Romanian road infrastructure in need of investment

2010-06-15

The density of roads in Romania is currently around one-quarter that of the Central and Eastern European average. This low density and the road construction projects announced by the National Company of Motorways and National Roads (CNADNR) and the Transport Ministry have given rise to expectations that the road construction market in Romania will develop rapidly over the next 10 years, if the legal framework is improved.

State of road infrastructure
According to the National Institute of Statistics, the road network in Romania came to 81,713 km at the end of 2009, of which 16,503 km were classified as national roads (20.2%), 35,048 km as county roads (42.9%) and 30,162 km as country side roads (36.9%). Of the national roads, 6,180 km were European routes and 323 km were motorways. Since 2008, a 14.7% increase has been registered in the length of motorways, with 42 km built in 2009. More than half of the national roads currently need renovation. These statistics place Romania in last position in Europe, in terms of the state of road infrastructure. However, in the next few years the industry may benefit from substantial non-reimbursable funds from the European Union, within the framework of the Sectoral Operational Transport Programme (SOPT), of up to €4.6bn. The National Motorway and National Road Company (CNADNR), the authority in charge of the development of the road network in Romania, is the main beneficiary of this programme. After the funds have been approved, the CNADNR assigns construction work to contractors, through public tenders. However, the complicated regulatory framework in force in Romania can make it difficult for companies to participate in and win these auctions, and, therefore, to benefit from these funds.

Legal framework for construction work
Road construction work is usually assigned through public auctions, as concession contracts. The concession contract should be concluded, in accordance with Romanian law, for no longer than 49 years from the date of its instigation. The duration of the concession depends on the period of depreciation of the investment.
Romanian infrastructure would develop much more rapidly if the Romanian authorities organised transparent auctions and were willing to carry out more public-private partnership projects (PPPs). The characteristic which distinguishes public-private partnerships from the concession of goods, which represents public property, is the division of risk between the public and private entities.
However, according to Romanian lawyers, PPPs are difficult to implement in Romania because of the lack of clear legislation and insufficient collaboration between the public authorities and the private sector. Furthermore, as the country risk is high, because the government does not allocate enough credit enhancement instruments, commercial banks avoid financing high-value PPPs. Regulations should clearly establish the length and minimum value of a PPP.
The only such undertaking involving infrastructure development in Romania was that between the French-Greek consortium of Vinci, Aktor and the government, pertaining to the construction of the Comarnic-Brasov section of the Transylvania motorway. The contract for the design and the construction of the project was worth €1.5bn. The work should have been completed in 2013. The partnership, however, proved to be unsuccessful, as in April 2010 the consortium announced that it had not succeeded in obtaining funding from the banks, taking into consideration the terms of the contract signed between the consortium and the Romanian government, and that it would not, therefore, carry out the work. The fate of the project is not yet clear, and no official information has, so far, been disclosed by the government on this topic. It is likely that a new auction will be organised in order to find a new contractor for this section of the motorway.
Public auctions will be organised in 2010 for the construction of the Sibiu-Pitesti motorway (120 km) and for the Bucharest bypass (101 km). It has not yet been decided whether this construction work will be assigned through a concession or a PPP.

Planned road investments
A master plan for the national motorway network has been developed, and construction work which has begun around the country should result in significant changes by 2015. Given the current plans of the authorities, Romania should have 800 km of motorway in 2013 and 1,300 km of motorway by 2015, as a result of three motorway projects currently underway: the A1 (Bucharest - Pitesti - Ramnicu Valcea - Sibiu - Deva - Timisoara - Arad – Nadlac – Hungary), the A2 (Bucharest-Fetesti – Cernavoda – Constanta) and the A3 Transylvania Motorway (Bucharest - Ploiesti - Brasov - Sighisoara - Targu Mures - Cluj-Napoca - Zalau - Oradea - Bors – Hungary). The total cost of these projects is estimated to be €15bn, and at present they benefit from assistance from the State Budget and from European funds. The authorities are currently looking for complementary sources of financing. Another two motorways are envisaged, but feasibility studies for construction work have not yet been completed: the A4 North-West Motorway (Iasi - Targu Frumos - Sabaoani - Targu Neamt - Poiana Largului - Ditrau - Targu Mures) and the A5 Moldova Motorway (Ploiesti - Buzau - Focsani – Albita). The costs of these two projects is thought to be €7.6bn.
Other government plans include the completion of the national bypass programme at the end of 2012 and renovation of 4,000 km of national roads.

Prospects for the future
The Romanian road construction market is expected to reach its peak in 2012-2013, when tenders for all motorway projects, bypasses and express roads should have been announced and construction work on all of these projects should have begun. In order to accomplish all of these projects, legislation in this field should become clearer, and procedures for accessing funds less bureaucratic, and auctions should be carried out more rapidly. Closer cooperation between the private and public sectors would also facilitate the growth of the industry.

Simona Stefanescu
PMR Romanian Correspondent