Motorway and expressway construction bolstering Slovakian civil engineering sector

2010-06-29

With the economic crisis still ravaging the Slovakian construction sector in 2010, road construction, one of the major segments of the country’s construction industry, remains one of the few solutions to keep Slovakian construction afloat.

Transport infrastructure, chiefly road and railway construction, accounted for some 90% of the total civil engineering construction in Slovakia in 2009, reaching €1.6bn, according to the Slovak Statistical Office. Civil engineering construction works generated some 27.3% of Slovakia’s total construction output last year.
The backbone of the Slovak road construction sector is motorway and expressway construction. Between June 2006 and June 2010 the state spent some €2.3bn on motorway and expressway construction. This translated into a total of 135.9 km of completed motorways and expressways and 131.8 km of started construction of motorways and expressways, according to the National Motorway Company (NDS) in Slovakia. The NDS forecasts that in H2 2010 another 31.1 km will be delivered, bringing the country’s stock of motorways and expressways to 162.9 km.

Realisation of three PPP projects
In recent years Slovakia has witnessed heated debates over the most suitable method of funding road construction. In the context of the ongoing economic downturn, with the Slovak budget for road construction thinning out, the arguments for the implementation of public-private partnership projects (PPPs) have gradually gained in ground. The three PPP projects of motorways construction currently underway in Slovakia represent an aggregate investment of €5.6bn, according to an analysis produced by the Transport Research Office (VUD) for the Ministry of Transport, Post and Telecommunications in Slovakia. The total value of the three undertakings combined is forecast to climb to €13.15bn after the repayment by the Slovak state of the projects’ costs within 30 years as planned.
General contractors for all three projects have been selected, but only works from sections from package 2 are ongoing.



In March 2009, the Granvia consortium, consisting of Vinci Concessions and the AA Highway private equity fund, signed a PPP contract for the construction of the R1 expressway with the Slovak Ministry of Transport - the so-called PPP package 2. The work on this project was launched in 2009 and are expected to last four years. According to Vinci Concessions, in May 2010 the company was at advanced negotiations to secure funding for the continuation of this project and that during the summer of 2010 the contracts with individual banks for funding this work should be wrapped up. The Vinci consortium was reportedly in talks with 17 banks in its attempt to contract loans for the construction. The European Bank for Reconstruction and Development (EBRD) granted a loan worth €250m for the second PPP package.
The most problematic to date is PPP package 1. Following the Ministry of Transport’s signing the preliminary contract with the winning party in the tender, the Slovenske dalnice consortium, on 15 April 2009, the project has been experiencing major delays stemming mainly from the objections raised by the European Commission (EC). On 11 May 2010 the European Investment Bank (EIB) approved a loan of €1bn for this project. The move came after the European Bank for Reconstruction and Development (EBRD) approved on 28 April 2010 a loan of €250m for the same work. As well as these two contributors, a clutch of about 20 commercial banks are tipped to be signed up to put money into this project. However, the EIB’s funding is being blocked by the European Commission, which for the past eight-nine months has been weighing the negative impact that the motorway construction could have on protected areas close to the planned motorway construction site between the towns of Turany and Hubova, particularly on the Velka Fatra national park area. The EC has asked the Slovak party to prepare a package of guarantees regarding the protection of this area against any negative effects of the construction works. Following a series of talks between the EU and Slovak officials, a decision has yet to be made, thus forcing the Ministry of Transportation to delay the finalisation of the contract with Slovenske dalnice seven times since October 2009. Although the latest deadline set by the ministry was on 30 June 2010, it is, according to industry sources, unlikely the contract will be concluded by then.
The construction of the motorway D1 as part of the PPP package 3 is also expecting funding in the summer of this year. The EIB is expected to contribute around €1bn. This project has also been delayed several times since November 2009 as the EIB has requested further information and documentation on this project. If funding is secured this year, the project is planned to be delivered in 2013-2014, according to the NDS.

Major motorway and expressway completions in H1 2010
In the first half of 2010 a total of 27 km of motorways and expressways were delivered in Slovakia. They consisted of three main projects that were brought to completion during this period.
· Svinia-Presov section of D1 motorway
On 7 June 2010 the NDS opened the 8 km long section of the D1 motorway Svinia-Presov, a project that absorbed an investment of €105m, contributed by the state budget and a loan from the EIB. Works on these sections were launched back in 2005. The project was carried out by the construction company Inzinierske stavby Kosice. It was planned to be delivered in October last year, but it was delayed due to a lack of funds and unfavourable weather conditions.
· Sverepec-Vrtizer section of D1 motorway
On 31 May 2010, the last closed section of the D1 motorway between Bratislava and Zilina, a 10 km section linking Sverepec and Vrtizer, was reopened to traffic. The project required an outlay of €379.7m, with the EU awarding €223.9m. The general contractor for this project was Doprastav.
· Jablonov-Beharovce section of D1 motorway
The 9-km motorway section between the towns of Jablonov and Beharovce in the Spis region was finalised in June 2010. The project cost €70m. Work on this newly-built motorway section began in April 2009. The undertaking consisted of the Studenec-Beharovce section, with a length of 3.3 km, and the Jablonov-Studenec section, with a length of 5.2 km. Construction of the first section was carried out by a consortium comprising Inzinierske stavby and Eurovia-Cesty and the second by the group of companies Doprastav, Inzinierske stavby and Vahostav-SK.

New projects announced in April-June 2010
During the period April-June 2010, construction of more than 230 km of expressways and motorways was announced in Slovakia. The largest project by far announced during the period is the construction of the expressway R7 Bratislava-Lucenec, which will consist of 212 km of road in total. In June 2010 the NDS launched a public tender to select the company that would make the documentation for the construction of the first of six sections in this project. The section has 7 km and links Bratislava and Dunajska Luzna. Work on the first section of R7 are planned to start in December 2012. The entire project is expected to be delivered by the end of 2020 and to cost around €2.5bn.
Additionally, in May 2010 the NDS also announced the start of documentation works by the engineering firm Amberg Engineering Slovakia Bratislava for obtaining the construction permit for the D3 motorway section Cadca-Bukov-Svrcinovec, which is planned to have 5.8 km.
Also in May 2010 the NDS ran a tender for the general contractor on the construction of the expressway R1 in Nova Bana area, a project worth €13.5m net. The winner of the tender has not yet been made public.
In addition, the NDS has recently launched a new public tender for the construction of the expressway R4 section Kosice-Milhost, 14 km, a project worth some €116.8m, excluding VAT. The NDS was obliged to cancel the initial tender for this work from March 2010 at the request of the Office for Public Procurement (UVO) in Slovakia, which judged that tender conditions were discriminatory. The results of the contest are expected on 19 July 2010.

Delays in securing funds for PPPs a threat to constructors
The delays in concluding two of the three PPP packages for motorway and expressway construction and the shrinking construction budgets are expected to further hit the falling turnovers of the construction companies operating in Slovakia, particularly those specialising in civil engineering constructions. Following a new delay in mid-June 2010 in concluding the contract, two of the companies signed up to build the first PPP package, Doprastav and Vahostav-SK, announced, that if the PPP first package is scrapped, they will have to make around 1,500 people redundant. At the same time, non-fulfillment of this project is expected to lead to a decline in the total civil engineering construction output in 2010 after a year-on-year growth of some 5% in 2009.

More information on road construction in Central Europe can be found in the report “Road Construction Market in Central Europe. Development Forecasts and Planned Investments”, which will be published by PMR in August 2010

Marius Dragomir
PMR Correspondent