Police raid risks derailing EU funding for new Czech trains

By Brian Kenety in Prague March 23, 2016

A raid by anti-corruption police on the offices of the Czech transport ministry and the state-owned Railway Infrastructure Administration (SZDC) seems likely to throw a shadow over Prague's hopes of getting the EU to help it buy €740mn worth of new trains.

Brussels is likely to take a dim view of co-funding the Czech state’s plans to buy new trains following the raid, which saw six people and three companies charged with violating Czech public-procurement law or attempting to defraud the EU following the raid by the Police Unit for Combating Corruption and Financial Crime (SKPV) on March 22. 

SKPV is owned by Cesky Drahy (CD), the national rail operator that hopes to get the EU to fund the bulk of a CZK20bn upgrade of its train fleet. However, Brussels has proved several times in recent years its wariness over Czech state procurement and abuse of its funds. Meanwhile, a senior police official noted that charges stemming from the raids will include "damaging the financial interests" of the block.

Two years ago, Prague was forced to return CZK35bn (€1.3bn) of CZK678bn in EU funds allocated in the 2007-2013 budget period due to allegations of corruption. That led the EU to freeze several operational programmes. Several other cases have interrupted the flow of financing before and since.

Although all the arrests this week are related to criminal offences involving the SZDC, the suspects, thus far unnamed, are not facing identical charges, spokesman for the Supreme Public Prosecutor's Office in Prague Ondrej Trcka noted in a press release.

Some have been accused of the “particularly serious crime damaging the financial interests of the European Union”, he said, a crime punishable by up to 10 years in prison. 

Among those detained was Antonin Blazek, a former deputy of CD and current CEO of the Railway Research Institute (VUZ), a subsidiary of the CD that provides consulting services for railway systems and transport, Aktualne.cz claims.

The office of the transport ministry's strategy division director, Ludek Sosna, was targeted in the raid, MfD reports. The Czech units of Norway's Sudop Group, Austria's Strabag and Czech engineering group Valbek were also hit.

Although CD was divided into three separate state-owned companies in 2008, resulting in the creation of the SZDC and the Railway Inspectorate, which investigates accidents, all continue to work closely together and receive subsidies from the transport ministry.

The case relates to the construction and modernisation of a roughly 100km of regional line linking Trutnov, near the Polish border in northern Moravia, to Chlumec nad Cidlinou, about a half hour east of Prague, Mlada fronta Dnes reports.

Police this month opened a criminal investigation into the activities of Radmila Kleslova, ex-chairperson of the ruling coalition Ano party.  Kleslova had allegedly been receiving salaries from state institutions – without doing any work – including CZK94,000 per month (about three times the average Czech salary) from SZDC, Pravo reported on March 8.

The transportation ministry has budgeted more than CZK20bn (€740mn) towards upgrading and expanding CD’s fleet, with roughly half earmarked for flash high-speed trains. Ministry spokesman Tomas Nerold told CIA News earlier this week that the Czech state hoped to secure most of that money from EU funds. The goal was to have the first new trains chugging down the tracks in 2019.

CD’s board has been looking sell 1,051 trains and 523 building to SZDC for CZK3.24bn, the price set by PricewaterhouseCoopers. CD’s CEO, Pavel Krtek has been forced to reject claims that the price was too low, and argued that if set any higher it could be seen by the EU as illegal aid, Pravo reported on February 5.

An earlier valuation said the deal was worth CZK8bn, noting that Prague’s main train station, estimated to be worth several billion koruna, had been valued at just CZK150mn by PwC.

The SZDC’s main task is to fulfil the function of an owner/operator of the national and regional rail and related infrastructure owned by the state. Under the Railway Act, it also is tasked with modernising and developing the rails.

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