Romania 2011: Speed limit on Romanian highways (Istvan Szep, EMBA08)

At the moment Bucharest, the capital of a European country, is not connected to the rest of Europe through highways. In fact, none of the cities in Romania are. There is a plan for roughly 2,000 km of highways that would connect all major cities in Romania to the highways of the western countries. The plan that was started in the early 90’s, formalized in 2005-2006 was supposed to end in 2013. However, at the beginning of 2011 Romania has roughly 350 km of highways that are completed.

One of the important sections that connect Bucharest to Transylvania and Transylvania to Budapest has a small section between Brasov and Comarnic (58 km) that has been selected to be the first public private partnership model of infrastructure development in Romania.

At the auction three consortium showed up, namely a French-Greek Vinci-Aktor, Austrian Strabag-Egisand, and Bilfinger&Berger-Porr. Despite the experience, credibility and proof of financing (by inclusion of Deutsche Bank), the consortium formed by Strabag lost the auction in favor of Vinci-Aktor, with which the Romanian government had a sorrow history as they had to be bailed out from some previous agreements and were constantly missing deadlines. The concession contract stated that the consortium would build the highways through their own funding and the Romanian government will pay a sum of 180 million euros yearly, over a period of 26 years after the highway is functional.

The value of the project was 1.5 billion euros, which comes down to roughly 25 million euros per kilometer. This is the sum that won the auction under the conditions that Croatia, a country with similar relief as the region where this portion of the highway is to be built, built a kilometer of their highway at one-third of that price.

Beside the obvious failure in attribution of the concession (e.g. high price and a consortium doomed for financing refusals), there was a total amateurism in procedures as well. Thus, as expected, just before the 90 days (the deadline for the consortium to find financing) were over, Vinci-Aktor have filed in for annulation of the contract due to lack of financing (invoking a clause in the contract that allows any party to unilaterally terminate the contract).

The result of this roughly 1.5 years process was 0 km built and money spent on consultancy, feasibility projects and legal fees. The whole process has been restarted recently.