(By D.Gaszczyk/CC BY-NC dirkjankraan.com)
The road construction boom, driven by the supply of funding from the new EU budget for 2014-2020, will begin next year. The construction sector, exhausted by a series of bankruptcies, eagerly awaits new road construction tenders within the new EU financial perspective. Meanwhile, in the transition period between the two budgets, spirits are low. Experts point to the fact that construction companies utilise as little as 60 per cent of their production capacity. According to the advisory services providing firm KPMG, 80 per cent of managers of construction companies expect their total turnover to drop. A certain improvement in the market can be expected only after 2014, as a result of an influx of new EU funds.
Minister Nowak is about to put the puzzle together
The expected influx of billions of euros is good news for drivers. The Polish network of motorways is growing at an impressive rate, but still resembles an early stage of a puzzle game. The Minister of Transport Sławomir Nowak has made a strategic decision to complete the unfinished stretches of motorways and expressways as a matter of priority in the next seven years; it will be done at the expense of other roads. The General Directorate for National Roads and Motorways (GDDKiA) promises that by 2020, 16 provincial cities (unlike six at the moment) will be connected by expressways or motorways. Work is underway at the Ministry of Regional Development to elaborate future operational programmes.
Lech Witecki, General Director of GDDKiA, announced during a debate in the Polish Chamber of Commerce in May that in 2014-2020, he expected to receive funds amounting to at least the equivalent of funds from the old financial perspective — that is over PLN 40 billion. If we take into account the financial contribution of the National Road Fund (from fuel tax and toll) and the involvement of a new company, Polskie Inwestycje Rozwojowe (Polish Development Investments) and BGK in the road construction programme, national authorities in charge of road construction will have at least PLN 75 billion to spend.
„In the second half of this year, we shall announce 50 tender procedures with a total value of about PLN 32 billion. A tender procedure takes on average nine months, so construction should gradually start next year. By that time, investment projects should be approved by the European Commission,” says Witecki.
The government agency assumes that next year, PLN 4 billion will be spent from the financial envelope for tenders on the construction of expressways, followed by PLN 11 billion in 2015 and 2016 and PLN 6 billion in 2017. GDDKiA has scheduled subsequent steps: approximately 15 public tender procedures will be announced annually in order to avoid their accumulation in short periods of time, as was the case before the European Football Championship in 2012, which resulted in a dramatic increase in prices of construction materials and adversely affected the profitability of contracts.
Stretches of constructed roads will be divided into sections of 7 to 15 km; this will allow contractors to limit their initial financial outlays. GDDKiA hopes it will reduce the number of potential bankruptcies among contractors and cases of withdrawal from the contract. This suggests that policy makers fear a repeat — in the new EU financial perspective — of the negative scenario, when many construction projects were discontinued due to the bankruptcy of contractors. It is a real threat, as in most cases decisions in public tender procedures are still made primarily on the criterion of the lowest price.
Expressways as a priority
What kind of roads will certainly be constructed? The Ministry’s recent plans have been included in the updated National Road Construction Programme and they relate primarily to the construction of expressways. At the moment, S7 express route is one of the priorities of GDDKiA. In the north, sections between Olsztynka and Miłomłyn, as well as between Nidzica and Napierki will be built; in the south, a Radom express ring road is to be constructed. The Ministry of Transport promised the reconstruction of the road up to Krakow, but this is likely to be difficult (the Supreme Administrative Court challenged the validity of the environmental decision concerning the construction of a ring road around Skarżysko Kamienna, thus delaying the procedure by six years).
The Ministry of Transport’s second priority in the new EU budget is the S8 expressway, whose Warsaw-Mszczonowo stretch is to be upgraded. It will be connected to the already reconstructed stretch of road leading to Piotrków and, on the other side, to the missing part of the expressway linking Warsaw and Białystok. It means new tender procedures for road construction between Ostrów Mazowiecki and Białystok.
The budget also provides for the construction of S3 route from Sulechów to the border with the Czech Republic. By 2020, the S5 expressway will link Wrocław, Poznań, Bydgoszcz and Grudziądz. The decision to rapidly complete the construction of S5 expressway and A1 motorway was taken last month. If promises are kept, in seven year’s time S5 will connect three motorways: A1, A2 and A4. By 2017, S17 expressway between Warsaw and Lublin should be constructed, which means that a tender procedure for the construction of the stretch between the capital and Kurów can be expected soon.
Last but not least, the S19 expressway is to be built, but only on short distances around Rzeszow (in his major policy speech Prime Minister Donald Tusk promised the construction of the entire Lublin-Rzeszów stretch, but the plans have apparently been scaled down).
Polish Development Investments are to take action
What about motorways? The government is forging ahead with the plan to extend the network by 2020, as roads still do not form a coherent system. The most promising is the situation of A4, which — after the expected completion of delayed works between Tarnów and Korczowa in 2014 — will run from the German border in Zgorzelec to the border with Ukraine in Korczowa. The situation of A1 is much worse, as even after the completion of the Toruń-Kowal stretch at the turn of 2014 and 2015 and the construction of the stretch linking Stryków and Tuszyn (Łódź ring road), an over 150 km gap remains between Piotrków Trybunalski and Pyrzowice.
The concept of A1 funding was developed jointly by the Ministry of Finance and the Ministry of Transport, GDDKiA and Eurostat. The idea of A1 construction by a private partner in the framework of the public-private partnership was abandoned, because it would only have been possible with the so-called Kulczyk’s variant if the value of public debt was not to be increased. It would mean the granting of a concession — for example, for a period of 40 years; over that time, the concession holder would collect 100 per cent of tolls.
The road will not be built with EU funds, because the stretch between Piotrków and Pyrzowice is likely to be the busiest road in Poland, which means that it will generate high toll revenues. Meanwhile, EU funding is reduced on the basis of the expected income generated by the project. The Ministry of Transport does not want to face the situation that occurred during the construction of A2 Konin-Stryków, when the EU requested that the toll for passenger cars be reduced by half, to prevent the government agency from making profit on a highway built with European subsidies.
The tender for this stretch of road will be ultimately announced by the end of the year by a government special purpose vehicle set up by the Polish Development Investments, i.e. a financial vehicle that will receive proceeds from the privatization of state-owned companies. The special purpose vehicle for the construction of A1 will not only be responsible (as an investor) for the construction of a motorway with a value of approximately PLN 7.5 billion, but it is also to charge toll fees. Thus, a public entity will build the motorway without burdening the state budget and, later, control the tolls. According to Sławomir Nowak’s official schedule, A1 is to be opened in 2016, but this is a very optimistic scenario. Former Infrastructure Minister Jerzy Polaczek claims that it should not be expected before 2019.
A stretch east of Warsaw is missing on the A2 motorway. The road from the border with Germany in Świecko breaks in Konotopa, west of Warsaw, (a connecting road for S2 is under construction up to Puławska Street, but the road will not go further for many years to come). Jakub Karpinski, spokesman for the Ministry of Transport, admits that in relation to A2, the A1 investment scenario is taken into account, i.e. the involvement of a special purpose vehicle of the Polish Development Investments. The Ministry of Transport does not want to make any definite declarations on the subject.
One thing is certain: the A2 stretch east of Siedlce will not be constructed by 2020. Despite assurances made by successive Ministers of Transport relating to the need to use Poland’s strategic location between the East and the West, the Nowak-led ministry says that the forecast traffic towards Belarus is too insignificant to extend A2 to the border crossing in Terespol.
A step away from local roads
The so-called “short duvet” syndrome is often observed in the process of money distribution. Minister Nowak, who has focused on the construction of motorways and expressways, has decided to withdraw from the construction of dozens of ring roads that do not have the status of motorways or expressways, inter alia, in Olsztyn, Pułtusk, Nysa, Inowrocław and Góra Kalwaria. As a result of public protests and local lobbying, some investments will be restored in the government’s plan (for example, the ring road around Suwałki); this, however, means that the majority of local communities will not get what they really wanted. To stop the protests, Deputy Minister of Transport Tadeusz Jarmuziewicz suggested that instead of GDDKiA, ring roads should be financed by marshal’s offices — with the support of the Regional Operational Programme.
The scenario of investing EU funds from Regional Operational Programmes does not seem unlikely because the European Commission is reluctant to fund the construction of lower category roads from the programmes in the new financial perspective. The EU gives the red light to regional, county and municipal roads, which results from a change in the EU’s priorities. By 2020, funding is to benefit rail and urban road projects, as well as trans-European TEN-T network roads (i.e. motorways and expressways, or roads that provide access to them).
It is a U-turn, as in 2007-2013, local governments received over PLN 13 billion from Regional Operational Programmes, and nearly PLN 3 billion from the Development of Eastern Poland Operational Programme. Marshal’s offices managed to build at that time nearly 490 km of local roads and repaired nearly 5,800 km of old roads. In total, however, is only a fraction of 360,000 km of local roads whose state is, in the majority of cases, poor. It is not surprising that the EU is accused of contributing to the deepening of infrastructure gaps in Poland. The President of the Polish Road Industry Chamber Wojciech Malusi argues that the new criteria of fund allocation will be a blow to small and medium-sized domestic construction companies that have successfully implemented investments for local governments.
The Ministry of Regional Development promises funds for the construction of local roads, although not as significant as in 2007-2013.
At the same time, it makes no secret it is trying to change the attitude of the European Commission on the issue.
”Local roads may be financed from European funds, but they must be part of a comprehensive development project. For example, the construction of a local road can receive funding if it is necessary to allow access to places that are difficult to get to. This could be part of an overall project to ensure equal opportunities in the area and create jobs,” says Minister of Regional Development Elżbieta Bieńkowska.
The Ministry of Regional Development is preparing the concept of „connecting” road projects with other programs, such as Innovative Economy or Low Carbon Economy. For example, the planned S61 Via Baltica (a transit road connection with Lithuania), which has already been written off by commentators, could be constructed with the help the Connecting Europe financial program. In this case, decisions have yet to be taken. The Ministry of Regional Development stresses that the situation will become clearer and money from the 2014-2020 budget will become available after the adoption by the government and the approval by the European Commission of operational programmes, which is expected in the first half of 2014.
Reaching into drivers’ pockets
The transition period between the first and the second EU budget is also the best time for attempting a systemic change. The Parliamentary Infrastructure Committee is working on the proposal of new guidelines for the classification of road projects to be implemented. Amendments are being drafted independently by Stanislaw Żmijan of PO, Józef Racki of PSL and Jerzy Szmit of PiS. They all agree, however, that the most important criteria should be traffic congestion and accidents, and not the status of a road (MPs point to the fact that, for example, traffic on the A1 from Stryków to Włocławek is about half as heavy as traffic on the 50 through Góra Kalwaria).
The idea of expanding the list of toll roads will soon reappear, as the government is looking for money to fuel the National Road Fund, which is facing loan repayments worth billions of zloty; funds are also needed to upgrade the existing roads. Żmijan flew a kite on behalf of PO: the vice-chairman of the Infrastructure Committee caused a stir by saying that drivers of passenger cars should pay a toll not only on motorways.
— In 2014-2020, the EU will be willing to spend more money on rail infrastructure, which means that there will be less money for road construction. We must think where to get funds to complete the national road program — he argued.
Żmijan was shot down in flames and withdrew from advocating such changes, but GDDKiA is eyeing the introduction of toll for the use of ring roads. GDDKiA believes that, as a general rule, their use should not be free of charge for passenger cars. Exceptions are listed in the regulation of the Council of Ministers: the A4 on Gliwice ring road and the A8 running through Wroclaw (plus, according to the concession agreement with Autostrada Wielkopolska, no toll for the A2 on the Poznan ring road). Meanwhile, in 2015, tolls should be introduced on over 450 km of new roads: A1, A2 and A4. GDDKiA continues the construction of A4, on which toll can be introduced for the ring roads of Krakow, Tarnów and Rzeszów.
The general outline of investments and expenses for 2014-2020 remains unknown, but it is already clear that the needs are greater than the available funds. We can therefore expect a battle between ministries, regions and lobby groups. In the years to come, roads will be constructed mostly with own funds.