Road rage in the Czech Republic

By bne IntelliNews December 6, 2013

Nicholas Watson in Prague -

Road construction in the Czech Republic is a notoriously murky business. But insiders grumble new depths for the industry have been plumbed following the barrage of criticism aimed at the plans to renovate the main D1 motorway and revelations from Prague city that the contract to build the now almost-complete €1.3bn Blanka tunnel complex was legally questionable from the start.

Remaining work on the Blanka tunnel complex is due to be halted on December 7 after the country's largest construction firm Metrostav and the Prague city authorities failed at the end of November to find a solution to a legal dispute over the project, which means it will now go to arbitration. On December 5, Metrostav confirmed it has filed a complaint to an arbitration court over the payment of CZK2.1bn (€76m) it claims Prague owes it for construction work on the Blanka tunnel.

But the City Council stunningly revealed on November 19 that the contract drawn up between the city of Prague and Metrostav ahead of work beginning on Blanka back in 2007 was invalid from the very start and it can't pay out any more until legal questions are resolved. "The city has paid tens of billions of crowns without a legitimate reason and it cannot continue like that," Mayor Tomas Hudecek told state broadcaster CTK.

Specifically, the City Council wants to know whether the City Assembly's approval was necessary for the contract's signing. The contract that awarded the work to Metrostav was signed by ex-mayor Pavel Bem, whose eight years in office were tainted by corruption allegations, most notoriously when Mladá fronta Dnes published stories based on purported transcripts of surveillance tapes on which Bem discussed with lobbyists topics such as how to influence sales of state property.

Enough blame to go round

Industry insiders say the issue over the validity of the contract is a concern for the council, not Metrostav, as it was signed by the statutory representatives. However, where Metrostav is at fault is that this project is way over budget and plagued by safety violations. The Czech Mining Office in 2010 fined Metrostav over the collapse of one of the road tunnels three times.

Originally scheduled for completion in 2011 at a cost of CZK27bn, the Blanka tunnel complex is now predicted to open in June 2014 at a cost of CZK37bn. According to the industry information provider encompassme, Metrostav will get 36% more than it originally claimed for the construction of the Blanka tunnel complex. Another contractor, CKD DIZ, will get 21% more, while Inzenyring dopravnich staveb will get CZK217m, more than double the CZK95m it was due under the original contract.

However, the project has admittedly been a large and complicated one; designed to eliminate through-traffic from Prague's Unesco historical centre, the tunnel complex is 5.5 kilometres long, including the longest driven tunnel in the Czech Republic. And industry players say it is not so unusual to see such complicated projects going over budget, especially if they involve underground work.

Metrostav did not comment on questions raised in this story, though bne did receive some answers of sort from Pavel Pilat, general director of Metrostav, at a press conference in 2012 held to trumpet the builder's tie-up with Westinghouse in the US company's bid to win the tender to expand the Temelin nuclear power plant. As is construction companies' wont, Pilat blamed any lapses in the project on changing parameters by the government and lax subcontractors. "There was definitely no negligence on our part," Pilat sniffed indignantly.

However, a 2011 report by Miloslava Posvarova, a former employee for the UK engineering firm Mott MacDonald, laid out in forensic detail how it is that constructing roads and bridges in the Czech Republic goes so over budget, so past deadlines, yet is of such poor quality that roads buckle and bridges collapse, including one notorious instance in 2008 that killed eight people.

An illustration of the scale of the problem can be found in a survey last year by the Supreme Audit Office (NKU), which showed that of 28 projects relating to motorways and high-speed communications started after 1999, all had their deadlines extended by up to seven years and investment costs rose by a total of CZK35bn (€1.37bn), or about 68%. The rise in corruption is reflected in Transparency International's "Corruption Perceptions Index 2013", released December 3, which showed the Czech Republic falling another three places to 57th spot, putting it on a par with countries like Croatia and Namibia.

Posvarova's 2011 report, which was prepared for the National Economic Council, a government advisory body, highlighted a basic conflict of interest in construction projects, in that companies that prepare plans for road construction for the Czech state often work at the same time for the winners of the said tender. This too-cosy relationship also means contractors often succeed in getting approval from the project coordinator for changes in the project's specifications, which causes the cost increases, delays to the project and helps the contractor avoid from being lumbered with unforeseen extra costs. Notes one industry insider, Czech contractors are constantly on the look out for viceprace (additional work, in English), once the contract is signed.

Another industry insider says it's also common for construction firms to use academics, often poorly paid and easily swayed, who are brought in to give any changes to projects a veneer of authority. "State agencies are servants to a cartel of contractors who do not accept the views of those interested in keeping a lid on costs," says the insider. "All projects are modified in order to maximise profits - I am sure that all projects are a third to a half over priced."

Metrostav, which was established by the communists in 1971 to build the Prague metro but was privatised by management led by Jindrich Hess in the 1990s, is finding itself at the sharp end of a number of investigations by the Czech authorities recently.

Never the most transparent of companies - its main shareholders are listed, not very enlighteningly, on the website as DDM Group a.s. (51,34%), DOAS SK, a.s. (23,17%) and DOAS CZ a.s. (17.04%) - it has refused to comment much on corruption accusations levelled against the company over the past three months by the police.

In October, it was revealed that the Czech police have filed charges against Metrostav in connection with the high-profile corruption case against the former governor of the Central Bohemian region, David Rath, who is accused of accepting bribes in connection with public tenders. Frantisek Polak, spokesman for Metrostav, would only confirm to the Czech press that the company had received notification from the police about the initiation of legal proceedings, though it rejected the charges and said it would not comment further on the case until it is resolved.

Then on November 28, the online news site published details of an alleged case of tender fixing in the CZK300m reconstruction of the Czech National Stables, in which the police accuse Metrostav of having paid off its competitors to ensure they would submit bids that were too high to win.

D1 to hell

But even as the fiasco that has been the Blanka tunnel complex nears completion, another financial disaster in construction looms.

The main highway of the Czech Republic, the D1, which connects the two biggest Czech cities of Prague and Brno, is by all accounts a national disgrace. Buckled in places, falling apart in others, this busiest of roads has only two lanes at the best of times, but is often restricted to one lane as emergency repairs are made to a road whose life has already been extended by 10 years.

Thus the government has begun this year a CZK22bn project to modernise the road. But the manner in which it is undertaking the project has drawn huge criticism from people working in the industry, from contractors to consultants to engineers, few of whom are in any doubt that, true to form, it will cost considerably more than CZK22bn by the time it's completed late.

"The project is a totally wrong concept of rehabilitation of D1 because its very expensive, very risky and a seven-year period to do modernisation of this main connection is totally wrong," says Jiri Petrak, who adds that together with other industry professionals he formulated his own report on the project and sent it to the Road and Motorway Directorate, as well as the Ministry of Transport.

No response was forthcoming, so the group of professionals created an NGO with a website that plans to review and comment on the country's main infrastructure projects such as D1, so the hard-pressed taxpayer and media can be more fully informed. "The D1 is just the prime example of the wrong way of doing things - there are many others," says Petrak.

"But for Blanka, it's too late to do anything about that now," he sighs.

Road rage in the Czech Republic

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