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Romanian Transport Minister Anca Boagiu met German investors in downtown Bucharest. A petite woman with dark hair pulled back in a severe bun at the nape of her neck, she was introduced as "the minister in charge of making up for lost time."
By Admin (from 31/05/2011 @ 16:00:04, in en - Global Observatory, read 2664 times)

On the screen behind Boagiu, slides showed a succession of maps with yet-to-be-built motorways, ring roads and bypasses. There were ambitious new national roads, upgraded railway lines, train stations, ports and airports. The conference room's 21st-floor windows gave onto a breathtaking view of the capital. Block after block, mile after mile was clogged with traffic.

 

"My task," she told the investors, eying them from behind rimless eye glasses, "is to recover delays in infrastructure."

The gaps Boagiu must fill are huge -- and common in scores of developing countries from eastern Europe to Africa to Asia. But Romania's story also exposes another issue, one which goes to the heart of the European project.

The country, which shook off communism in 1989 and joined the European Union in 2007, has a potential 4.6 billion euros (4 billion pounds) in EU funding for transport infrastructure, available until 2013. By the end of last year, Bucharest had managed to use just 47 million euros of that. If Boagiu can't find a way to speed up projects and use the funds, the country will lose them.

Like countries suddenly enriched by the discovery of oil, former communist states that have access to billions in European Union development funds can find them both blessing and curse. The funds -- some 160 billion euros between 2007 and 2013 across the former eastern bloc -- are meant to help new members catch up with the rest of the EU.

But what if a country like Romania simply can't absorb that cash? Should it concentrate on fixing its government services and institutions - its software, as it were -- before it can move to fancy new hardware like motorways? Is it possible to graft developed-world standards onto states whose institutions are running years behind those of the donors?

"Public investment spending is not small," Romania's central bank Governor Mugur Isarescu told a news conference last October. "But there are 42,000 unfinished investment projects in Romania. This is not efficient. We are the country of unfinished projects."

EXIT RAMP

Romania's massive infrastructure deficit dates back more than 20 years, to when the country was in the grip of Nicolae Ceausescu, one of Communism's most repressive dictators. In the 1980s, Ceausescu backed an export-led drive to clear Romania of billions of dollars in foreign debt, slashing investment to pay off creditors. That left infrastructure lagging behind even Romania's Balkan neighbours -- countries which historically had been much poorer.

According to a global competitiveness report by the World Economic Forum, Romania ranks just 134th out of 139 countries by the quality of its roads. The WEF says transport infrastructure is still one of the chief reasons hampering investment. The country is the EU's ninth-largest member by land area, but has only 331 km (211 miles) of motorway, less than half that of neighbouring Hungary (925 km) and not even three percent of Germany's 12,813 km.

Go for a drive in Romania (population 22 million) and you can bump for hours over gravel country roads to reach villages -- some without electricity, indoor plumbing or running water -- whose schools have closed because the young have moved away for a better life. Dusty national roads lead past lush farmland which is failing to achieve its potential because machinery is outdated and land ownership fragmented. Cities are choked with traffic because there's no way to drive round them. The rail system is no better. Outdated trains travel at an average 45 km per hour, while elsewhere in Europe the top speed can hit 320 km/hour.

When mobile phone maker Nokia announced it was moving a production plant to Romania from Germany in 2008, horses and carts still travelled the road to the new site. That same year Daimler chose Hungary over Romania or Poland as the site of a new 800 million-euro car factory with about 2,500 jobs. Hungary, which has higher labour costs and tax rates than Romania, credited the win to its dense network of motorways.

With a cheap and skilled labour force and attractive flat tax on income and profit, Romania has attracted investment by carmakers Renault and Ford. But even they have complained about the roads. "When it bought the plant, Ford wanted to build 1,000 cars a day and ... that would bring a lot of money and jobs to Romania," U.S. ambassador Mark Gitenstein told a Romanian television station in April. "But unless there is a motorway ... it will not make 1,000 cars a day or hire so many people. You need motorways."

None of Romania' existing motorways connect the country with its neighbours. It's a closed system. Even ambitious projects like the Transylvania Motorway have so far failed to live up to their promise.

TRANSYLVANIA MOTORWAY

U.S. construction group Bechtel broke official ground on Romania's biggest motorway at a site near the 15th-century Transylvanian village of Valisoara on a mild summer day in 2004. Then prime minister Adrian Nastase cut ceremonial ribbons and excavators bit into the ground to the soundtrack of Vivaldi's "Four Seasons."

On that day, the future seemed almost tangible: there would be a smooth, spacious four-lane motorway, 415 km long with more than 300 bridges, 70 overpasses and 19 interchanges, connecting the central Romanian region of Transylvania to Hungary. The road would bring jobs, tourists and foreign investors.

"A motorway is forever," Michael Mix, Bechtel's then project manager said in a 2007 company brief. "It is a legacy."

Seven years since the project began, a little more than 10 percent of the road has been delivered. The state has paid Bechtel more than 1 billion euros of public money and analysts say the project will end up costing at least double the initial estimate of 2.2 billion euros. The deadline has been pushed back a year to 2013, but could end up taking years longer.

Rather than being forever, "it feels as if this motorway may take forever," quipped Ana Otilia Nutu, an infrastructure expert at Romanian Academic Society, a think tank.

Infrastructure projects and overruns go hand in hand the world over. But a 2010 study by JASPERS, a European Union agency that helps eastern European states prepare projects eligible for EU cash, found cost overruns were more likely in Romania than in eight other central and eastern European states included in the study, largely due to weak public administration.

Even by Romanian standards, the Bechtel example is extreme. In the years since the groundbreaking, government inquiries have found the deal disadvantaged Bucharest from the start. The project was granted to Bechtel without a public tender, despite clear legislation demanding transparency. This angered international bodies including the European Union, which said it wouldn't support it, leaving the financing burden to the state.

At the time of the initial deal, Nastase said Romania could not afford to navigate a lengthy tender process if it wanted to catch up with affluent western European states. He lost power in late 2004, and a new centre-right coalition government put motorway works on hold while it renegotiated.

Those talks, which lasted for eight months, showed how the initial contract was bad for Romania. The deal committed the country to giving Bechtel an interest-free loan of 250 million euros, on top of monthly payments for works. It made it virtually impossible under Romanian law to pursue compensation if Bechtel failed to meet its obligations. It left Bechtel in charge of controlling costs, giving it a free hand to decide the route. It even contained translation errors unfavourable to Romania, the transport ministry said in 2005.

A revised contract cut 126 million euros off the overall price. It scrapped the interest-free loan, and the government took over road design -- which gave it more control over costs. At the same time, most of the terms were made public.

Source: Reuters

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