Deals Without Tenders

Concerns mount in Bucharest, where the government plans to award a contract for another infrastructure project without public bidding. 23 February 2004 BUCHAREST, Romania--After Prime Minister Adrian Nastase's visit to China last week, the Romanian government appears set to award a contract to China Road & Bridge Corp. to build a bridge over the Danube near the city of Braila.

The deal, which is yet to be finalized, would be awarded without a tender process.

The news comes on the heels of the government's controversial December 2003 decision to award the San Francisco-based construction giant Bechtel a $2.5 billion contract to build a four-lane, 415-kilometer motorway from the city of Brasov to Oradea near the country's border with Hungary. The project is to be completed by 2012.

The Bechtel contract, awarded through a "direct entrusting" process, has sparked strong criticism from the opposition as well as from Romania's EU partners. EU Enlargement Commissioner Gunter Verheugen was reported earlier this month to be looking into whether Bucharest acted legally in this case. Romania hopes to enter the EU in 2007.

According to the understanding Nastase appears to have reached with his Chinese partners, work on the Braila bridge will start later this year. An official contract-signing ceremony is to take place in June, by which time the exact terms of the project should be worked out. Initial costs are to be covered by a loan from the Romanian Commercial Bank. The contract is estimated to be worth about $300 million.

"The financing of the project will be ensured by China Road & Bridge Corp. through loans from Eximbank China, China Development Bank, and [China's official export credit insurance agency] Sinosure, without Romanian government guarantees. We'll be using the build-operate-transfer model," Nastase said.

But observers expressed fears that the Romanian taxpayers may yet end up financing the bridge, just as they will foot the bill for the Brasov-Oradea motorway.

Almost a year ago, Romanian Transport Minister Miron Mitrea told the press that the motorway would be financed through a public-private partnership scheme.

But some six months later, it turned out that all the money would actually be provided by Romania's government, mostly through external loans. Ten top banks announced their interest, while the only U.S. participation would be some $800 million in loan guarantees from Eximbank.

The idea of a motorway linking Bucharest and Budapest first surfaced in the early 1990s. But it was only in the fall of 2002 that a strategic partnership arrangement between Romania and Hungary clearly listed this project as a priority. In the spring of 2003, the Romanian and Hungarian prime ministers, Adrian Nastase and Peter Medgyessi, wrote to European Commission President Romano Prodi, asking for "political and material support" for the motorway. Prodi's answer wasn't too encouraging. He suggested the two parties wait until both countries become EU members or look for private funding for the project.

At the same time as these inter-European discussions were being held, the United States expressed interest in the project. Deputy Commerce Secretary Samuel W. Bodman announced during a visit to Bucharest in July 2003 that his government would like to get involved in Romanian infrastructure development.

Bechtel representatives accompanied Bodman on the visit. It was then that the company's name was first mentioned, along with Washington Investment Group (WIG), as a possible investor in, and constructor and operator of, a motorway in Transylvania.

"We are negotiating with Bechtel for the Brasov-Cluj-Oradea-Bors motorway and with WIG for other infrastructure projects. They have prepared about $4 billion that they would like to invest in this area," Mitrea stated then.

But when the contract was signed on 19 December, Bechtel was suddenly only responsible for construction, while the funding was to be provided by the Romanian government.

"We all agree on the importance of this motorway. The problem is that the contract was concluded with a flagrant violation of the agreement with the EU on public acquisitions,” said Eugen Nicolaescu, spokesman for the National Liberal Party (PNL). Nicolaescu also voiced concerns that the government was motivated by political considerations rather than economic prudence.

Such fears were, in a way, confirmed by the government itself. "Romania is negotiating its way between big economic and political powers," said Transport Minister Mitrea in an obvious reference to the country's determination to build close relations with both the United States and the EU.

While EU officials are careful not to accuse Bucharest of acting illegally before all the facts are checked by Brussels, privately they make their disappointment clear. "We think that giving Bechtel this contract is immoral, to say the least, as after EU accession, Romania will benefit from billions of euros for infrastructure projects," an official with the European Commission's delegation in Bucharest told TOL.

It is not only the way that Bechtel got the contract that has raised concern. The price per kilometer is considered by some to be much too high, even if compared with Bechtel's other project in Europe, a motorway through the rough Croatian terrain.

Mitrea told parliament on 12 February that "Romania will pay per motorway kilometer a price lower than or ... the same as the one being paid in Croatia."

But experts now say that the Romanian motorway is likely to cost some 5.4 million euros per kilometer, while the price of the road that Bechtel is building in Croatia is estimated to cost some 4 million euros per kilometer.

Despite all the opposition, work on the motorway's first two sections, which are to be completed by 2008, is scheduled to start on 4 July. But as the contract with Bechtel will last at least until 2012, it is not inconceivable that a future government will seek to revise its terms.

--by Razvan Amariei