POLISH ROAD NETWORK EMERGING FROM DECADES OF CRIPPLING

UNCLAS SECTION 01 OF 02 KRAKOW 000014

SBU SIPDIS COMMERCE FOR HILLARY SMITH, STATE FOR TOM YEAGER

E.O. 12958: N/A
TAGS: EINV ELTN ELAB ENRG SENV
SUBJECT: POLISH ROAD NETWORK EMERGING FROM DECADES OF CRIPPLING
NEGLECT

SENSITIVE BUT UNCLASSIFIED

Subject: Polish Road Network Emerging from Decades of Crippling
Neglect


1. (U) Summary: Government and private sector analysts now hold
that, after two decades of failed policies and mismanagement,
the Tusk administration is making real progress towards
developing a modern highway network, overcoming a major
stumbling block which stunts investment and hinders Poland from
meeting its economic potential. Even the global economic crisis
shows little sign of retarding the development, and may in fact
add impetus to government efforts to spend EU funds and
stimulate the economy. End summary.

A Country of Two Lane Roads Paved with . . .


2. (U) While U.S. business has made sizable investments in
Poland (an estimated $15 billion since 1990),a major barrier to
such investment is the neglected state of infrastructure, in
particular roads. Road infrastructure in Poland is woefully
underdeveloped. In 2005 Poland only had a total of 510 miles of
limited access, divided, multiple-lane motorways and divided,
multiple-lane expressways; in comparison, the Czech Republic,
one-fourth the size of Poland, has 660 miles of such roads, and
in Belarus, a single motorway, from the Polish border to the
Russian one, totals 370 miles. Clifford Chance, a major
multinational law firm, identified in a February 2009 report to
clients that infrastructure, and in particular roads, was the
most important barrier to business in Poland.


3. (SBU) Poland's accession to the EU and the upcoming Euro 2012
soccer championships in Poland and Ukraine have provided
significant motivation and external funding for rapid
improvement of roads. 121 billion Polish zloty (35 billion
USD),half of which comes from the EU, is budgeted for road
investment up to 2012, but skepticism remains over whether
Poland can absorb these funds and build the planned roads. A
major US company held the concessions for road building
throughout much of the last decade. They abandoned the project
in 2004, complaining that the government lacked the ability to
design, procure, or execute major infrastructure projects.
Adding to the lack of coordination, each affected locality could
block their part of a national project such as a highway.

Polish Road Construction Finally on the Right Track


4. (SBU) In meetings with regional directors of General
Directorates for National Roads and Motorways (GDDKiA) in Krakow
and Wroclaw in December 2008 both directors pointed to concrete
progress made in road construction since the new government has
been in office in late 2007. 170 miles of motorways and
expressways have been opened since that point. A further 340
miles of such roads are under construction and contracts have
been concluded for 475 more miles, of which 250 miles are
motorways. They explained progress as a result not only of EU
money and pressure from Euro 2012, but also of concrete
legislative and political changes.


5. (U) The Tusk government has pushed through several pieces of
legislation to streamline the construction process. One
important piece of legislation was the introduction of the
so-called special road law in September 2008, enacted with the
goal of shortening the pre-construction process by up to one
year. The law, drafted by the Ministry of Infrastructure,
combined two existing laws on the location of roads and building
permits, provides the governmental bodies with incentives (read
fines) to make quick decisions, and limits appeals and protests.
The legislation also strengthens the eminent domain mechanism,
which has already been used to acquire all the land in an
important corridor on the A4 motorway between Krakow and Tarnow
and will enable the long-delayed project to be completed by 2012.


6. (SBU) Another important change is the amendment to the public
tender law, introduced in September 2008, to allow the
government more flexibility in administering tenders and limit
the ability of losing parties to protest awards. Previous
problems included late notification of tenders, technical
specifications favoring one bidder, disqualifications of bidders
on trivial technicalities, and the potential for endless appeals
and protests by losing bidders. This is widely cited as a
problem in all government procurement and infrastructure
development. The change in tender law has resulted in greater
competition and a faster award process - currently 32 tenders
are open and a further 35 in the final stages of preparation.
While it took three years for the 1994 project to expand the A1
motorway from Gdansk to Lodz to award a tender, and eight years
from that point to reach a concession agreement and begin
construction (construction that is still not scheduled to be
completed until 2012 according to GDDKiA),this government moved
a 2007 project to expand the A1 from Lodz to Katowice from

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pre-qualification of bidders through awarding of a tender to
signing of a concession agreement in eighteen months, and the
concession agreement reached in January 2009 will go to
construction in four months and be completed within 5 yrs.
Aleksander Granowski, the Chairman of the American Chamber of
Commerce Infrastructure Committee and Vice-President of WS
Atkins-Poland, on February 5, characterized the government's
decision to award this contract using a concession-based scheme
as "brave", considering that the hesitancy of previous
governments delayed the project by several years.


7. (SBU) Beyond legislative changes, political changes have
also had an important impact. Poland's EU membership has
increased road funding by ten-fold, according to Andrzej
Kollbek, Deputy Director of the Malopolska GDDKiA in Krakow.
And the increased professionalism in government road agencies is
exemplified by Robert Radon, now Director of GDDKiA Wroclaw, who
came to the government from the private sector and proclaimed
that he "would not have taken [his] job" if not for his belief
that this government will succeed in eliminating decade-long
bureaucratic inaction. While not political, even the world
economic crisis seems fortuitous in this limited case; Jacek
Gryga, Director of Malopolska GDDKiA, stated that the crisis has
actually resulted in increased participation in tenders and
lower costs. Government officials frequently cited labor
shortages as impediments to road development,

Experts Impressed


8. (SBU) Sobieski Institute infrastructure expert Dr Krystyna
Bobinska and Institute Chairman Pawel Szalamacha in a January 22
meeting seconded the government assessment that progress is
being made and gave credit to the government for its efforts to
hasten road infrastructure development. They also noted the
legislative changes to the eminent domain law and the tender
process, and ascribed "a great deal of recent progress" to those
changes. Granowski also praised the government's positive
efforts in road construction, noting the importance of the issue
to American companies working or considering work in Poland. Dr.
Bobinska also added her belief that the economic crisis won't
slow road construction. Mr. Szalamacha believes the government
will manage to double the existing amount of motorways and
triple the amount of express roads by 2012.

Mission Accomplished?


9. (SBU) While the progress is impressive, the experts were
careful to ensure their praise was not too fulsome. Szalamacha
noted that the government's current construction goals are still
too high, even after a significant downward revision. Granowski
noted that current progress will not be sufficient to make up
for the delays of years past and to absorb all of the allocated
EU funds. Experts and government officials alike believe
Poland's decision to fully adopt the EU's Natura 2000
environmental program when acceding to the EU was "overzealous"
and will continue to hinder construction. Adjusting to this
program is cited by the Ministry of Regional Development
(responsible for disbursing EU funds) as the reason EU-funded
projects were stalled for most of 2008 (only about PLN 1 billion
or USD 290 million was spent in 2008). Granowski sees the
amended eminent domain law as a vast improvement, but believes
it is being ineffectually used. He also feels the public tender
reforms are an improvement, but the process is still too heavily
price-based, raising concerns that long-term road quality will
suffer.


10. (SBU) Comment: The Tusk Administration, while it will not
meet its initially high road construction goals, has finally
broken the major roadblocks that have stalled road
infrastructure development in Poland for decades. While the
GoP, particularly the Minister of Infrastructure, are still
criticized for inadequate progress, if they can build on these
initial breakthroughs they can bolster the PO Government's
business friendly credentials. The financial crisis has helped
the process, not only in lowering project costs but in putting
pressure on the political process to expedite the expenditure of
EU funds and create jobs. If the government can maintain this
momentum, Poland will overcome a long-term impediment to
investment and help itself get through the current economic
downturn. End comment.
HALL