Highway Robbery

The European Investment Bank is warning that the government is about to throw 55 billion crowns down the drain. According to EIB experts, this enormous sum (equivalent to an entire decade's budget for the Ministry of Culture) will be needlessly wasted on the excessive cost of the „Ostrava highway.“ Last year, the Zeman government awarded the construction of the highway to the firm Housing and Construction without a tender, and now wants to sign a contract to finalize the deal before the end of June. For the 80 kilometers from Lipník to the Polish border, the firm will charge 125 billion crowns. The departing cabinet has of course taken little notice of the EIB warning about the criminally high price. Not even the opinion of Justice Minister Bureš that the prepared contract conflicts with Czech law in many areas have influenced his colleagues. „Everything is in order; we couldn't have found a better alternative,“ repeats Transportation Minister Jaromír Schling in response to all challenges.

With Schling to Cyprus

The government began work on the idea of a highway to Ostrava two years ago. The Prime Minister's adviser in Ostrava, Jaromír Kuča, suggested that the construction be entrusted to the Israeli firm Housing and Construction (HaC) and the ministers awarded the construction to the firm at the beginning of last year without soliciting competing bids. They did not appear to mind that the firm had never before built a highway, nor had it even invested in the building of one. „There wasn't time to put out a tender, it is an urgent matter and it is necessary to begin construction immediately,“ said Minister Schling in excusing the suspicious selection procedure. Despite all this urgency, construction still has not begun - and Schling now defends the decision not to give a chance to other, less expensive bidders differently: „We didn't know how to draw up a request for the construction of a private highway,“ he told to Hospodářské noviny 14 days ago.

For negotiations with HaC, the government engaged the services of renowned consultants Mott MacDonald. When their experts characterized the draft contract as disadvantageous, however, Minister Schling ended cooperation with the consultants. „They weren't able to find a common language with Housing and created difficulties,“ said Schling's adviser Jan Prokeš. „We were hired to look out for the interests of the state, and we could not do otherwise,“ explained Jiří Petrák, head of the Czech branch of Mott MacDonald. „It would have been possible to reach much more advantageous costs and conditions for the project. We could not agree with the government's proposal. We are a firm with a hundred year tradition. We didn't want to do just this one job, but to work for another hundred years.“

Ten days ago, Minister Schling announced that the highway would be built by the Czech firm Housing and Construction CZ, which is formed by a consortium of the Israeli firm HaC, Shiran Group, the Austrian Strabag and the British Brown and Root Halliburton. According to unofficial information from government sources, the main role in the transaction is being played by the Shiran Group, which has connections with HaC. Its president, Shimon Jakobson, along with fellow Israeli O. H. and a number of Russian citizens, sits on the statutory bodies of Czech firms concerned with everything from real estate sales to tourism and financial advising. The majority of these companies are owned by obscure Cypriot firms. Jakobson and O. H. were investigated in the latter half of the 1990s by the Czech police because of contacts with representatives of the Russian mafia in the so-called 21st Century Society, which also has a number of subsidiaries in Cyprus. On their frequent trips to Prague, representatives of the Russian mafia stayed at the U Sixtů and Schweiger hotels owned by Jakobson. The police investigations did not prove any illegal activity on the part of either of the two men.

When you grease someone's palm

Not only the experts from Mott MacDonald, but also Justice Minister Jaroslav Bureš has criticized the contract that Minister Schling is supposed to sign on Tuesday with HaC. „It is possible to agree wholeheartedly with the standpoint of Mott MacDonald, that the contract is not in accordance with Czech law, which it is supposed to be subordinate to,“ he wrote in his expert opinion for members of the Czech government. „HaC cannot provide a sufficient guarantee for so large a contract - not through its own capital, nor through the obscure and non-secured ownership and executive rights of its shareholders,“ noted Minister Bureš. The government did not worry itself about such reservations and approved the contract 14 days ago. „HaC promised that after signing the contract they would put everything in order,“ Minister Schling told the press. Neither Minister Bureš nor Stanislav Gross would respond to the question of why the government voted to approve the contract.

It is not just the contract itself that is corrupt; there have been conflicts of interest in a whole range of other matters concerning the project. The financial advisor to the Czech government was Deutsche Bank, which is the majority shareholder of the firm Strabag - one of the suppliers of construction materials for the highway's construction. The firm Freshfields Bruckhaus Deringer worked on the preparation of the government's contract proposal. The procurator of this firm is Josef Vejmelka - who is also acting secretary of Housing and Construction.

It would be pointless to cite in more detail from the EIB report, which points out all of the instances in which the costs of the project are overestimated. One example, however, is the payment of „risk reserves,“ or higher interest to banks which lend HaC money for expenditures. One stipulation is particularly shocking - the government will pay HaC (in addition to the overestimated costs) a profit amounting to four billion crowns. If the highway had been constructed privately somewhere in a less corrupt foreign country, things would have been different. In most cases, after the opening of the highway the investors would either collect tolls or receive payment from the government according to the number of vehicles using the highway. If the highway is little used, the investor loses - as has been the case in Hungary. The government's chosen horse HaC will receive 4 billion crowns, even if not one single car uses the D47.