Poland insists there's no 9.3bn gap in highway building programme

By bne IntelliNews July 18, 2007

Bogdan Turek in Warsaw -

The Polish government is standing by its promise to build more than 1,000 kilometres of highway in time for the 2012 European Football Championships at a cost of about €30bn, but construction companies and financial analysts warn disaster may be looming unless the government allows more foreign investment and cuts red tape.

Experts from the influential American Chamber of Commerce in Poland sounded the alarm bells by holding a news conference in July to outline what's needed to make the necessary leap toward creating a road network that would allow millions of tourists to visit the country, not only for the football but beyond.

Roman Rewald

"There should be formed a national programme for the road construction," says Roman Rewald, head of the Chamber and a partner in the international law firm Weil, Gotshal & Manges. "In order to implement road construction on time, foreign investors should be allowed to take part in the programme."

Currently, foreign investment is minimal because of the bureaucracy surrounding road building. So a prime goal must be the liquidation of red tape. Decision-making, Rewald claims, "is three times longer than in other countries."

Of major importance is the adoption of amendments that would simplify the law governing Public-Private Partnerships (PPP) in order to encourage small and medium-sized companies to take part in construction projects. A draft amendment to the law is already in the Polish Parliament and should come into effect in September, says Agnieszka Gapys, a spokeswoman for the Ministry of Economy.

Under the draft, investments of up to €55,000 will be regulated by simple procedures that will allow local governments to undertake projects with the assistance of local private companies. Regulations involving larger investments are also to be simplified.

Adam Kulikowski, deputy CEO of General Directorate for National Roads and Motorways (GDDKiA), the main body supervising road construction, said the situation has deteriorated in the organization of tenders. GDDKiA handled 899 tenders out of which 93% were approved in 2006, but only 60% out of 528 got the approval in 2007.

The re-issuing of tenders delays road construction and the expenditure of funds, he says. "Even if there is money, we will not manage to spend it," says Kulikowski.

He says low-level clerks sometimes disapprove the tenders, claiming the bids are too high or citing some other minor issues. Sometimes the rejections are absurd. Kulikowski cited the example of a rejected tender in 2006 on grounds that the project referred to the use of saws to cut trees powered by 3.9 horse power (HP) engines, while the requirement was to use 4 HP.

Men and materials

Dorota Dabrowski, director of the American Chamber of Commerce in Poland, says her organization is deeply committed to the success of the road-building project. "There are 330 companies affiliated with the Chamber and they are ready to cooperate in the road construction programme," she says.

Even so, company executives have expressed concern that there are shortages of money, materials and manpower, and that labour costs are growing. "The plan to build 960 km of highways is good but unrealistic," says Wojciech Malusi, CEO of the Polish Chamber of Road Construction Companies.

Malusi, whose Chamber groups some 200 companies and has done its own calculations, says the government will collect not more that €19.6bn and the whole project may cost €28.9bn, so it would be about €9.3bn short of funds.

But Transport Minister Jerzry Polaczek says that the government has a plan that will provide €30bn for the construction of highways and €8.5bn for maintenance of existing roads.

"We have calculated the costs dealing with the construction of the road infrastructure, taking into account the tasks for the 2012 football championships," says Polaczek, who insists there is enough money. "There is a guarantee for the financing of the projects."

Polaczek acknowledges that the state budget will provide €39bn, while another €12.5bn will be provided by EU funds to assist construction of stadiums and airports from 2007 to 2013.

The project to develop road infrastructure is huge. A total of 770 km of highways will be financed by the state and 375 km will be built with the support of foreign capital. In addition, more than 2,000 km of motorways will be modernized and 68 ring roads around major cities will be built. Some of the projects will not be finished until 2015.

Polaczek says that there are three priority highways for Euro 2012. The most important is the A-4 highway linking Western Europe with the Ukrainian border crossing at Korczowa. Then comes the S5 roadway, connecting Gdansk, Wroclaw and Poznan, the venues of the qualifying matches, followed by the A-2 highway from Swiecko at the German border leading to Warsaw. The plan also envisages modernization of nine motorways.

To enable fans to cover the long distances between Polish and Ukrainian cities, the Gdansk, Wroclaw and Poznan airports will be expanded with about €157m in financing.

Andrzej Aumiller, the minister of housing construction, says legislation on housing construction has been developed to help resolve controversial land property issues between owners and the developers, including principles for land condemnation. "This item was included because of Euro 2012," says Aumiller, adding that it will accelerate the purchase of land from private owners for the construction of hotels, airports and highways

"It will serve the people and the people love soccer," he says.

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