Infrastructure and projects work is a core practice area for many firms operating across the Central and Eastern European (CEE) region. In theory there should plenty of work around because these countries need significant improvements to their transport, energy and public buildings. In practice, things are not quite so clear-cut.
“My feeling is that if you look at each country there are one or two projects happening,” says Schoenherr finance and projects partner Matei Florea.
Although many projects are planned across CEE, it is often a struggle to get them off the ground due to a combination of red tape, political instability and lack of funding. Romania is especially prone to this. Both Florea and Wolf Theiss construction partner Thomas Anderl note that the country has a history of starting big infrastructure projects, but not finishing them.
Romania has a history of starting big infrastructure projects, but not finishing them
Florea attributes this tendency in his home country to politics. Romania’s government has changed several times in the past few years and the current government’s priorities is public spending rather than infrastructure.
“There’s very little push from government right now; we’re hoping that will change,” Florea adds.
Energy projects flag
The two principal areas of infrastructure development in Romania and the wider region at present are energy and transport.
“We had a spike in renewable energy a few years ago but it’s more or less gone – it’s only in Poland where there are bits and pieces of renewables going on,” reports Florea. “There’s the odd conventional energy project.”
Kinstellar infrastructure head Kamil Blažek says a lack of economic certainty has affected conventional energy projects across CEE. Instead, nuclear is now higher up the agenda.
Nuclear power plants are being planned in Hungary and Bulgaria, and in Romania there are hopes that a longstanding project to finally complete the Cernavoda plant will get underway. Cernavoda was begun in the 1980s. In 2008 a joint venture involving several major energy companies was set up to complete the third and fourth reactors, but the financial crisis and other economic uncertainties hit home and most of the joint venture partners pulled out.
In 2016 the Romanian government wrote to China General Nuclear Power expressing support for a joint venture involving the Chinese company, but so far no progress has been made.
In Bulgaria construction also stalled on the country’s second nuclear power plant. In Hungary things are moving a little faster, after the EU gave the go-ahead in March 2017 for a €12.5bn (£11bn) project to expand the Paks power station – financed with a €10bn loan from Russia and with Russian state-owned company Rosatom building the new reactors.
China steps in
Transport work is more buoyant. All the major CEE countries have projects in the pipeline to improve their roads and railways. In Poland and Bulgaria infrastructure professionals are eagerly awaiting the tenders for a Central Polish Airport in Lodz and for the concession to run and operate Sofia Airport.
On roads, Blažek notes that the Czech Republic is due to launch its first public private partnership (PPP) tender, for a major highways project, next year.
“One of the reasons we haven’t managed yet to have a straightforward PPP project is that we’ve always had coalition governments and they’re just too volatile,” Blažek adds.
In Hungary, the focus is on rail. In 2013 Hungary, along with Serbia, signed a memorandum of understanding with China for the construction of a high-speed railway between Belgrade and Budapest. However, news broke in early 2017 that the EU was investigating the deal over concerns it had broken rules on public tenders for large transport projects.
“One of the reasons we haven’t managed yet to have a straightforward PPP project is that we’ve always had coalition governments” Kamil Blažek, Kinstellar
China’s role in infrastructure in CEE is growing, notes Anderl.
“EU funding in Bulgaria isn’t that crucial anymore because there are new sources of funding available such as the Chinese entering the market,” he says.
Nevertheless, EU funding is a critical feature in CEE infrastructure projects. The EU offers billions of euros through a number of funds to finance infrastructure projects. Poland is a major recipient.
“EU funding is of great financial value for this region, and crucial for a bigger infrastructure project,” says Anderl. “EU funding is also an investment into Western European companies. These projects can’t be executed by local companies and they need support.”
“Poland is quite advanced in its use of EU funding – it uses a lot,” says Bucharest-based Florea. “Hungary is trying to do that and things will hopefully pick up again.”
Florea adds that EU financing gives a project credibility.
“When there’s an EU component this usually ensures success – it rubber stamps it as a big project,” he says.
Long-term optimism
The relatively low number of successful infrastructure projects in the region means firms such as Kinstellar, Schoenherr and Wolf Theiss tend to work across several countries to serve infrastructure clients.
Anderl says local knowledge and contacts are invaluable, while Blažek suggests a mix of expertise is critical.
“In countries where you have higher political risk the regulatory experience of a law firm is valuable,” he says.
“We try to work infrastructure, projects and project finance across the region,” adds Florea.
He says Schoenherr operates a cross-practice, cross-jurisdictional group, to serve infrastructure clients.
Despite the frustration caused by political inactivity and projects taking years to get off the ground, there is optimism in the infrastructure market. Florea says while bigger deals might be slow there are a decent number of smaller projects under way and the learning process from these could help the wider market.
“We try to work infrastructure, projects and project finance across the region” Matei Florea, Schoenherr
“Very big projects in Romania tend to fail because the preparation wasn’t done – you can’t learn on an €8bn project because the risk of failure is too high,” he says.
Both Florea and Anderl think the funding will be found for many projects.
“Public projects aren’t yet there but it feels like private investors are filling the gap,” says Florea.
Infrastructure work also has a long lifespan and the mix of regulatory, transactional and financial expertise required to advise clients means winning a tender keeps a firm busy for some time.
As Blažek concludes: “This is a field that can generate consistent workflow.”
Read more about legal work in CEE here
