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Poland: Paths of glory or roads to perdition?

Friday, 15 Nov 2013 | 5:56 AM ET
Martial Colomb | Photographer's Choice RF | Getty Images

Poland's roads have widely been slammed as a) dangerous and b) decrepit. However, the new wave of road-building being launched by the Polish government which was supposed to change the decrepitude, at least, may end up backfiring.

Drivers and passengers on Polish roads are nearly twice as likely to die as the average European driver or passenger, with 93 deaths per million persons in 2012, compared with the EU average of 55, according to the European Commission. These figures have come down in recent years as new roads have been built.

Poland joined the European Union in 2004, and almost immediately kicked off a wave of road-building thanks to EU funding. Its motorway network more than doubled in terms of the number of kilometers of road between 2007-12, and its highway network more than tripled at the same time, according to a PricewaterhouseCoopers report.

This was seen as one of the best examples of the rapid modernization of the country in the post-communist era. An efficient road network is crucial to any country's infrastructure, and Poland's 10 billion euros ($13.45 billion) rush of new roads was to transport it into a modern capitalist economy. One of the key projects, completed in 2011, was a direct connection by motorway with Germany – so the trip between Berlin and Polish city Poznan can now be made in three hours.

(Read more: Why governments are plugging gaps for projects)

However, as Poland's road network expanded, a series of rows kicked off over the building contracts. At the heart to the disputes is the insistence of the country's road agency GDDKiA to stick to the prices agreed in the initial contracts.

"There has been an unfriendly attitude from the Polish government," Frank Kehlenbach, director of the European International Contractors (EIC) trade body, told CNBC.

"I can't think of a similar situation in Europe, although similar situations do occur in some of the Middle Eastern states."

Austria's Alpine Holdings became Austria's biggest corporate failure since World War Two in June, after running up unmanageable levels of debts and incurring heavy losses in Poland. Managers blaming the disputed contracts as one of the factors in the company's collapse.

Jaroslaw Duszewski, a former Alpine executive, dubbed the Polish process "a slaughter house for Polish and European firms."

The problem has now reached the European Union level after concerns were raised by the construction industry.

The ambassadors of six European countries: Austria, France, Germany, Ireland, the Netherlands and Portugal in June wrote a joint letter to the Polish government about the situation warning: "This phenomenon seems to have reached a level which indicates that support from the Polish government might be helpful in order to avoid negative implications to the image of Poland's business environment."

One common complaint from contractors is that some of the original tenders didn't accurately describe the task in hand. Alpine, for example, contended that they were asked to build a bridge on the key road between Poland and the Czech Republic, in a place where it was impossible.

There were also grumbles about the lack of negotiation with the agency when projects went over budget.

(Read more: The cost of America's crumbling roads)

GDDKiA said that it "settles all its payments in timely manner". "Execution of (the) company's contractual obligations, as well as ensuring proper quality thereof is the condition for acceptance of the works," it added.

"There are companies in the market that build roads successfully and raise additional claims as well as companies that start to build, focus on increasing their claims and fail to consider completion of an investment as their goal."

The attitude of GDDKiA may help in reducing the delays that sometimes hit building projects. The average delay in completing investment projects in Poland is 2.7 months, compared to seven months in neighboring Germany, and more than a year in Greece.

"Poland could have a sense of success, although it still faces several challenges connected with the investment process," according to a report by PricewaterhouseCoopers, commissioned by GDDKiA.

The report, described as "biased" by the EIC, said that "myths" about the bidding process and how construction companies were treated had sprung up around the road-building projects.

These construction companies don't have a huge number of alternatives. With construction in Europe suffering a lean few years, there have not been a lot of other contracts to compete for.

"There were presumably faults with the contracting side as well given the complexity of any large infrastructure project, but the root of the problem is the many faults with the original tender documents themselves which are often incomplete, ambiguous and even contradictory," Kehlenbach said.

"Whilst the industry has always been prepared to discuss common problems openly, the public clients in Poland are insisting all the fault is ours and don't seem to want to sit down and talk to resolve their own organisational problems."

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