Freezing of public contracts slows constructions market

Three highways in the works, 10-12% growth of the market, funding and orders for suppliers in the region of hundreds of millions of euros. This is what constructors and experts were expecting this year, which they thought would be a peak year.

In practice, however, the cuts to public funding and the freezing of the major infrastructure projects has taken the wind out of the sails of the construction market. This has led to work on the Brasov-Bors highway being halted due to the lack funds and overdue payments, with some workers being made redundant.

The contracts for the Bucharest-Brasov highway are now being scrutinised by the Ministry of Transports, Constructions and Tourism. The change of government at the end of last year introduced what could be the biggest change of direction on the highway map.

“The ARACO (Romanian Association of Constructions Contractors) shows that the constructions market rose by only 5-6% in the first half, compared with the forecasts at the beginning of the year of 10-12% for the volume of work for 2005. I don”t think this can be achieved any longer,” Marian Cristea, ARACO”s executive director, told Ziarul Financiar.

Not even the reconstruction works in the areas affected by floods will be of much help this year.

“Erecting houses in the areas affected by floods will probably push the number of homes constructed this year to 35,000 instead of the scheduled 30,000. However, it will not have much of an impact on the overall market,” explained Cristea. The pre-signed contracts with Strabag (Austria), Vinci (France) and the Israeli consortium Ashtrom – Roichmann for the Bucharest-Brasov highway are now being reconsidered. The contracts had been scheduled by the former government for signing this spring, in order that works begin this year. The renegotiation of the contracts means there is only a remote possibility that works will begin this year.

The only highway under construction at the moment is that linking Bucharest and Constanta, however progress is slow.

ARACO is an employer association, comprising approximately 1,200 companies in the constructions industry.

The volume of construction works has been rising constantly since 2000, after having fluctuated during the 1990s, with peaks and troughs of up to 20% a year. The constructions market currently stands at some 5bn euros a year, which accounts for 10% of Romania”s Gross Domestic Product.

The project to build the Brasov-Bors highway, also known as the Transilvania highway and run by US-based Bechtel Corp, has aroused the interest of players from the entire constructions industry, as well as other industries, all looking to become subcontractors or suppliers for the American contractor.

The American company had recruited its staff and began to work. The new administration in Bucharest, installed after the elections in December 2004, started to renegotiate the arrangements made by the former government, including the Bechtel contract, one of the topics debated being the advance payment, which was considered “too large”.

Work slowed down on the Transilvania highway this year and has now been halted due to the lack of funds. The 2005 budget for the project was cut by some 100 million dollars (83 million euros) and the lack of funds has caused 500 workers to be sent home.