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Just a day after Warsaw announced it's ready to launch its new infrastructure fund that's designed to kick-start the slowing economy, the EU said on January 30 that it has frozen close to €850m in financing for Polish road building due to suspicions that the country's contractors have been running a cartel.

Polish officials have reacted with ire to an announcement from the European Commission that it has suspended around PLN3.5bn (€837m) in EU aid due to an alleged cartel amongst contractors bidding in tenders for three road-building projects that were co-funded by Brussels.

"The commission has prudently interrupted payments until the situation is cleared and the scope of the problem is established," Shirin Wheeler, European Commission spokesperson, said in a statement to Reuters. "We would like to see the payments resumed as soon as possible and are hopeful that this will be the case."

However, Polish officials expressed outrage, in particular pointing to the fact that the move is prompted by Warsaw's own investigation and legal action over the issue. Polish prosecutors have already charged 11 as part of the case, including executives at the country's largest construction companies, as well as a director at state road agency GDDKiA.

Minister of Regional Development Elzbieta Bienkowska told Polskie Radio: "The Polish system of selecting projects and contractors is running efficiently. Poland is the aggrieved party in this matter, as it was Polish law enforcement agencies that detected that perhaps there was some price-fixing between contractors."

However, the European Commission statement concluded: "If these allegations are confirmed they will constitute a violation of the provisions of the directives on public procurement in the EU and will testify to potentially serious weaknesses in the management and control system."

The projects at the centre of the case are two sections of the S8 express road, which links central and north-eastern Poland and the A4 motorway between Radymno and Korczowa.

Bad timing

Insisting Poland should not be penalized, somewhat discouragingly Bienkowska claimed "you would have to assign a policeman to every contractor" to assure that there was no risk of any foul play. The timing of the news, highlighting the corruption in the Polish infrastructure sector, could hardly be worse.

On the one hand, many of the country's major construction groups are financially struggling following the huge infrastructure construction effort undertaken ahead of last year's Euro 2012 football championships, which is helping to drag the economy into the mire of the Eurozone crisis. The resulting job losses are depressing domestic demand - the country's saviour until last year - leaving it highly exposed to weak export demand in the Eurozone.

On the other, the news arrived just a day after Deputy Treasury Minister Pawel Tamborski announced that Polskie Inwestycje Rozwojowe (PIR) - Warsaw's flagship infrastructure fund unveiled by Prime Minister Donald Tusk in October and paraded as the government's key strategy to stimulate economic recovery and growth - will kick off in the second quarter. Aiming to leverage state assets of PLN40bn to raise international investment, mostly for road and power projects, PIR is central to Warsaw's target of investing PLN500bn in its infrastructure to 2020.

Finally, the raised profile of the scandal will do little to help the cause of the EU's biggest recipient of EU funds in its fight over the next long-term EU budget. Poland is leading a group of - mostly CEE - states that opposes net contributor states trying to quash the level of funding from 2014 - 2020. That quarrel is set to be reopened next week ahead of the next EU summit on February 7.