SAO warns: construction of the D4 motorway in the form of a PPP project may not be as profitable for the state as expected

Press release on audit No 22/29 – 11 December 2023

The SAO auditors examined how the Ministry of Transport (MoT) and the Road and Motorway Directorate (RMD) used state funds earmarked for the preparation, construction and operation of the D4 motorway (the so-called "Strakonice motorway") in the form of a public-private partnership (PPP) between 2013 and 2023. The audit has revealed a number of risks. First of all, the auditors have pointed out a significant risk of incorrect assessment of the PPP project's profitability, as the MoT did not provide sufficient supporting documents on the costs of operation, renewal and maintenance of Czech motorways and the profitability was finally determined on the basis of mainly foreign experience.

Although in 2020, i.e. at the time of the evaluation of the PPP project's profitability, the MoT, or the RMD, operated and maintained 1,276 km of motorways, it was not able to determine the costs of operation, renewal and maintenance of these roads. However, these data are necessary to determine the viability of the PPP project. They were finally estimated by a project consultant, but mostly on the basis of his experience from abroad. He concluded that the D4 motorway PPP project was 25% more profitable than the conventional way of implementation. The SAO draws attention to the significant risk of incorrect assessment of the project's profitability because the entire calculation depends on the quality of the input data. Even a minor change in the input data has a significant impact on the project's profitability.

When following the classical construction method, the RMD issues a tender for construction works and thus ensures not only the construction but also the operation, renewal and maintenance of the motorway. The state therefore covers all costs from the beginning. In contrast, in a PPP project, the construction of the motorway, its operation and maintenance are provided and financed by a private company. The state then pays the company a contractual remuneration, the so-called availability payment, for a certain period of time. The completion of the five new sections of the D4 motorway, which are almost 32 km long (including the repair of 17 km of four existing sections), is planned for the end of 2024 at the latest. The state is to pay the contractor for availability for the next 25 years, i.e. until 2049. At the end of the contractual relationship, operation and maintenance will pass to the state. The motorway is to be handed over to the state in perfect condition.

The SAO has also drawn attention to the fact that, taking into account inflation between 2020 and 2022 and the CNB and European Central Bank forecasts until 2049, the CZK 29.5 billion availability payment approved by the Chamber of Deputies would be insufficient and would be reached before 2049. According to the calculations of the auditors, who have taken into account inflation from the years 2020-2022 and the above-mentioned forecasts, the state's payment for availability will be CZK 4.2 billion higher and will reach approximately CZK 33.7 billion. In this context, the SAO points out that the entire PPP project commitment represents a quasi-mandatory expenditure for the state, which will have to be financed until 2049.

During the preparation of the PPP D4 project, the MoT used the services of consultants, for whose work it had paid a total of CZK 40.4 million by the time the SAO audit was completed. The consultancy services were mainly related to setting the terms and conditions and contractual documentation of the project, assessing its profitability or selecting the concessionaire. The RMD spent CZK 364.2 million on the preparation of documentation for the zoning and construction procedure, including property settlement. The SAO did not find any uneconomical, ineffective or inefficient use of these funds.

Communication Department
Supreme Audit Office

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