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Gaining access

ROADS

With 10 new countries joining it this year the European Union is embarking on a spending bonanza.

A raft of new countries join the European Union this year and money is starting to flow from Brussels eastwards to improve their infrastructure. Road building is central.

Many of the large international consultancies have been settling into place for several years in Warsaw, Prague and other points in eastern Europe to tap into the new work. But they need strong local integration combined with international skills and experience for their teams. Locals often do not know the operating methods of EU consultants or contractors, and outsiders lack familiarity of the local culture. The expat Pole or Czech, who is at home with both, is in demand.

Work is set to take off. Ten countries are joining the current 15:

Poland, the Czech Republic, Slovakia, Slovenia, Latvia, Lithuania, Estonia and Hungary from east Europe, and two Mediterranean islands, Malta and Cyprus.

Accession is formalised in May.

Once in the EU all are eligible for European funds to modernise infrastructure and government.

'At present, ' an EU spokesman says, 'the accession countries have one third of the area and the population of Europe but only 5% of the income.' There is a crucial need for development in water, rail and roads. Motorway links are mostly non-existent and even national roads require upgrading and repair on a wide scale.

Spending has already begun because Brussels brought forward budget dates for these countries by five months, to kick start development.

Just how much will be available is hard to pin down in the EU's sometimes Byzantine jargon. There are PHARE, ISPA, the Cohesion Fund and the Structural Fund, European Investment Bank (EIB) and European Bank for Reconstruction & Development (EBRD) loans, and regional development 'initiatives'.

But a basic e21.75bn ($23.1bn) is allocated for the next three years, around half in the largest country, Poland. One quarter will be for road work.

Most is from the Structural Fund which has been running since the 1980s to even up economic imbalance within the EU, and some from the smaller Cohesion Fund.

Cohesion money helps poorer countries avoid the national deficits which big infrastructure projects can create. It goes mainly to Greece, Spain, Portugal and Ireland, but about one third will now divert east.

EIB and EBRD money supplements government funding or provides the local input needed to qualify for grant aid. This is normally 20%, though sometimes more.

According to UK consultant Mott MacDonald, the EIB put e3.5bn ($3.72bn) into eastern Europe in 2002 and could loan at least e6bn ($6.4bn) this year. And there will be more from ERDB and World Bank funds.

Like several of the big name UK consultancies, Mott has established itself in Poland and one or two of the other larger east European countries over the last decade. WS Atkins, Arup, Scott Wilson and a number of pan-European and US firms are also present. Poland is considered key, with by far the largest population of around 40M and a spending input to match.

Other relatively big recipients will be Hungary, the Czech Republic and to some extent Slovakia (see chart). Local firms are also being set up here.

Most have been establishing themselves for some time. Early infrastructure work has been under way in Poland since the Berlin Wall fell in 1989, funded by stability funds, PHARE and recently the ISPA (instrument for structural politics for pre-accession), which provided e1bn ($1.1bn) a year, split 50/50 between road and rail.

This early funding has given consultants and contractors time to learn the ropes. This has proved crucial to understand a culture and climate which is very particular in each country. 'Policy is locally driven, ' says Mott MacDonald international highways director and manager for eastern Europe Jeff Marden. 'It is important to be a local company.'

Chris Moore, who runs the Polish arm of WS Atkins and its other east European offices, agrees:

'Expatriates are only for key management or specialist roles and technology transfer.'

Local knowledge and language is vital, he says, but the structure of government and the market is also a driver. Inspectors must be licensed by government, for example, and 'there is a bureaucracy to learn. You need a lot of specific documentation and permits'.

'You must be established with professionals in country - you will be shut out if you don't, ' confirms Scott Wilson's Martin Edge.

There are cost advantages to using local staff, with salary and expenses levels less than half those in the UK. In quiet periods the offices take on work outsourced from west Europe.

But, say all three, there is a large 'experience gap'. Though Poland and the other countries have many engineers with good qualifications and skills, there is a lack of experience in western practice, particularly on FIDIC and other contracts, time schedules and modern management.

Assembling a team of 30 supervisors for a motorway section can be difficult. 'We sometimes will team up with those who elsewhere would be our rivals to make a joint venture bid, ' says Edge.

All this may change as the money increases 'almost exponentially' in the next few years, he adds.

There will have to be changes to government structures and mechanisms too, for there is a danger the money may simply overload the system. The consultants themselves may be part of the solution because the EU's PHARE funding stream is aimed at restructuring administrations and government departments. Institutional and management consultancy work will be important.

Institutional reform will also be key to enabling introduction of public private funding mechanisms.

Currently legislative structures in most of the former planned economies do not allow for the long term commitments and risk bearing needed to privately finance projects, even though they are seen as a major component of future road building projects.

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