CORRECTED - Half speed ahead on decrepit Romanian roads

Tue Nov 25, 2008 9:36am GMT

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(Corrects first paragraph to read 1900s, not 1990s)

By Radu Marinas

MEDGIDIA, Romania (Reuters) - In the early 1900s, it took a steam train three hours to get from the Romanian capital Bucharest to the Black Sea. Now an electric train does it in six.

It's not just the tourists who care.

Every party is writing road and rail investment large in its campaign for Sunday's election, knowing that decrepit transport threatens to cancel out some of Romania's few economic advantages: its location at a trading crossroads, and the low labour costs that have until now encouraged foreign investment.

The scale of investment and reforms needed is forbidding, but most economists know that without them, the foreign money that has been supporting Romania's consumption, already dwindling, may dry up altogether.

With a history of red tape, administrative failings, corruption and political reluctance to finance long-term projects, the outlook is grim.

There was a warning in June, when Germany's Daimler chose Hungary over Romania to site an 800 million euro (661 million pounds) Mercedes plant, swayed in part by access to road links.

"Transportation should be your number one priority," said U.S. ambassador Nicholas Taubman. "Romania will not be competitive with either your neighbours or western European trading partners until its 'road to Europe' is finished."

The new EU member should be a crossroads of major routes bringing resources from north and east Europe to the south and west, and bringing western-made goods to markets in the east.

Many manufacturers want to set up shop in Romania to take advantage of lower labour and production costs, even though fast salary growth and worker migration have already begun to narrow this window. But its road and rail system let it down badly.

COMPETITIVITY SQUANDERED

"Firms have a problem," said Florin Pogonaru, head of the Romanian Businessmen's Association.

"Competitivity gains are eaten up by hard access to raw materials. Islands of high productivity develop, but remain isolated unless infrastructure is brought up to their gates."

Nearly half of Romania's 10,000 km (6,000 miles) of rail tracks need repair or replacement, and derailments and delays are the bane of rail travellers' lives.

The roads are even worse. The World Economic Forum ranks Romania at 126 out of 134 states for road quality, between Nepal and Poland. It has only 270 km of motorways.

To cross Romania, drivers navigate narrow roads that wind around the Carpathian mountains and cut through thousands of villages, vying for space with horse-drawn carts, cyclists and even herds of sheep or cows.

Many cities lack ring roads, leading inevitably to gridlock in their centres.

Experts say poor road conditions cost drivers half a billion euros in extra fuel and repair costs every year.

But attempts to improve matters have been stumbling at best.

The biggest motorway project, Autostrada Transilvania, meant to link Romania with Hungary, was begun in 2004, but so far just 9 km have been built.

Delays from slow land expropriations, archaeological permits and intermittent financing flows mean it will not be finished before 2013 -- a year late -- at the earliest.

The project to renovate the main rail link from Bucharest to the Black Sea began in 2006 and is already 6 months behind.

Next to a 10-foot (3-metre) mound of rail rubble at the outskirts of the small town of Medgidia, Florin Dila oversees workers replacing old tracks for an Austrian company involved in the 600 million euro project.

"Delays on the route are caused by changes to the project when work is already under way ... They (the government) raised the maximum speed for the trains. We had to enlarge the rail bed, to lay new tracks, and this has taken time," he said.

GOVERNMENT THE PROBLEM

In fact, government turns out to be one of the obstacles.

"As any major project takes 5 to 7 years to bear fruit, no government ... has been willing to spend big sums on infrastructure, afraid of the next cabinet reaping the benefits," said former transport minister Radu Berceanu.

"You can be Jesus, but if a client gives you barely any money, you can only tailor shorts instead of trousers."

Undaunted, all parties make infrastructure their top priority ahead of the election, most pledging to build around 1,000 km of motorways.

They include the pro-business Liberal Party of Prime Minister Calin Tariceanu who has overseen the building of just 50 km of motorways since 2004.

Experts estimate it will cost 4-6 percent of gross domestic product a year to fulfil these plans and ensure that Romania's borders are crossed by four-lane roads on main EU transport routes by 2013.

In a global credit crunch that has boosted financing costs and seen Romania's sovereign borrowing rating downgraded, such plans seem hopelessly optimistic to many.

"We've seen nothing about financing," said Pogonaru.

While Romania has probably attracted around 8.5 billion euros of foreign direct investment this year, Ionut Dumitru, head of research at Raiffeisen Bank in Bucharest, says this will likely fall to 6 or 6.5 billion next, due to the credit crisis.

Economists say this will not only reduce the money available for big projects, but also leave a huge gap in state finances as a whole.

(Editing by Kevin Liffey)

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