VISEGRAD: Czech politicking impedes drawing of EU funds

By bne IntelliNews April 23, 2015

Tim Gosling in Prague -

Czech ministers, who have been rowing over a system for monitoring EU funds, claimed on April 22 to have reached a compromise, adding that the risk the country could be blocked from using €20bn of EU money had disappeared. However, details remain vague, leaving open the danger that Prague's patchy form in using EU funds could continue.
Emerging from a cabinet meeting, Regional Development Minister Karla Slechtova told reporters that together with Minister of Finance Andrej Babis she had proposed "solutions" to their argument over the country's monitoring system of EU funds for the 2014-20 budgetary period. Slechtova said the proposals will be dealt with at a government meeting on April 27. 
However, she offered no details on the solutions, which will need to answer claims in the Czech press that the two bidders in the tender to provide the system offered identical products, and the eventual system chosen was poor in quality and overpriced. Slechtova will also need to smooth over a major - and very public - rift with Babis, the autocratic boss of her party Ano, after his ministry slammed the tender in an audit. 
In a sign of quite how limber she will likely need to be in the coming weeks, Slechtova is already performing acrobatics. The minister had previously warned that challenging the tender would block the country from accessing over €20bn in EU funds; a week later the minister claimed the country's ability to draw down development funds was in no jeopardy at all. 
That's despite the fact that the finance ministry's audit is now reportedly being read in Brussels. Seven years ago, the European Commission threw out the Czech system for 2007-13 over similar lapses in the tender process, which had handed the contract to the same company as the latest competition. Slechtova claimed on April 22 that she is "very optimistic" the EU executive will approve the Czech Republic's wider programme to access the funds soon.
Bad reputation
The case came to the fore in early April amidst undignified bickering between the finance and regional development ministries, after the former released an audit saying the tender process on the new MS2014+ system was flawed. Calling the report unprofessional, based on speculation, and damaging to the interests of the Czech Republic, Slechtova said on April 17 that the country had been blocked from using CZK650bn (€23.7bn) in EU funds because of the suspension of the new system. 
The finance ministry probe followed an investigation by anti-corruption police that kicked off in September 2014. A raid on the regional development ministry took place in March, looking at the CZK567mn contract to develop the new system, which was awarded to Olumouc-based Tesco SW in 2013.
The mess echoes the problems over the previous administration system for the 2007 - 2013 EU funding programme. Citing breaches of tender rules, Brussels refused to pay for MSC2007+, which was also developed by Tesco SW, leaving Prague to pick up the tab. 
In early April, Tesco SW owner Josef Tesarik - brother of CSSD senator Martin - filed a criminal complaint over the latest case, and suggested the company will seek compensation for material and reputational damage. Slechtova also insists that the tender on the new system was carried out correctly, and that the system is ready to go into action were it not for the audit report.
However, a source at the regional development ministry suggested to bne Intellinews there was in fact a plethora of problems with the tender, which was carried out under the caretaker government that was in office from mid-2013 to early last year. 
Cheaper bids were excluded, the source claims, and the cost of the winning contract has soared since the competition was wrapped up. It's also unclear why Tesco SW had to offer a completely new product, rather than an upgrade of the existing MSC2007+. The EU has expressed surprise at the cost, the source adds.
Heavy lifiting
It's just such issues that have led to the Czech's poor track record on accessing EU funding over the years. The country scored poorly in utilising the development cash in the 2007-13 budget period, coming in ninth out of the 12 new member states as it absorbed just 51.1% of the total available. Poland leads the pack with a rate of 81.3%. 
Meanwhile, the role of EU funds is only becoming more vital. With the Eurozone recovery sluggish, and the added complication of the stand-off between Russia and the West, export growth is limited across the bloc. It is widely forecast that domestic demand will have to do most of the heavy lifting over the next few years, and EU funds play an important role in that equation. If fully exploited, they should push Czech GDP higher by roughly 0.3pp per year to 2020, Erste analysts estimate.
Therefore, another failure to spend the funds it has available will be felt all the more sharply in this budgetary period. The Czech Republic has been allocated a total of just under €22bn in cohesion funding for 2014-20. That makes it the fifth largest recipient out of the 28 member states. Again, Poland is well in front with €77bn.
Rail links to Germany, extension of the country's major crude pipeline, a gas interconnector to Poland, and road links to Slovakia are seen as the major Czech projects likely to compete for the funds in the coming years of the programme. That infrastructure build-up would not only help raise economic activity directly, but also provide increased energy security and improved links to help exports recover.
Achilles heel
However, such a straightforward need to get its act together ignores the petty power games that dominate Czech politics. While CSSD and Ano's marriage of convenience has proved more stable than thought, the parties are consistently nipping at one another's' heels as they look to gain the advantage in opinion polls. Rather than solve the problems left behind by its centre-right predecessors, the coalition parties often seem more focussed on scoring cheap political points. 
Not only could the affair do more damage to the country's reputation in Brussels, but the government could find itself out of pocket once again if it is forced to pay for the monitoring system. It is also losing time to work on the actual projects that will seek to use the funds, as Prime Minister Bohuslav Sobotka, head of the Social Democratic Party (CSSD) that leads the coalition, has warned.
The PM has tried to take the moral high ground. "This is a really crucial issue and as prime minister I have personally devoted myself over the last 14 months to ensure that we are prepared to pump EU funds," Sobotka said on Czech TV on April 19. "Now we have this problem connected with the audit by the Ministry of Finance."
It's little wonder that the PM has pounced on the spat. Sobotka needs to up his game against the powerful Babis, whose personal popularity stands head and shoulders above the PM's. 
The affair also attacks Ano's potential Achillies heel, adding to other suggestions that the strain of governing is starting to weigh on the new party and its under-developed structure. Babis - who rules his party in the same way as he rules his Agrofert corporation - is reported to be in conflict with several deputies at the finance ministry. Meanwhile, lower level spats are developing amongst several other senior figures in the party. 
However, Sobotka's politicking will do him little good if Prague ends up stuck with another large bill for a dubious tender and misses out on billions of funding on his watch.
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