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EU: Trans-European Motorway Projects Stall In Central Europe

London, 8 June 1998 (RFE/RL) -- A new report says the EU's ambitious hopes of a modern trans-European road network stretching to the east have stalled because of the high cost of building new motorways and highways in Central Europe.

The delays have arisen because central European governments lack the resources to fund new road schemes on their own; foreign banks demand a good return on their capital; and private investors are deterred by a lack of reliable traffic forecasts.

One analyst says private lenders fear they will not get their cash back if the number of cars and trucks using newly-constructed roads turns out to be lower than forecast. But it is hard to make such forecasts in a region with no history of intense traffic flows.

The report, "The long and winding road," by Peter Bennett, appears in the latest "Central European," a monthly journal focusing on banking and finance in central Europe and the CIS countries.

Consultants say the Central and East European nations need modern roads to upgrade to EU standards and to facilitate regional and cross-border trade. Construction firms are queuing to build them, but they need outside lenders -- EU governments, foreign banks, private investors -- to put up capital. The high-risk schemes often require lenders to make a commitment of 20 years or more.

The report says Hungary's "disastrous" M1 motorway project was a cautionary example to investors of what can go wrong. A French-led consortium built the motorway using 95 percent private finance and 5 percent government funding. It then levied private tolls on car and truck drivers to recover the construction costs.

But Hungarians could not afford to pay the road tolls and the drivers using the motorway were mostly foreign. When Austria joined the EU, and later the Schengen agreement on a frontier-free Europe, six-hour queues built up on the Austro-Hungarian border. These delays caused even the foreign traffic to find other routes.

The report says that Hungarians did not like paying for something they were used to getting for free. The motorway tolls, according to the London-based European Bank for Reconstruction and Development" (EBRD) were a "social shock" to Hungarian drivers.

But national experiences differ. In Croatia, traffic flows did not fall when tolls were introduced as locals were already used to paying for using a stretch of the Zagreb-Karlovac motorway. In Poland, the introduction of tolls on two new motorways is a big test.

Motorway routes through areas likely to attract a high number of tourists, such as the Istria peninsula, are likely to be most viable, particularly if there is no competition from parallel routes.

The Hungarian government is learning from past mistakes. It is taking a more "hands-on" approach with the new M5 motorway that will stretch south from Budapest to Szeged. The state will contribute up to 50 percent of the cost. Meanwhile, the EBRD has suggested a fuel tax, similar to those in Slovenia (16 percent) and Hungary (10 percent) to go directly to fund motorway projects.

In the future, according to the "Central European" magazine, Public-Private-Partnerships (PPPs), involving state involvement and private sector risk hold the key to highway investment. It says: "How PPPs work out will help determine whether Central Europe is ever integrated into the trans-European (road) network."