Tender it, and they will come

By bne IntelliNews March 12, 2010

Bogdan Turek in Warsaw -

Poland is revelling in the interest being shown by construction companies from outside the EU to build its highways at prices cheaper than those offered by EU or even domestic companies - a development that's likely to lead to a major shake-up of the Polish construction industry.

"The price offered is the most important factor for us," declares Artur Mrugaszewski, an official from the General Directorate for National Road and Motorways (GDDKiA).

Dominik Buszta, an analyst from the Frost & Sullivan consulting office, says the aggressive activities of Chinese, Turkish, Belarusian and Indian construction companies has opened a new chapter of competition on the Polish construction market. Previously, big companies such as Mostostal, Strabag Poland, Budimex-Dromez or Alpine-Bau competed among themselves. "Under this situation, due to the growing competition, the winner is the GDDKiA, which will be able to build more highways or modernize more roads with the money saved," Buszta says.

Mrugaszewski said that 10 companies from outside the EU filed documents to compete in the tenders for a 90-kilometre highway between Strykow and Torun in northern Poland. Significantly, they offered prices some 40-50% lower that the specified construction costs by the GDDKiA. Among them are China Overseas Engineering, Shanghai Construction, SB Granit from Macedonia, Mapa Insaat Ve Ticaret Anonim Sirketi from Turkey, Punjj Lloyd of India, and Rozno-Stroitielnyj Tirest of Belarus. Mrugaszewski says the applications from the Chinese companies are especially interesting. "No Chinese construction company has won a tender here so far," he said.

Earlier, the Chinese submitted a very low bid for construction of the Warsaw west-east metro line, but filed documents not adjusted to EU requirements and dropped out from the competition.

As well as price, GDDKiA also considers such factors as the length of construction time and quality of materials in deciding who wins any tender. For example, India's Punjj Lloyd offered the lowest price among the bidders for the construction of an 8.5-km ring road in the city of Rzeszow in southeastern Poland, and a 36.5-km motorway in the same area, but Strabag, one of Europe's leading construction groups, won the tender.

Run over

The appearance of the companies from outside the EU is expected to change the character of the road-building market. "The prices for the construction of highways may even go down further," says Marek Michalowski, CEO of the Polish Association of Employers in the construction sector.

Experts warn that the newcomers could eventually force many small and medium-sized Polish construction firms, which employ on average 100 workers, out of business. "Some of those companies may not survive the competition," says Janusz Piechocinski, deputy chairman of the infrastructure commission in the Polish Parliament. "The small and medium-sized companies may have to shift their operational profile and try to win tenders dealing with the road repair."

New tenders for the construction of another 400 km of highways will be held by the end of 2010, according to the GDDKiA. Another 1,000 km of motorways will be built before the start of the Euro 2012 football championships, which is being hosted by Poland and Ukraine. The programme for building highways and motorways was accelerated after all the construction projects were approved by the Environment Ministry, which assessed the environmental impacts of the projects and found them to be acceptable.

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