Photographer: Martin Divisek/Bloomberg

Czechs Look to Fix Lost Highway Decades With New Road Boom

Updated on
  • Country has less amount of highway than poorer EU members
  • Government plans to raise spending by $1.3 billion next year

As the European Union’s richest eastern nation, the Czech Republic has pulled ahead of both new and older members in a range of economic categories. Speed of travel isn’t one of them.

Almost three decades after the fall of the Iron Curtain, the Czechs still lack a highway link to their southern neighbor Austria. Buses are often faster than trains, and the 800 km (498 mile) rail trip from Berlin to Vienna via Prague takes about an hour more than a route that’s a quarter longer but avoids the country altogether.

The new government, struggling to secure support after falling short of a majority in elections last year, would like to change that. Prime Minister Andrej Babis’s cabinet plans to raise transport-infrastructure spending in 2019 by at least 26 billion koruna ($1.3 billion), or about half over this year’s plan, Transport Minister Dan Tok said in an interview last week. That amount will be boosted further by EU development funds, he said.

“These funds need to be found in the budget, and if they can’t be found in the budget we need to borrow them,” Tok, the former chief executive officer of Skanska AB’s Czech unit, said on the sidelines of a construction forum in Prague. “Without the extra money, we wouldn’t be able to maintain the current momentum.”

Road Block

Czech Republic has fewer highways than many EU countries with similar population

Source: Eurostat data for 2016

Babis, whose minority cabinet is ruling in a caretaker mode after it lost a confidence vote in January, has made investment in roads, schools and hospitals a priority. While the nation of 10.6 million boasts one of Europe’s fastest-growing economies and the fourth-smallest debt pile in the EU as a proportion of output, builders have missed out, partly because of a lack of projects from past governments.

The country can afford to borrow more to fund development after years of virtually balanced budgets and stalled road projects reduced gross public debt to 32 percent last year, from 41 percent in 2013. Its 1.58 trillion koruna of domestic and international bonds have long drawn strong demand from investors, including a period between 2015 and 2017 in which the government was able to sell shorter-maturity debt at negative yields.

The yield on Czech 10-year domestic bonds traded 130 basis points above German bunds at 1.95 percent on Monday at 9:20 a.m. in Prague, up from 0.75 percent a year ago.

Roads Eroding

The Czechs’ limited highway system has eroded as trucks transit carrying goods to and from Germany, Austria, Slovakia and Poland at the heart of the EU’s passport-free Schengen area. Aside from the missing link from Prague to Vienna, the highway to Berlin was completed only last year after decades of delay. And despite an increase in spending, the Czech Republic still has fewer divided highways than poorer and roughly same-sized Portugal and Hungary, according to Eurostat data.

Babis and Tok blame the delays on a government austerity drive that froze projects in the aftermath of the global economic crisis, as well as on legal obstacles that complicate the government’s ability to buy or expropriate land. They’re proposing a bill that, if approved by parliament, would change the process, shortening the period needed between deciding to build a highway and starting construction to eight to 10 years, from 13 now, Tok said.

“This would make things easier, but don’t expect a miracle,” he said.

To help fund the infrastructure upgrade, the government is arranging a 100 billion-koruna loan from the European Investment Bank that the Czech Republic could start drawing on after 2020, according to the minister.

Babis says strong public finances, high credit ratings and low borrowing costs mean that the country can easily afford what he has repeatedly called “mega-investment” projects. The only obstacle is that, without a parliamentary majority, his government has no guarantee of finding backing for its plans.

“Our potential financial resources are huge,” Babis told the same construction-industry forum. “When you invest, it pays back. Money really isn’t a problem. We have a very clear idea how we want to do this. We just need to win support from others.”

— With assistance by Marton Eder

(Updates with public debt and bond market in sixth paragraph.)
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