Network connections

11 April 2008

Road building continues to be a growth area, particularly in central & eastern Europe where the industry is benefiting from major EU grants and development loans. However, recent cartel cases and legal challenges to several key routes have painted the sector in a bad light. Richard High reports.

In October this year the European Commission fined a group of five bitumen suppliers accused of operating a cartel in the Spanish bitumen market between 1991 and 2002 a total of € 184 million. Those named in the cartel were BP of the UK, Spain's Repsol and Cepsa, Nynäs of Sweden and Portugal's Galp.

At the time of the judgement Repsol, Cepsa and Galp all said they would appeal against the fines.

According to the EC, the five established market quotas and allocated sales volumes in Spain's bitumen market for 12 years between 1991 and 2002. The Commission estimates the market was worth € 286 million in 2001.

In September 2006 the Commission fined a cartel of 14 companies active in the Dutch bitumen market a total of € 267 million. BP and Nynäs were also included in that group, although in both cases BP was exempt from its fines under the Commission's leniency programme because it was the company that reported both cartels.

However, it was not just materials suppliers that felt the Commission's wrath. In October Bulgarian MEP Nikolai Mladenov asked it to investigate a possible violation of EU procurement rules in the awarding of the Build-Operate-Transfer (BOT) contract for Bulgaria's Trakia highway.

According to Mr Mladenov, the 35-year concession for the Trakia highway, which links the country's western border with the port of Bourgas on the Black Sea coast, was awarded in March 2005 without a public tender and no competitive bid. The winning consortium comprised Portuguese construction companies Lena- Engenharia e Construcoes, Moniz Da Maia Serra & Fortunato-Empreiteiros (MSF) and Somague, alongside Bulgarian state-owned construction firms Technoexportstroi and Avtomagistrali.

“The contract, which was shrouded in secrecy, includes state guarantees, or aid that could see the Government pay up to € 400 million to the concessionaire,” said Mr Mladenov, “which means the Commission must be notified.” Something that, as yet, has not happened.


There were also problems with Poland's E67 highway. In March this year the Commission gave the Polish Government a week to stop work on the E67 highway, or face court action.

The move followed Polish Government approval of the Augustow Town bypass in the Rospuda Valley, one of eight schemes connected with construction of the E67 highway, or Via Baltica, in Poland. It said delaying construction would threaten Poland's plans to improve its infrastructure and integrate it into the Trans-European Transport Network (TENs)

According to the Commission, construction violated EU Directive (2004/35/EC), which is designed to protect rare ecological environments. The Rospuda Valley nature reserve, one of Europe's last remaining peat bogs, is home to wolf, lynx and both Lesser-spotted and White-tailed eagles. It is protected under the EU's Natura 2000 network of conservation sites.

In July following an injunction to stop the work, Polish Prime Minister Jaroslaw Kaczynski said work on road would not go ahead. Speaking on Polish radio, Mr Kaczynski said his government had failed to convince the EC and it was now time to show a certain restraint.


While this work may now have stopped, the Central and Eastern Europe (CEE) region has seen a flurry of activity by contractors and lending institutions alike in the last 12 months.

In January France's Vinci, which has revenues of € 1,7 billion in the CEE region, acquired a 75% stake in Prumstav, a Czech construction company of based in Prague, which has annual sales o € 70 million. Elsewhere, Vinci's Eurovia subsidiary acquired an 80% stake in Romanian road-building company Viarom Construct for an undisclosed sum. Viarom, which has averaged +30% growth per year since 2001, had revenues of € 13,5 million in 2005.

The deal gives Eurovia a presence in Romania and also strengthens its presence in central Europe, where its subsidiary SSZ has just won a € 156 road-building contract. SSZ, as the leader of a consortium that also includes SMP, the Czech subsidiary of Vinci's Construction Filiales Internationales, will build a 16 km section of the D8 motorway between Lovosice and Rehlovice.

While Vinci may be expanding other contractors are pulling out of CEE. Sweden's NCC has announced plans to sell its Polish asphalt, aggregate and paving operations, NCC Roads Poland, to Strabag for € 116 million. Based in Warsaw, NCC Roads Poland had sales of € 120 million in 2005.

There have also been problems for a consortium led by French highway services company Sanef. As CE went to press it was appealing against its exclusion by the Slovak highway authority from a € 590 million tender to build a toll system in the country.

The Sanef offer was one of five eliminated for “technical reasons”. The contract calls for the construction and operation of a toll system for 14 years, with the possibility of a five-year extension, according to local media reports.


Much of the EU's centrally-funded road expansion programme is now focused on the CEE region. Following the start of construction of Bulgaria's Lyulin highway, which will connect the capital Sofia's ring-road with the TENs Corridors IV and VIII, Bulgarian prime minister Sergei Stanishev and transport minister Petar Moutafchiev have announced an investment package totalling € 1 billion for its road network over the next six years.

This includes the Strouma highway, which will connect the Lyulin highway to the Koulata border checkpoint with Greece, the Cherno More highway, connecting the Black Sea coastal cities of Varna and Bourgas, and the unfinished part of the Hemus highway.

In the Ukraine the European Bank for Reconstruction and Development (EBRD) is to loan € 200 million to complete rehabilitation of the final 427 km stretch of the M06 motorway. The loan follows two others from the EBRD, totalling € 175 million, signed in 2000 and 2005, for the rehabilitation of the first and second phases of the M06 motorway.

According to Varel Freeman, EBRD first vicepresident, the M06 will significantly boost cross-border cooperation between Ukraine and the EU. “The transaction also marks the beginning of our strategic partnership with the European Investment Bank in Ukraine, which is expected to provide a further € 200 million for the project,” said Mr Freeman.

The EBRD also made loans to Albania (€ 22 million) and Serbia (€ 80 million) this year, which cover work on part of the TENs Corridors VIII and X. Elsewhere the EBRD made a € 75 million loan to Bosnia-Herzegovina for its road network.

The other major European lending institution, the European Investment Bank (EIB), has also been active in promoting the region's infrastructure expansion. It has extended a loan for € 300 million to Slovenia to fund construction of five key sections of motorway.

The loan will help complete Slovenia's motorway network, including parts of TENs Corridors V and X. This new loan follows on from nine others, with a total value of € 943 million, lent by the EIB for road construction in Slovenia.

The EIB is also lending € 60 million for the construction of a motorway bypass for the Serbian capital Belgrade. The loan constitutes the first tranche of a € 180 million loan approved by the EIB.

Elsewhere, the EIB lent € 42 million to the Pardubice Region (Eastern Bohemia) for co-financing projects supported by the EU Structural and Cohesion Funds during the first half of the 2007-2013 Programming Period. And, like the EBRD, the EIB has also lent money, € 200 million, to Ukraine, this time for rehabilitation of the M06.

The Bank also provided two loans of € 33 million each for the rehabilitation of Belgrade's Gazela Bridge and the modernisation of roads and bridges across Serbia. The roads are part of TENs Corridor X.

This year also saw the EIB loan € 30 million to the Republic of Moldova, to support rehabilitation of roads linking the capital Chisinau to the EU border. About € 107 million was lent to the Olomouc Region (Central Moravia) for co-financing projects supported by EU Structural and Cohesion Funds over the period of 2007-2013.

Bosnia-Herzegovina also benefited from a loan of € 50 million for the rehabilitation of its roads.

However, while the region looks to expand its road network there could be funding problems on the horizon. As reported in this month's news pages, in the latest round of funding for TENs schemes, the EC received 221 requests for a total of € 11,5 billion, as against a budget of € 5,1 billion.

More to the point, in its funding proposal, which now has to go before the European Parliament and Council, the Commission has allocated most of its funds to rail projects.

Labour Shortage

For equipment manufacturers many of the technological advances in machine control systems, as well as operator controls, have in part been introduced to combat the shortage of skilled operators. Machine control systems using surveying technology and GPS, along with simpler control systems for equipment, are the main thrust of this development.

For example, in Caterpillar's new M Series of graders the steering wheel and up to 15 levers traditionally used to control these machines have been replaced with two joysticks. Pierre-Nicolas Selenne, road construction supervisor for Caterpillar in Europe, Africa and Middle East (EAME), said, “We decided to make the machine as easy to operate as possible and more intuitive so that the operator would be much more comfortable and more productive.”

By removing the levers in the cab, visibility has been increased and safety improved, while training operators to use the graders, said Mr Selene, is quicker. With the addition of Cat's grader control simulator, it takes just a few hours for the operator to become comfortable with the system and a few days to become intuitive with the machine.

Meanwhile, Terex's new TG motor graders feature traditional lever controls rather than joy-sticks. Speaking to CE at the company's recent European dealer conference in La Managa, Spain Brian Heathcote, vice president engineering for Terex, said joystick controls are yet to be widely accepted by its customers.

“While standardised controls would normally enable operators to transfer to other products with ease, the grader is a complex product to operate, regardless of operator interface. This, combined with the limited numbers of highly skilled Terex grader operators, prompted us to offer the industry 'norm' in terms of controls. This is a decision we will review and monitor over time,” said Mr Heathcote.

Volvo has also retained lever controls in its new G900 series of graders. Product manager Brian Lowe told CE, “Operators are familiar with the set pattern and location of controls, which is an important factor when deciding what layout is most user-friendly for the people who actually control these machines. Obviously there will always be a certain bedding-in period [with new graders] but the important point is to not introduce too many new technological improvements too fast.”

According to Volvo the familiar lever pattern and lever-to-steering-wheel relationship is considered a key element for both ease of operation and accuracy of the finished grade.


There is no doubt that if the EU is to integrate transport networks throughout Europe further funding must be found. Public-Private Partnerships will play an increasing role, although funding from the region's major lending institutions – EIB, ERBD – and the EU's cohesion and pre-accession funds will still play an important part.

The shortage of skilled operators is also beginning to affect the industry. Unless governments, contractors and equipment manufacturers work together to combat this shortage it could ultimately affect delivery of many schemes throughout the region.


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Andy Brown Editor, Editorial, UK - Wadhurst Tel: +44 (0) 1892 786224 E-mail: [email protected]
Neil Gerrard Senior Editor, Editorial, UK - Wadhurst Tel: +44 (0) 7355 092 771 E-mail: [email protected]
Catrin Jones Deputy Editor, Editorial, UK – Wadhurst Tel: +44 (0) 791 2298 133 E-mail: [email protected]
Eleanor Shefford Brand Manager Tel: +44 (0) 1892 786 236 E-mail: [email protected]