Bechtel's Saga Ends, But Road Positive Story Ahead

The contract between Bechtel and the Romanian government, worth US$2.8bn when signed in 2003, to build the Transylvanian Highway has finally been cancelled and a compensation package for Bechtel agreed upon. Only 52km of the 415km route has been constructed after the project came to a halt numerous times, with Bechtel citing the failure of the Romanian government to settle their bills as the cause.

To finally bring things to a close, Bucharest will pay Bechtel EUR37.2mn (US$48.5mn) in compensation and reimburse debts worth EUR50mn (US$65.2mn). With a line drawn on the long-running saga, the government now hopes to re-tender the remaining sections of the highway, which reinforces our growth forecast for the road sub-sector in Romania.

To date, Romania has struggled to turn European funds available for road infrastructure thanks to their new relationship with the EU into tangible improvements in their road system. Project delays are almost perennial, and despite legislation to ensure it, transparency in the tender process is still lacking. Controversially, the original award of the contract for the Transylvanian Highway to Bechtel was done without a tender.

Roads Drive Infrastructure Growth
Romania's Infrastructure Value (RONbn), Real Growth (% y-o-y), and Road Infrastructure Real Growth (% y-o-y)

Roads To Outperform

Despite the aforementioned problems that exist within the Romanian construction industry, the road sub-sector will be the main driver of growth in the coming years. Romania's roads have been the primary target for investment over the last year, thanks to continued support from bodies such as the European Investment Bank (EIB). Importantly, this has enabled CNADNR, Romania's national road company, to deal with its debts which had prevented projects from moving forward. Also, in response to the Bechtel issue, new contracts issued will have clauses in to prevent costs rising like they have done in the past.

These improvements are yielding results, with five consortia submitting bids for a contract to build the Pitesti-Craiova highway. The 121km highway will involve a cost of RON9bn (US$2.66bn). The five consortia are Spedition UMB- Tehnostrade- Vectra Service, Obrascon Huarte Lain- OHL, China Communications Construction Company- Dogus Insaat Ve Ticaret- Egis Projects, Impregilo- Salini and Strabag- Vinci- Aktor respectively.

We forecast 2.5% real growth year-on-year for the road sub-sector in 2013, and an average rate of 3.6% over the rest of our forecast period - which will be the strongest performing of all transport sub-sectors. This is a reflection of both the necessity for Romania to improve its roads in light of their poor condition, and their desire to take advantage of Romania's geographical position between Asia and the rest of the EU. Romania's membership of the EU came with access to new markets which are most easily accessible by road. Good road access to these markets is vital considering that around two thirds of Romania's total freight mix is road freight, making road infrastructure vital to service exports and imports.

This article is tagged to:
Sector: Infrastructure
Geography: Romania

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