Concerns raised over Chinese win in Poland

European contractors have voiced concerns over the award of major road building contracts in Poland to a consortium led by a state-owned Chinese contractor. Chief among the grievances is the use of state aid to undercut tenders from European companies.

On September 28, a consortium led by China Overseas Engineering Group Co Ltd (COVEC) was awarded two of the five contract packages (A to E) that make up the 90 km A2 motorway scheme to link Lodz and Warsaw in Poland.

The scheme is linked to the 2012 European Soccer Championships, being hosted jointly by Poland and the Ukraine. It was tendered last year as a Public Private Partnership (PPP) scheme, but has now been re-let as a design & build contract, with funding sources including the European Investment Bank (EIB) and EU regional funds.

COVEC's bid for the 29 km Lot A was PLN 755 million (€ 179 million), just 42,1% of the client's estimate of PLN 1,79 billion (€ 424 million). The next lowest bid for Lot A was PLN 991 million (€ 235 million).

The consortium's bid for the 20 km Lot C was PLN 535 million (€ 127 million) - 45,7% of the estimated PLN 1,17 billion (€ 278 million) and well below the next nearest price of PLN 882 million (€ 209 million).

State aid

According to COVEC there are several reasons why it was able to submit such a low bid. First, as a state-owned company it will not need to borrow the US$ 100 million (€ 70 million) mobilisation capital for the project. It also says it can buy all materials and equipment required for the scheme upfront in China and in bulk, securing low, fixed prices.

This is the key area where European contractors believe they face unfair competition. Although it is illegal for EU member states to provide state aid to companies, the European Commission is powerless to take action against countries outside the EU that use public funds to finance overseas commercial activities.

European contractors also complain of a lack of reciprocal access to the Chinese construction market.

COVEC says other areas it can save money is in the employment of engineers and other specialists in China to work on the scheme for much lower salaries than Europeans. However, it also says that it will respect European and Polish employment laws and minimum salary agreements for on-site workers

This claim has been greeted with some scepticism in the European contracting fraternity. Dirk Cordeel, president of the European Construction Industry Federation (FIEC) said, "We are not in favour of protectionism but neither are we in favour of lower standards in the industry."

COVEC is a wholly-owned subsidiary of China Railway Group Limited (CREC), itself a state-owned construction contractor. The company was ranked as the third largest in the 2009 edition of International Construction magazine's league table of the world's largest construction companies.