said that passenger cars will not be included under the toll system. The Fico government had planned to launch toll payments for cars in 2013. The new cabinet has also promised that it will "examine the overall toll project to ensure that it is consistent with the public interest."

However, outgoing Transport Minister Lubomir Vazny has defended the project. "The toll was an excellent project. The reason it was received with a certain ambiguity was that people were used to paying in a different way."

Finally, the new cabinet plans to restart several privatization sales halted in 2006 after the last SDKU government headed by former PM Mikulas Dzurinda lost its parliamentary majority. Among the first to go under the hammer will be the Cargo railway freight company. The Fico government scrapped the €400m sale of Cargo almost immediately after taking office four years ago. "Since then, we have had to subsidize Cargo to the tune of at least €100m a year," said Speaker of Parliament Richard Sulik, head of the coalition's Freedom and Solidarity party. "Assets are being stripped, the management is incompetent and the best idea would be to find a strategic investor for Cargo who would be capable of making the company profitable."

The new cabinet is also considering selling public stakes in partially privatized energy sector companies like the SPP gas utility, electricity distribution companies and heating companies. Sulik indicated, however, that the government would probably hold on to shares in companies that were yielding significant dividends, such as SPP.

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