Czech construction sector seeks solid foundations for growth

Photo: Kristýna Maková

The Czech construction sector is a symbol of the country’s economic resurgence just as it was of the years of recession after the financial crisis of 2008. Last year the sector expanded by 5.5 percent compared with 2014 and the number of new contracts climbed by 3.7 percent with the number of building permits also up.

Photo: Kristýna Maková
So you would think that the many men in suits at the Czech building forum at the start of March would have a lot to be cheerful about. But the optimism within the sector is tempered by two factors. Economic growth this year, while still positive, will fall back from the heights of 2015. According to a survey by the company CEEC, growth in the construction sector this year and in 2017 will ease to 2.5 percent.

And bosses appear increasingly angry that many domestic construction contracts are still bogged down in a legislative morass that seems to characterize the country whenever new roads, rail links, or buildings need to go up. The government though is looking to keep up the momentum of public construction contracts at least in terms of the funds earmarked for them.

Czech Prime Minister Bohuslav Sobotka referred to some of the challenges ahead as he opened the forum.

“We are continuing with legislative changes. When I spoke last year, I highlighted the task of approving a new law on public tenders and to amend the construction law. As regards, the law on public tenders, this is close to the final third reading in the lower house but the process has not been easy. There were thousands of proposed changes and a major debate in the government’s legislative council but I am now convinced that we will successfully complete the legislative process and within the time frame that the government planned and expected.”

Prime Minister Bohuslav Sobotka,  photo: ČT24
Public tenders have been a legal battleground in the past in the Czech Republic with numerous disputes about the ways tenders are designed, and whether they have been tailed for certain companies, and the results often challenged. But many public contracts are also awarded without tenders, with the Czech Republic estimated to have one of the worst records in the EU for circumventing tenders. According to one study, in 2014 around 20 percent of contracts were designed in such a way that tenders could be avoided.

One of the main aims of the new rules is to give those organizing tenders more room to lay down the conditions and be less tied to the lowest price principle, but the types of conditions and circumstances for such rules still have to be clear and fair. But many have still to be convinced that this new formula will finally result in fair, open, and efficient public tenders.

It had been hoped that the first reading of the new bill on tenders would have been completed in the lower house of parliament last Friday. It did not happen with the whole issue getting tied up in the controversy surrounding conflicts of interests between businessmen who are also politicians.

There are other problems facing the sector as well. Not least of those is the drawn out planning permits system. At the forum figures from the World Bank were given out that it takes on average 247 days to get a planning permit for a small building in the Czech Republic, that’s just two days less than Iraq. The total for Denmark is 64 days, for Ukraine 67, and for Sierra Leone 166 days. For something more complicated, the Czech building permit could take anything from three to seven years, it was added. The Czech Republic came in at 127th out of the 189 countries surveyed.

Evžen Korec,  photo: Archive of Ekospol
It’s not surprising then that some in the Czech building trade reckon they are being strangled by red tap. This is what one of the forum speakers, the general manager of building company Ekospol, Evžen Korec, had to say:

“A decisive problem is the Czech legislative system. The process for getting an authorization for construction, the independent environmental impact assessment, independent land use assessment, building approval, and the possibility of challenges at all stages, means that the whole building process is incredibly drawn out. So the construction of a fairly large complex of flat, and by that I mean more than 100, can take three to seven years and that is simply not acceptable. When I compare this to the time taken in Germany, where I used to live, the permit process is around a third of the time.”

Ekospol claims to be the biggest constructor and seller of new flats on the Czech market.

“I have not given up my attempts to get changes and from next year I want to have some powers regarding construction officials.”

The Ministry of Regional Development did in fact come up with proposals for a revolutionary restructuring and simplification of the planning process with the general target of coming up with as near as possible to a one stop shop for planning permits. But the time envisaged to carry out such an ambitious change was around seven years and some of the powers of other ministries, such as transport and environment, as well as local planning offices would have been eroded. The proposal was as a result pulled with hopes for some reform now focused on more modest changes to the construction law.

Minister for Regional Development Karla Šlechtová added though that she had not had her last word on trying to get some changes to the planning process as regards local and regional planning official employed by town, city, and regional planning offices. She pointed out that for many projects local councils were both investors and officials paid by them were taking decision with regard to specific projects which certainly raised conflict of interest questions.

Karla Šlechtová,  photo: Web official of Czech Government
“I have not given up my attempts to get changes and from next year I want to have some powers regarding construction officials so that as part of the state administration the Ministry of Regional Development will allocate financing for these officials, outside the realms of city and regional finances. That means financing will come from the state I will have responsibility for them and above all can ensure that they are properly trained.”

And some of her hopes of a more rapid and less complicated planning process should see the light of day in proposals to amend the existing construction law. That is now in the government’s legislative council but the target is to get it ready to become law by the end of the year, although a bumpy ride is expected.

Minister Šlechtová and entrepreneur Korec single out one problem in the current planning process that they say needs to be urgently addressed: the ability of third parties to challenge planning decisions at any stage although they may not even have any direct or tangible connection to the project in question.

“Anybody can form some grouping of citizens of just three people at the other end of the republic and they could block the permit process sometimes for many years. “

“At the moment it is possible that a participant in the administrative process can appeal. Anybody can form some grouping of citizens of just three people at the other end of the republic and they could block the permit process sometimes for many years. The idea that such people should prove some direct interest in the planning process is not some imported idea from the United States but something that is common in the rest of Europe. It is not a limit on public rights but a limitation to those who can demonstrate a real interest. This is one of those things that if it does not happen will mean that this deliberate blocking of the construction process will continue.”

Environment Minister Richard Brabec,  photo: Filip Jandourek
And in a somewhat ironical intervention on the lengthy Czech construction planning process, the European Commission has now got involved. It’s angry that a massive backlog of Czech projects were approved using environmental assessments up to 15 years old in some cases with some dating from before Czech membership of the EU. Why there is such a big backlog of uncompleted projects has most outsiders scratching their heads in wonder. A new set of Czech environmental impact assessment (EIA) procedures were only introduced last year with the Czechs among the last in the EU to get their act together.

Environment Minister Richard Brabec is now trying to get an agreement with the European Commission on what projects can still go ahead with the environmental assessments and which might need entirely new ones. He explained the position:

“We are in the situation where we have a lot of, almost 100, of projects, infrastructure projects, transportation projects with old EIAs from before the accession of the Czech Republic to the EU.”

“We are in the situation where we have a lot of, almost 100, of projects, infrastructure projects, transportation projects with old EIAs from before the accession of the Czech Republic to the EU. And now there is strong pressure from the European Commission to make, let’s say, a renewal of these EIAs. And the problem is that of course there could be a postponement of this very important investment for the Czech Republic. This is the point. We are now in the phase of negotiation which may take five or six months.”

Brabec said that there could be agreement that perhaps a fifth of the projects in question might go ahead with the old approvals. In the meantime preparatory work can still continue on some of the other developments so that at least some of the delay might be caught up.