Polish roads paved with China

By bne IntelliNews August 18, 2010

Jan Cienski in Warsaw -

London's race to get ready for the 2012 Olympic Games may be the highest profile infrastructure project in Europe, but the largest is linked to another 2012 sporting event - the European football championships being co-hosted by Poland and Ukraine.

One of the conditions for Poland getting the nod from UEFA, the European football association, was that it build four world class stadiums for the matches and, crucially, an improved transport network to ferry fans from city to city. The stadiums are well on the way to being completed, but there is a lot more trouble with modernising Poland's dilapidated road network.

In early 2008, just a few months after the current coalition government led by the centrist Civic Platform party came to power, Infrastructure Minister Cezary Grabarczyk made some pretty heady predictions about the state of Poland's roads by 2012 - he vowed that football fans would be able to drive on 1,600 kilometres of highways (of which more than 1,000 km were to be newly built) and 2,400 km of slightly lower quality express roads (of which 2,000 km were to be freshly completed).

But now it looks as those promises will be well off the mark. This year, no new highways are scheduled to be handed over for drivers to use, as the 30 km promised will be delayed thanks to floods this spring. By the time the championships start in the summer of 2012, it looks as though only about a third of the promised express roads will be built, and the highway system, particularly the crucial north-south A1, running from Gdansk on the Baltic Sea to the Czech border, will have large gaps that won't be completed until as late as 2015. The delays are so severe that the government could end up spending PLN7bn (€1.8bn) less than the PLN26bn it had planned to dole out this year.

Value for money

Whatever the headaches and delays, the money being spent by Poland is proving to be a big draw for construction companies at a time when real estate markets have slumped and there is little else happening in the building sector.

A new report by Raiffeisen Bank International finds that the biggest beneficiaries are likely to be local construction companies. In its report, Raiffeisen predicts that Polimex-Mostostal, a rail and power engineering company, could see its shares rise by 20% over the next year, while Mostostal Warszawa, the country's fifth-largest construction company, with a presence in housing, road, and power, could see its shares rise by as much as 23%.

However, the scope of new road construction is also attracting international attention - China's COVEC is building two chunks of Poland's main east-west highway, while others are being built by companies like Spain's Dragados and Eurovia, and Austria's Strabag.

The Chinese bids have proved particularly controversial, because they came in at about a fifth lower than rival offers from European companies, a sweet enough deal for the Polish government to choose them over more established rivals. COVEC's victory prompted local road builders to complain about unfair competition to the European Commission. "No one would be able to do that kind of work for such a small amount of money," says Wojciech Malusi, head of the Polish Road Builders Chamber of Commerce, adding that the only way the Chinese company was able to place such a low bid was that the Chinese government was willing to help it as it tries to break into the European road business.

The complaint has not made much progress with the cash-strapped government, which is keen to spend as little as possible on roads. Thanks to the effects of the Chinese and to the economic crisis, the infrastructure ministry says that so far this year it has saved about 17% on the 350 km of highways and roads it has contracted for PLN13bn, in large part because construction costs have fallen sharply.

The ministry estimates that building 1 km of highway now costs about PLN36.6m, about a third lower than 18 months ago. Part of the drop comes from lower costs for steel and other raw materials, and some from the lower margins being levied by construction firms desperate for business.

While the lower costs will make Jacek Rostowski, the finance minister, smile, the increasing trouble in meeting road building schedules could pose a political problem for the government of Donald Tusk, the prime minister, who came to power in late 2007 in part thanks to his promise to finally get road construction moving.

The costs of Poland's awful roads are not just in the loss of jobs, as investors decide to build elsewhere in the region, but also in lives. Poland has the EU's second highest per-capita road death rate, 143 per million inhabitants, compared with 44 in the UK and 69 in France. In 2008, 5,437 people died on Polish roads.

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