D1 motorway, Phase 1, Slovakia
The controversy about the D1 motorway came from two angles: first, as a PPP its critics said it was overpriced, and second, the project promoter decided not to follow the route recommended through the Environmental Impact Assessment process, instead choosing one that would impact on protected Natura 2000 areas.
The project was due to be financed by both the EBRD and the EIB, but as a result of civil society requests the European Commission looked into the project and was not able to give clearance for the EIB to proceed with its loan.
Financial close for the project was repeatedly delayed and in summer 2010, the new Slovak government, which had in any case criticised the project, decided not to grant any further extensions for the financing deadline. The PPP collapsed, and the road may now be built using public resources, however the environmental concerns remain.
The Slovak Motorways PPP D1 Phase I project in Slovakia sought to link the economically wealthier western part of Slovakia with the less developed eastern part.
The European Investment Bank (EIB) approved a loan for the project in December 2008, however by summer 2010 it had still not received clearance for the project by the European Commission. In April 2010 the EBRD approved a EUR 250 million loan for the project, with the remainder of the financing expected to come from eighteen commercial banks.
However the following shortcomings in the project made the project subject to considerable controversy in Slovakia and eventually led to the collapse of the PPP.
poor value for money
possible manipulation of public sector comparator calculation
lack of risk transfer after the construction stage
clashes with nature protection
The project’s shortcomings
Enormous – and rising – costs
In the fourth amendment to the concession contract the nominal price of the PPP for the 30-year lifetime of the contract was EUR 9.128 billioncompared to the already considerable original price of EUR 7.822 billion.
This represented a significant burden for Slovak public budgets. The official public administration debt of Slovakia in 2010 was approximately 40 percent, but according to the INEKO Institute, adding the D1 and R1 motorway PPP packages would have taken this over 50 percent
To PPP or not to PPP?
In April 2009 data from the Slovak Ministry of Transport comparing a Public Sector Comparator (PSC) with a PPP option for the project was published. It found an advantage of implementing a PPP of just over 5 percent.
Without the publication of the larger document on which it was based, some of the assumptions used appear highly dubious, most notably the “earlier onset of selected socio-economic benefits” in the PPP, apparently adding EUR 593 million in value onto the PPP option.
This seems very optimistic. It is also unclear how the ministry arrived at the figure of EUR 221 million for risk transfer.
In March and April of 2010, the justification for the PPP became even more flimsy. In April an article was published in the electronic version of Trend magazine showing how a PSC calculation from the Ministry of Finance published in March – before a government session to approve price rises in the project – contradicted the Ministry of Transport’s data, on which it was supposedly based.
The Ministry of Transport’s table showed that a PPP option, even if a state guarantee was approved by the European Commission, would cost 20 percent more than the PSC. Yet the Ministry of Finance’s figures showed a disadvantage to the PPP of only 0.93 percent (with state guarantee).
There are two issues here: first, it is alarming that the Slovak government made decisions on the basis of data that two ministries do not seem to agree on. The differences in the tables are mainly in construction costs for the PSC; continuous maintenance for the PSC; lack of risk transfer in the PSC; and refinancing benefits from the PPP variant. As the published version by the Ministry of Finance is the one that comes out more favourable to the PPP, it seems likely that it was manipulated to be more palatable to decision-makers.
Second, taking even the original Ministry of Transport figures, there are several large changes to the data from the previous year that were not explained:
- the “earlier onset of selected socio-economic benefits” in the PPP had risen from EUR 593 million to EUR 665 million,
- the two categories of maintenance in the PSC had risen from EUR 129 million to EUR 176 million, and EUR 192 million to EUR 253 million,
- the refinancing gains mentioned above had been put at EUR 61 million in 2009, which had nearly doubled to EUR 114 in 2010,
- on the other hand, in the PPP version the expected deductions for non-availability (EUR 76 million), EUR 19 million for the initial payment under the concession contract, and EUR 221 million for risk transfer in 2009 had disappeared in the 2010 version.
It is alarming that the Slovak government made decisions on the basis of data that two ministries do not seem to agree on.
Overall, the PPP version rose from EUR 2.14 billion to EUR 3.228 billionwhile the PSC has risen from EUR 2.255 billion to EUR 2.682 billion. This does not even include a comparison of the overall PPP availability costs over 30 years (EUR 9.128 billion) with the overall costs of the PSC including financing costs.
When confronted with the differences between the Ministry of Finance and Ministry of Transport figures, Slovakia’s then Transport Minister Ľubomir Vážny was not able to come up with explanations and merely brushed the topic aside, saying that there had been several versions of the analyses and that he could not recall which was the analysis that was forwarded to the Government for approving.
In October 2011 the daily paper SME reported that the Slovak Police had started a criminal procedure for attempted fraud against Peter Havrila, the then director of the Project Management section at the Ministry of Transport. According to the media Havrila was responsible for the manipulation of data in the analysis.
Clashes with Natura 2000 nature protection legislation
Breach of the EU EIA Directive and Slovak EIA Act by failing to state how the final statement on the EIA was taken into account
The final statement on the Environmental Impact Assessment recommended Variant B1 (Korbel’ka tunnel), whereas in the end a slightly modified version of Variant B2 (surface-tunnel) was approved.
However, it is impossible to find out from the text of the land-use permit how or whether the permitting authority took the content of the final statement into consideration. This is in breach of Article 8 of Council Directive 85/337/EEC as well as § 38 of the Slovak EIA Act.
Low risks for the concessionaire
As the motorway was to be undertaken through an availability fee system, it there was to be hardly any risk for the concessionaire after the completion of the construction. Income would have come from the state at a fixed amount, give or take some performance penalties, while the concessionaire would just have had to perform maintenance and clear snow.
Insufficient Natura 2000 assessment
The approved surface route threatens characteristic habitats in the area of Šútovo Rojkov (Malá Fatra, Veľká Fatra and Váh River Special Areas of Conservation), including migratory and wintering water birds, bats, amphibians and large carnivores.
The impacts on Natura 2000 sites by surface route in the Turany – Hubová section was assessed in a study by Peťková & Mika (2007), which was ordered by the Ministry of Transport, Post and Telecommunication.
However, this study has been strongly criticised by subsequent independent assessments (eg. Topercer et al 2009, Volf 2010), as being seriously flawed and based on incomplete, methodically incorrect and misinterpreted sources of information. For example it does not examine the Rojkovske raselinisko mire separately, in spite of its unique characteristics, omits to mention several protected habitat types, and lays out only a few, weak mitigation measures.
Moreover, the decisions taken by the relevant Slovak authorities show that they have not adopted any compensation measures for the project and that the mitigation measures have been implemented only partly. As of May 2012 this issue remains unresolved.