05BUCHAREST1307 / 2005-06-03 14:23:00
Embassy Bucharest
                UNCLAS SECTION 01 OF 02 BUCHAREST 001307 
 
SIPDIS 
 
STATE FOR EUR/NCE - WSILKWORTH, EB/IFD 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/CEEB/BURGESS/KIMBALL 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EFIN, PGOV, PREL, RO 
SUBJECT: BECHTEL BEGINS TO SHUTDOWN ROAD CONSTRUCTION IN 
ABSENCE OF PAYMENTS 
 
 
THIS CABLE IS SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET 
DISTRIBUTION. 
 
1. (SBU) Summary:  High-ranking Bechtel representatives 
currently in Bucharest failed to obtain sufficient funds 
from the GOR to cover mounting arrears on work performed on 
the 2.8 billion dollar Transylvania Motorway project. 
Discussions at ministerial level have provided no clear way 
ahead for the short term. As a result, subcontractors were 
told to shut down June 2nd and the majority of the direct- 
hire work force was sent home June 3rd.  This will be an 
enormous story with negative implications for business 
climate perceptions. Post recommends high-level and 
sustained USG pressure on this important commercial issue. 
A USG approach should also push for relaxation of an 
extremely strict IMF deficit target that is seen by the GOR 
as a barrier to needed infrastructure spending, particularly 
as massive flooding in large areas of the country has 
diverted substantial financial resources to relief and 
reconstruction. End Summary. 
 
Bechtel Says "Show us the Money" 
-------------------------------- 
2. (SBU) In the past several weeks, Post has worked closely 
with Bechtel representatives to press the GOR to provide 
compensation for work that Bechtel has already performed in 
2004 on the Transylvania Motorway project, as well as to 
provide a mechanism for timely payments for work finished or 
scheduled for 2005.  Current arrears stand at approximately 
80 million euros.  Since the current government came to 
power in December 2004, only 16 million euros of payments 
have been made. 
 
3. (SBU) Despite three different potential funding sources 
for the project, the GOR has experienced difficulties in 
accessing any money for the project and provides it only 
after Bechtel's constant prodding and then only in small 
allotments.  The three sources of funds that the GOR is 
supposed to use for the project are: 
- Internal budgetary funds.  There are supposed to be 213 
million euros earmarked in the 2005 Transportation Ministry 
budget for the Bechtel project.  Due to a (repeatedly) 
delayed government budget rectification, however, the 
Ministry claims it cannot release the money for work 
performed.  They note that there is both need for emergency 
spending in the wake of widespread spring floods and claim 
that the expected rectification could result in a lower 
budget allocation than projected. 
- U.S. Ex-Im Bank loan.  Activation of this 144 million 
dollar package has been delayed due to GOR nitpicking 
regarding language of the letter of agreement (eighteen 
revisions and counting).  In addition, this loan can only be 
drawn down for purchase/use of American goods and services, 
a point that many in the GOR still don't seem to understand. 
- External credits.  The GOR must finance the rest of the 
motorway through commercial loans and the GOR has been 
reluctant to take on this debt, because it will count 
against the IMF-mandated limits on state debt.  After much 
prodding from Bechtel and Post, however, the Finance 
Ministry is working on a syndicated loan package for 100 
million euros.  This money, however, will probably only be 
available, in the best of circumstances, in late July or 
August. 
 
Increasing Pressure, Increasing Frustration 
------------------------------------------- 
4. (SBU) Post for many months has been working closely with 
Bechtel representatives to get the project on track.  But 
just when everything seems to be working, the GOR reverts to 
historic bad habits that include ignoring Bechtel's repeated 
requests for meetings to discuss the project, repeating 
vague assurances of payments that then do not materialize 
and indulging in round-robins of blame-shifting to other 
ministries or to the IMF. 
 
5. (SBU) Post had hoped that a breakthrough had come after 
President Basescu's visit to Washington this spring and his 
assurances that he would support the project.  Indeed, small 
payments were made and some movement on outstanding issues 
did occur.  But another lull came later in the spring. 
Similarly, Post was hopeful that the project would start 
moving in the right direction after Commerce Department's 
Assistant Secretary Lash, on May 12, received assurances 
from President Basescu that he would work to resolve issues 
related to the motorway.  However, little has happened 
positively since then. 
 
Bechtel's Work Shutdown Begins 
------------------------------ 
6. (SBU) With only a token payment of 10 million euros from 
the Transportation Ministry in sight (enough to pay some of 
Bechtel's local contractors), and after a very 
unsatisfactory meeting between the Charge and Bechtel's 
London-based representatives and Minister of Transportation 
Dobre on June 3 (obtained only through the direct 
intervention of the Embassy with the Prime Minister's 
Economic Advisor), Bechtel has stopped work on the motorway 
and is sending home its Romanian contractors and workers. 
Subsidiaries were told to cease work yesterday, June 2nd, 
while direct hire local employees were mostly told to go 
home today, June 3rd.  Bechtel is complying with all legal 
requirements in this procedure and will continue to pay 
workers three-fourths of their salary while they are in 
forced work stoppage.  Bechtel will perform no more roadwork 
without substantial payments, although minor ancillary work 
on archeological and environmental projects will continue 
for the time being. 
 
7.  (SBU) Both Embassy and Bechtel urged the Transport 
Ministry and earlier, the PM's economic advisor, to improve 
communication between government bodies required to 
coordinate on funding projects and to exercise political 
will to take on board necessary external financing.  In all 
meetings, GOR reps eventually ducked behind the IMF, 
claiming that the strict 0.7 percent of GDP deficit target 
set by the IMF prevented the GOR from expensing the project 
at a more rapid rate - either through straight budgetary 
outlays or loans.  They also noted that massive spring 
flooding (still affecting parts of western Romania) made it 
incumbent that the government maintains budgetary reserves 
for emergency relief and infrastructure repair. 
 
Comment 
------- 
8. (SBU) The current GOR continues to behave as if Bechtel 
will continue to absorb operating expenses for at least some 
additional months while external credits and an EXIM loan 
are put in place.  Bechtel, under edict from home office, 
has simply refused to play along any longer.  The shut down 
of the works now taking place should serve to disabuse the 
GOR of the idea that the free lunch will continue 
indefinitely.  Bechtel needs to meet operating expenses in 
order to start up again. 
 
9.  (SBU) Post recognizes that recent flooding in the 
western areas of the country has caused unforeseen budgetary 
strains for the GOR.  Nonetheless, the chaotic nature of the 
GOR's decision-making process and traditional Romanian 
penchant to "put off until tomorrow what you can get away 
with" indicates that only the squeaky wheel here will get 
the grease. 
 
10. (SBU) Post recommends high-level State Department and 
Commerce Department intervention with the GOR to express 
concern that the project is still in danger of stalling 
despite assurances from the highest levels of the GOR that 
the motorway contract is legal and binding.  Post also 
suggests that the USG should make the GOR aware of the 
damage it will cause to its own image as a business-friendly 
country if the motorway is stopped for even a brief time due 
to inability to pay.  Finally, we also recognize that the 
GOR does not want to challenge the IMF with a request for 
further flexibility, even though a relaxation of the deficit 
target to take flooding damage into account would be a 
useful means to spur the GOR to think about moving ahead 
with truly desirable infrastructure projects. Post believes 
that serious discussions with the IMF, by the USG and GOR, 
are in order. 
 
DELARE 

            
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