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Anne W McNeill  10/06/2006 11:44:46 AM  From  DB/Inbox:  Search Results

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UNCLAS        WARSAW 01600

SIPDIS
CXWARSAW:
    ACTION: ECON
    INFO:   POL ADM MGT FCS DCM AMB PAS ORA

DISSEMINATION: ECOX
CHARGE: PROG

APPROVED: ECON:RRORVIG
DRAFTED: ECON:MKATULA
CLEARED: ECON: AJAROS

VZCZCWRI077
RR RUEHC RUEHZL RUEHKW RUEHBS
DE RUEHWR #1600/01 2161343
ZNR UUUUU ZZH
R 041343Z AUG 06
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC 1561
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKW/AMCONSUL KRAKOW 1232
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 04 WARSAW 001600 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/NCE DKOSTELANCIK AND MSESSUMS 
 
E.O. 12958: N/A 
TAGS: EWWT ELTN EU PL
SUBJECT: POLISH ROADS: ROOT PROBLEMS AND PROSPECTS FOR 
PROGRESS 
 
REF: WARSAW 3668 05 
 
Sensitive but unclassified - not for internet distribution. 
 
------- 
Summary 
------- 
 
¶1.  (SBU)  Poland's highway system remains practically 
non-existent.  Though Prime Ministers Marcinkiewicz and 
Kaczynski have both made highway building centerpieces of 
their initial public addresses, systemic problems remain. 
Despite the availability of EU reimbursement funds, sources 
within the GOP question whether the state can raise enough 
money to go ahead with numerous planned road projects, and 
whether the GOP has the capacity to absorb all of the EU 
funding available.  Complicating matters is the current GOP 
plan to move away from public-private partnerships and toward 
a more state-centered financing model that would draw the 
bureaucracy further into the various phases of road building. 
 In addition, basic issues that have troubled road building 
for years, such as inadequate staffing, salary gaps, and 
legal barriers, all remain.  Though regional and national 
roads will undoubtedly be built eventually, Polish 
politicians have yet to take ownership of the problem, which 
means that Poland's transportation infrastructure will 
continue to lag behind European standards, in terms of both 
effectiveness and safety.  End Summary. 
 
 
---------- 
Background 
---------- 
 
¶2.  (SBU)  Background.  The central government has 
responsibility for overseeing financing, construction, and 
maintenance of all national-level roads, which vastly 
outnumber the country's regional roads, which are managed by 
local governments.  Poland has less than 300 km of roads that 
are comparable to U.S. highways or interstates.  In addition, 
ring roads are almost non-existent.  The result is that 
traffic of all sorts - local, international, private, and 
commercial - are all channeled on to small roads that 
normally have one or one-and-a-half lanes (or a hard 
shoulder) running in each direction.  Heavy truck traffic has 
created deep ruts in many of the country's busier roads, as 
surfaces were simply not built to absorb the amount and 
weight of heavy trucks running primarily West to East (and 
vice-versa).  The net effect is that Polish roads are the 
deadliest in the EU.  In order to improve the situation, the 
GOP has a plan to build over 5,000 km of highway before 2011, 
although the GOP's historical inability to implement road 
improvement projects suggests this goal will be impossible to 
attain. 
 
 
------------------------------ 
The Bureaucratic Constellation 
------------------------------ 
 
¶3.  (SBU)  One of the greatest obstacles the GOP must 
overcome is the fact that competencies central to road 
building are scattered across too many ministries, with no 
single ministry or organization responsible for overseeing 
the overall process of building roads.  For example, the 
Ministry of Transport holds general responsibility for 
building and maintaining national roads.  However, much of 
the planning and execution functions associated with the 
effort are sourced out to the General Directorate of National 
Roads and Highways (GDDKiA).  While the GDDKiA is subordinate 
to the Ministry of Transport, the organization is housed in a 
separate building.  Sources in both the GDDKiA and other 
ministries have told us that communication is poor and that 
the GDDKiA basically operates as a separate entity, both 
overworked and in over its head.  Debates about whether to 
abolish the GDDKiA have characterized the politics of Polish 
infrastructure since the GDDKiA creation in April 2002 
through a merger of the General Directorate for Public Roads 
and the Agency for Construction and Maintenance of Highways. 
 
¶4.  (SBU)  The Ministry of Environment also plays a central 
role in road building due to Polish and EU strict standards 
on environmental impact studies, while the Ministry of 
Regional Development is in charge of identifying EU funding 
and allocating it to different projects.  Last, the National 
Bank of Economy (BGK) manages the financing of road 
construction.  Missing from this constellation of executive 
responsibilities is a clear concept of which ministry has the 
lead in road building.  We have been told by officials in the 
Ministry of Transport, GDDKiA, Ministry of Regional 
Development, and BGK, that on crucial issues they can only 
suggest solutions, but are not in a position to take full 
ownership of any road-building problem. 
 
 
-------------------- 
Funding Polish Roads 
-------------------- 
 
¶5.  (SBU)  Funds come from several sources.  First, there is 
a fuel surcharge equivalent to three cents made on each liter 
of fuel purchased.  In 2006 the total amount from this charge 
is expected to be approximately 1.07 billion zloty 
(approximately $330 million), the same amount is projected 
for 2007.  The second significant source of funding is a fuel 
excise tax of 30% on all fuel charges.  Revenue from this tax 
is allocated to road and railway projects.  Road projects 
currently receive two-thirds of the total tax revenue, 
projected to be 2.3 billion zloty in 2006 (approximately $750 
million).  Additional money is raised through tolls and 
through vignettes that may be purchased by commercial 
transport drivers.  Money collected from these sources goes 
directly into the National Roads Fund (KFD), which is managed 
by the BGK.  The BGK uses funds from the KFD to finance new 
roads projects.  Though large amounts of EU funds are 
available for building roads, they are available only for 
reimbursement on completed work.  Front end financing, 
therefore, is provided by BGK. 
 
¶6.  (SBU)  In case of funding shortfalls, the BGK can draw 
credit or issue bonds to secure additional roads funding. 
For example, in 2005 the BGK took two lines of credit from 
the European Investment Bank (EIB).  The first, in the amount 
of 175 million Euro, is being used for extending the A2 
highway from Konin to Strykow (near Lodz).  The second, in 
the amount of 380 million Euro, is being used to build ring 
roads and expressways.  In May 2006 the GOP took another line 
of credit from EIB for 200 million Euro, which will be used 
to modernize expressways and ring roads around Poland.  The 
GOP is currently negotiating with EIB to secure an additional 
300 million Euro credit line. 
 
¶7.  (SBU)  The BGK has also begun to more seriously consider 
bonds in funding road construction.  In May 2006 the BGK 
issued 10-year bonds worth 200 million Euro, guaranteed by 
the GOP.  The money generated from the bond sales will be 
used for investment projects, land purchases, co-financing, 
and pre-financing on roads that are eligible for EU matching 
funds. 
 
 
--------------------- 
What Problems Remain? 
--------------------- 
 
¶8.  (SBU)  The major problems that continue to hamper the 
development of the Polish highway system are the same ones 
that have troubled the effort all along.  Basic personnel 
issues are at the heart of the matter.  The GDDKiA is 
severely understaffed and lacks a cadre of young motivated 
public sector employees.  The average length of employment at 
the GDDKiA's highway division is eight months for junior 
employees.  Salaries are so low that employment in the GDDKiA 
is basically treated simply as a professional development 
course, after which employees seek (and find) employment with 
private sector firms paying much better salaries. 
 
¶9.  (SBU)  Furthermore, the GDDKiA is still populated by 
employees, among them engineers and planners, some of whom 
began working on Polish roads projects in the 1980s (this can 
also be said of the Ministry of Transport).  More than one 
Embassy contact was exasperated by this fact, and stated that 
some of these employees simply do not take their work 
seriously, and report to work only to collect a paycheck. 
One such employee told Econoff this during a meeting several 
months ago, joking that he had seen many ministers come and 
go, but that none of them could fire him.  He then launched 
into a 30 minute tirade about the clash of civilizations. 
Such cases are undoubtedly exceptional, but the task facing 
the GOP over the next several years committed and capable 
personnel. 
 
¶10.  (SBU)  The GOP also faces a funding problem in 
constructing roads.  Jerzy Kwiecinski (protect), 
Undersecretary of State in the Ministry of Regional 
Development told us that the GOP has received almost 13 
billion Euro in structural funds for the period 2004-2006, 
and that one-third of this money has been devoted to the 
transportation infrastructure.  The same amount will be 
allotted for 2007-2013.  Kwiecinski stated that Poland will 
be able to absorb all of these funds for 2006 and 2007, but 
that significant challenges will begin in 2008 and last until 
¶2011.  Cohesion fund projects will end in 2010, and in 2011 
the n 2 and n 3 provision will begin, possibly jeopardizing 
the total amount of EU funds allocated to certain projects. 
In order to avoid this, the GOP will need to significantly 
enhance its bureaucratic capacity to use EU funds over the 
next several years.  The threat of losing EU money may 
provide the necessary political incentive to restructure the 
ministerial configuration responsible for road building, 
transforming it into a more hierarchical organizational chart. 
 
 
----------------------- 
Look on the Bright Side 
----------------------- 
 
¶11.  (SBU)  Though much work (and much of it basic) remains 
to be done, the GOP has taken steps in the right direction. 
Kwiecinski told us that several barriers to road construction 
have been removed.  For example, responsibility from dealing 
with EU funds for roads has been shifted to one unit within 
the Ministry of Regional Development.  Previously this 
responsibility was scattered across ministries.  In addition, 
the public procurement law was reformed in May 2006 in order 
to limit the scope of appeals that can be filed following a 
successful bid on a public roads project.  This law 
previously gave companies who lost bids on public tenders 
amazing leeway in appealing the winning bid, thus slowing 
down construction by months or years by tying the issue up in 
the courts.  A special act allowing local authorities to 
break up demonstrations by protesters seeking to physically 
block road construction has also been passed, though only 
until 2007.  In addition, The GDDKiA will benefit from an 
internal bureaucratic reform that gives it greater ability to 
use internal GOP funding for road building.  Perhaps most 
importantly, the law on eminent domain has been amended to 
grant the GOP greater ability to expropriate land at market 
prices.  This is critically important due to the vast number 
of smallholders who live in Poland's countryside.  Obtaining 
land has always been difficult for both the GOP and private 
building corporations due to the fact that any land purchase 
involved negotiations with multiple land owners.  A law on 
special purpose companies is also in the works, which would 
provide the GDDKiA with greater legal ability to outsource 
functions traditionally within its own competency.  This 
would theoretically enhance the capability of the GDDKiA to 
implement projects. 
 
 
------------------------------- 
No Such Thing as Political Will 
------------------------------- 
 
¶12.  (SBU)  Comment.  It is clear that Poland will eventually 
build a modern road system.  The question, of course, is 
when.  Efforts to build national roads in Poland originate 
and end within the realm of the bureaucracy.  Though 
politicians sometimes address the issue, many have decried a 
lack of political will.  But political will, as in this case, 
is often a hollow term, and is basically another way of 
saying 'incentive.'  It is clear that politicians at both the 
local and national levels must become more interested and 
involved in roads.  However, the situation presents a 
Catch-22: Authority for road building is located across 
several ministries, and any politician who campaigns (or 
seeks to formulate policy) on a program of better roads, is 
basically taking on the challenge of reforming an entrenched 
bureaucracy.  Any politician who takes this challenge on 
would need to learn about the arcane world of Polish 
transportation in the public sector, and then garner support 
for firing or at least marginalizing many ministry employees, 
hiring a large new cadre to adequately staff the GDDKiA, and 
increasing their salaries.  Any politician who is daring 
enough to accept this challenge needs to ask him or herself 
what the electorate would say to more ministry employees and 
higher salaries.  The real question for the politician is: 
What is my incentive to undertake this reform effort, and do 
I have the power to make it happen?  No politician has 
emerged who is ready to become thoroughly involved in the 
roads issue.  Instead, they seem willing, especially since 
the majority PiS party controls all of ministries responsible 
for road building, to let the road building bureaucracy 
manage and reform itself.  Although the bureaucracy will 
eventually reach its goal of building a national roads 
system, with massive help from the EU, users of Polish roads 
will have to put up with an inferior product in the meantime. 
¶13.  (SBU)  The following information is the most recent we 
have on Polish highway projects. 
 
A2 - Konin to Strykow (near Lodz) (105 km) - was completed 
July 2006 - will become a publicly operated toll road next 
year, currently no fees for users 
 
A2 - Strykow (near Lodz) to Warsaw (95 km) - 9 companies have 
submitted pre-tender documentation - tender now in progress 
with planned construction finish date in 2008 (Note: GDDKiA 
contact believes this estimate is too optimistic, and that 
completion will likely take until 2010) 
 
A4 - Zgorzelec (German border due West of Wroclaw) to 
Krzyzowa (Boleslawiec) (50 km) - tender offered in April, 
2006, work will commence during 2006 and will be completed by 
2008 
 
A4 - Reconstruction of section between Legnica and Wroclaw 
(60 km) for 2006 
 
A18 - Olszyna to Golnice (far Southwest of Poland) (70 km) - 
will be completed during 2006 
 
A1 - Gdansk to Nowe Marzy (Grudziadz) - will be completed by 
November 2008 
 
A1 - Nowe Marzy (Grudziadz) to Torun - Negotiations are 
concluding, will be financed through EIB loan, no public 
tender will be offered 
 
S1 - Bielsko-Biala to Cieszyn (on the Czech border) (28 km) 
will be completed during 2006 
 
We were especially curious about the A1, the only North-South 
highway planned for Poland, that would connect Gdansk with 
Katowice.  Our GDDKiA contact stated that there simply has 
not been enough traffic on this road to attract private 
investors (Note: Bechtel won a concession from the GOP to 
build a stretch of this road, but pulled out of the deal 
after years of unsuccessful negotiations with the Polish 
Government on project financing and payback issues).  Econoff 
asked about the using Gdansk to export Polish goods and the 
seeming necessity of a good road connecting the city with the 
rest of Poland.  The GDDKiA contact replied that most Polish 
exports are sent through Germany to the EU and beyond, and 
sending them overland to the West is more economical than 
shipping through Gdansk. 
HILLAS