POLISH ROADS: ROOT PROBLEMS AND PROSPECTS FOR

UNCLAS SECTION 01 OF 04 WARSAW 001600

SIPDIS

SENSITIVE

DEPT FOR EUR/NCE DKOSTELANCIK AND MSESSUMS

E.O. 12958: N/A
TAGS: EWWT ELTN EU PL
SUBJECT: POLISH ROADS: ROOT PROBLEMS AND PROSPECTS FOR
PROGRESS

REF: WARSAW 3668 05

Sensitive but unclassified - not for internet distribution.

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Summary
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1. (SBU) Poland's highway system remains practically
non-existent. Though Prime Ministers Marcinkiewicz and
Kaczynski have both made highway building centerpieces of
their initial public addresses, systemic problems remain.
Despite the availability of EU reimbursement funds, sources
within the GOP question whether the state can raise enough
money to go ahead with numerous planned road projects, and
whether the GOP has the capacity to absorb all of the EU
funding available. Complicating matters is the current GOP
plan to move away from public-private partnerships and toward
a more state-centered financing model that would draw the
bureaucracy further into the various phases of road building.
In addition, basic issues that have troubled road building
for years, such as inadequate staffing, salary gaps, and
legal barriers, all remain. Though regional and national
roads will undoubtedly be built eventually, Polish
politicians have yet to take ownership of the problem, which
means that Poland's transportation infrastructure will
continue to lag behind European standards, in terms of both
effectiveness and safety. End Summary.


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Background
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2. (SBU) Background. The central government has
responsibility for overseeing financing, construction, and
maintenance of all national-level roads, which vastly
outnumber the country's regional roads, which are managed by
local governments. Poland has less than 300 km of roads that
are comparable to U.S. highways or interstates. In addition,
ring roads are almost non-existent. The result is that
traffic of all sorts - local, international, private, and
commercial - are all channeled on to small roads that
normally have one or one-and-a-half lanes (or a hard
shoulder) running in each direction. Heavy truck traffic has
created deep ruts in many of the country's busier roads, as
surfaces were simply not built to absorb the amount and
weight of heavy trucks running primarily West to East (and
vice-versa). The net effect is that Polish roads are the
deadliest in the EU. In order to improve the situation, the
GOP has a plan to build over 5,000 km of highway before 2011,
although the GOP's historical inability to implement road
improvement projects suggests this goal will be impossible to
attain.


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The Bureaucratic Constellation
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3. (SBU) One of the greatest obstacles the GOP must
overcome is the fact that competencies central to road
building are scattered across too many ministries, with no
single ministry or organization responsible for overseeing
the overall process of building roads. For example, the
Ministry of Transport holds general responsibility for
building and maintaining national roads. However, much of
the planning and execution functions associated with the
effort are sourced out to the General Directorate of National
Roads and Highways (GDDKiA). While the GDDKiA is subordinate
to the Ministry of Transport, the organization is housed in a
separate building. Sources in both the GDDKiA and other
ministries have told us that communication is poor and that
the GDDKiA basically operates as a separate entity, both
overworked and in over its head. Debates about whether to
abolish the GDDKiA have characterized the politics of Polish
infrastructure since the GDDKiA creation in April 2002
through a merger of the General Directorate for Public Roads
and the Agency for Construction and Maintenance of Highways.


4. (SBU) The Ministry of Environment also plays a central
role in road building due to Polish and EU strict standards
on environmental impact studies, while the Ministry of
Regional Development is in charge of identifying EU funding
and allocating it to different projects. Last, the National
Bank of Economy (BGK) manages the financing of road
construction. Missing from this constellation of executive
responsibilities is a clear concept of which ministry has the
lead in road building. We have been told by officials in the
Ministry of Transport, GDDKiA, Ministry of Regional
Development, and BGK, that on crucial issues they can only
suggest solutions, but are not in a position to take full
ownership of any road-building problem.


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Funding Polish Roads
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5. (SBU) Funds come from several sources. First, there is
a fuel surcharge equivalent to three cents made on each liter
of fuel purchased. In 2006 the total amount from this charge
is expected to be approximately 1.07 billion zloty
(approximately $330 million),the same amount is projected
for 2007. The second significant source of funding is a fuel
excise tax of 30% on all fuel charges. Revenue from this tax
is allocated to road and railway projects. Road projects
currently receive two-thirds of the total tax revenue,
projected to be 2.3 billion zloty in 2006 (approximately $750
million). Additional money is raised through tolls and
through vignettes that may be purchased by commercial
transport drivers. Money collected from these sources goes
directly into the National Roads Fund (KFD),which is managed
by the BGK. The BGK uses funds from the KFD to finance new
roads projects. Though large amounts of EU funds are
available for building roads, they are available only for
reimbursement on completed work. Front end financing,
therefore, is provided by BGK.


6. (SBU) In case of funding shortfalls, the BGK can draw
credit or issue bonds to secure additional roads funding.
For example, in 2005 the BGK took two lines of credit from
the European Investment Bank (EIB). The first, in the amount
of 175 million Euro, is being used for extending the A2
highway from Konin to Strykow (near Lodz). The second, in
the amount of 380 million Euro, is being used to build ring
roads and expressways. In May 2006 the GOP took another line
of credit from EIB for 200 million Euro, which will be used
to modernize expressways and ring roads around Poland. The
GOP is currently negotiating with EIB to secure an additional
300 million Euro credit line.


7. (SBU) The BGK has also begun to more seriously consider
bonds in funding road construction. In May 2006 the BGK
issued 10-year bonds worth 200 million Euro, guaranteed by
the GOP. The money generated from the bond sales will be
used for investment projects, land purchases, co-financing,
and pre-financing on roads that are eligible for EU matching
funds.


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What Problems Remain?
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8. (SBU) The major problems that continue to hamper the
development of the Polish highway system are the same ones
that have troubled the effort all along. Basic personnel
issues are at the heart of the matter. The GDDKiA is
severely understaffed and lacks a cadre of young motivated
public sector employees. The average length of employment at
the GDDKiA's highway division is eight months for junior
employees. Salaries are so low that employment in the GDDKiA
is basically treated simply as a professional development
course, after which employees seek (and find) employment with
private sector firms paying much better salaries.


9. (SBU) Furthermore, the GDDKiA is still populated by
employees, among them engineers and planners, some of whom
began working on Polish roads projects in the 1980s (this can
also be said of the Ministry of Transport). More than one
Embassy contact was exasperated by this fact, and stated that
some of these employees simply do not take their work
seriously, and report to work only to collect a paycheck.
One such employee told Econoff this during a meeting several
months ago, joking that he had seen many ministers come and
go, but that none of them could fire him. He then launched
into a 30 minute tirade about the clash of civilizations.
Such cases are undoubtedly exceptional, but the task facing
the GOP over the next several years committed and capable
personnel.


10. (SBU) The GOP also faces a funding problem in
constructing roads. Jerzy Kwiecinski (protect),
Undersecretary of State in the Ministry of Regional
Development told us that the GOP has received almost 13
billion Euro in structural funds for the period 2004-2006,
and that one-third of this money has been devoted to the
transportation infrastructure. The same amount will be
allotted for 2007-2013. Kwiecinski stated that Poland will
be able to absorb all of these funds for 2006 and 2007, but
that significant challenges will begin in 2008 and last until

2011. Cohesion fund projects will end in 2010, and in 2011
the n 2 and n 3 provision will begin, possibly jeopardizing
the total amount of EU funds allocated to certain projects.
In order to avoid this, the GOP will need to significantly
enhance its bureaucratic capacity to use EU funds over the
next several years. The threat of losing EU money may
provide the necessary political incentive to restructure the
ministerial configuration responsible for road building,
transforming it into a more hierarchical organizational chart.


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Look on the Bright Side
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11. (SBU) Though much work (and much of it basic) remains
to be done, the GOP has taken steps in the right direction.
Kwiecinski told us that several barriers to road construction
have been removed. For example, responsibility from dealing
with EU funds for roads has been shifted to one unit within
the Ministry of Regional Development. Previously this
responsibility was scattered across ministries. In addition,
the public procurement law was reformed in May 2006 in order
to limit the scope of appeals that can be filed following a
successful bid on a public roads project. This law
previously gave companies who lost bids on public tenders
amazing leeway in appealing the winning bid, thus slowing
down construction by months or years by tying the issue up in
the courts. A special act allowing local authorities to
break up demonstrations by protesters seeking to physically
block road construction has also been passed, though only
until 2007. In addition, The GDDKiA will benefit from an
internal bureaucratic reform that gives it greater ability to
use internal GOP funding for road building. Perhaps most
importantly, the law on eminent domain has been amended to
grant the GOP greater ability to expropriate land at market
prices. This is critically important due to the vast number
of smallholders who live in Poland's countryside. Obtaining
land has always been difficult for both the GOP and private
building corporations due to the fact that any land purchase
involved negotiations with multiple land owners. A law on
special purpose companies is also in the works, which would
provide the GDDKiA with greater legal ability to outsource
functions traditionally within its own competency. This
would theoretically enhance the capability of the GDDKiA to
implement projects.


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No Such Thing as Political Will
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12. (SBU) Comment. It is clear that Poland will eventually
build a modern road system. The question, of course, is
when. Efforts to build national roads in Poland originate
and end within the realm of the bureaucracy. Though
politicians sometimes address the issue, many have decried a
lack of political will. But political will, as in this case,
is often a hollow term, and is basically another way of
saying 'incentive.' It is clear that politicians at both the
local and national levels must become more interested and
involved in roads. However, the situation presents a
Catch-22: Authority for road building is located across
several ministries, and any politician who campaigns (or
seeks to formulate policy) on a program of better roads, is
basically taking on the challenge of reforming an entrenched
bureaucracy. Any politician who takes this challenge on
would need to learn about the arcane world of Polish
transportation in the public sector, and then garner support
for firing or at least marginalizing many ministry employees,
hiring a large new cadre to adequately staff the GDDKiA, and
increasing their salaries. Any politician who is daring
enough to accept this challenge needs to ask him or herself
what the electorate would say to more ministry employees and
higher salaries. The real question for the politician is:
What is my incentive to undertake this reform effort, and do
I have the power to make it happen? No politician has
emerged who is ready to become thoroughly involved in the
roads issue. Instead, they seem willing, especially since
the majority PiS party controls all of ministries responsible
for road building, to let the road building bureaucracy
manage and reform itself. Although the bureaucracy will
eventually reach its goal of building a national roads
system, with massive help from the EU, users of Polish roads
will have to put up with an inferior product in the meantime.

13. (SBU) The following information is the most recent we
have on Polish highway projects.

A2 - Konin to Strykow (near Lodz) (105 km) - was completed
July 2006 - will become a publicly operated toll road next
year, currently no fees for users

A2 - Strykow (near Lodz) to Warsaw (95 km) - 9 companies have
submitted pre-tender documentation - tender now in progress
with planned construction finish date in 2008 (Note: GDDKiA
contact believes this estimate is too optimistic, and that
completion will likely take until 2010)

A4 - Zgorzelec (German border due West of Wroclaw) to
Krzyzowa (Boleslawiec) (50 km) - tender offered in April,
2006, work will commence during 2006 and will be completed by
2008

A4 - Reconstruction of section between Legnica and Wroclaw
(60 km) for 2006

A18 - Olszyna to Golnice (far Southwest of Poland) (70 km) -
will be completed during 2006

A1 - Gdansk to Nowe Marzy (Grudziadz) - will be completed by
November 2008

A1 - Nowe Marzy (Grudziadz) to Torun - Negotiations are
concluding, will be financed through EIB loan, no public
tender will be offered

S1 - Bielsko-Biala to Cieszyn (on the Czech border) (28 km)
will be completed during 2006

We were especially curious about the A1, the only North-South
highway planned for Poland, that would connect Gdansk with
Katowice. Our GDDKiA contact stated that there simply has
not been enough traffic on this road to attract private
investors (Note: Bechtel won a concession from the GOP to
build a stretch of this road, but pulled out of the deal
after years of unsuccessful negotiations with the Polish
Government on project financing and payback issues). Econoff
asked about the using Gdansk to export Polish goods and the
seeming necessity of a good road connecting the city with the
rest of Poland. The GDDKiA contact replied that most Polish
exports are sent through Germany to the EU and beyond, and
sending them overland to the West is more economical than
shipping through Gdansk.
HILLAS