The big interview: On the road to success

With Skanska’s EVP for Central and Eastern Europe, Roman Matkiwsky

Infrastructure success in Central and Eastern Europe, says Skanska’s Executive Vice President for the CEE region Roman Matkiwsky, is all about creating value through partnerships. “There is a massive need for infrastructure in the countries that have recently joined the EU,” he explains. “I’m looking forward to building the knowledge of public-private partnerships in these markets.”

Born in Canada of Ukrainian and Polish parents, Matkiwsky joined Skanska’s Infrastructure Development Group at the beginning of November 2005 to oversee and develop the Central and Eastern Europe markets. He joined the construction giant from Zenith Capital, a private equity and corporate advisory business for CEE he founded in 2000, and prior to that worked for Société Générale Emerging Europe Asset Management overseeing their CEE private equity portfolio. He also spent time at the European Bank for Reconstruction and Development, where he was involved in numerous projects in CEE infrastructure development, general industry as well as the financial sector. His achievements included overseeing the development and management of a greenfield bank, assisting in the modernisation of Kiev’s airport, structuring and financing a complex shipping transaction, as well as leading the restructuring of a large CEE IT company.

Here he speaks to EU Infrastructure’s Senior Editor Ben Thompson about PPPs, project development and how his company is working to meet the significant infrastructure needs of Central and Eastern Europe.

EUI. Despite a number of high profile, successful transactions, the public-private partnership market in Central and Eastern Europe has not yet had the dramatic impact its potential suggests. What have been the key challenges for PPPs in the past, and how are these now being addressed?
RM. I would say that in Central and Eastern Europe over the last couple of years, there have been three main reasons why public-private partnerships have failed to develop as they should.

The first is government elections. Many of the countries in this region have recently had local or national elections – Hungary about a year and a-half ago, the Czech Republic, Slovakia and Poland about a year ago – and when these countries have changes of government, it’s not just the political leaders that change; a lot of the people change in the government ministries, too. So in many of the countries, all the way down to the secretarial level, people are changing, and it sometimes takes months (years, even) for the new team to stamp their authority on things.

The next thing to think about is that not all of them are majority governments. In only one or two countries is there a clear majority from the ruling party (Slovakia being one example). Poland definitely has a minority government; the ruling party in the Czech Republic has a fragile majority in Parliament at the moment, and it’s a similar story in Hungary. And because they are minority governments, they have difficulty in implementing huge changes and getting sweeping reforms pushed through as quickly as they would like.

The third issue is the desire for further integration within Europe – primarily joining the Euro – and this has been both a challenge and a positive driver in terms of infrastructure development. Some countries , like Slovakia, have a definite timeframe for joining and therefore a lot of their budgetary issues are tightly aligned with this process. Meeting the Maastricht criteria is a key element for them, and as a result taking on massive infrastructure projects has been difficult. However, this does mean that PPP has now become a very viable alternative for them in terms of project financing. Because of the political environment, the people in charge are recognising that they might only have a short timeframe to get significant infrastructure projects pushed through and will therefore have to move much more quickly than they have done previously. PPP provides that speed and that ability, and what you’re seeing is the region slowly waking up to that realisation.

On top of that, there are a number of country-based issues. For instance, Poland has been awarded the UEFA European Championships in 2012, which will require massive infrastructure development. Not just roads, but all types of ports, airports, rail networks, hotels – everything to be able to match that challenge. The infrastructure investment needs in Central and Eastern Europe is in the hundreds of billions of euros just to get to the European average, so it’s a massive challenge.

EUI. And I guess not all those investment needs can be met by the public sector, so they have to turn to the private sector…
RM. Exactly. For example, in Slovakia this focus on adopting the Euro is really bringing some discipline to their infrastructure development decision-making process. They need to be able to achieve a certain level of infrastructure, they can only achieve so much from the state debt, so much from European funding, and so they need to look elsewhere –primarily to the private sector.

And we’re seeing similar stories across Europe. Because these countries are allocated a portion of the EU grant funding from the Cohesion and Structural Funds, and because the current European budgetary process runs from 2007-2013, up until recently they have still been negotiating what funding they will get and which projects they will be able to finance with that money. It’s only now starting to become clear which projects they will be able to finance, and if they can’t fund them via grant needs and they can’t fund them via their budget, PPP then becomes the best viable alternative for them.

EUI. So how are companies such as Skanska well-placed to capitalise on the infrastructure needs of the region?
RM. Well, there are a number of contractors in Central and Eastern Europe that are active. Skanska is one of them, but we’re well positioned in Poland, where we’re the top contractor; the Czech Republic, where we are also the number one contractor; and Slovakia, where we have a very strong presence. These are our home markets.

I think we are very well placed because we have a global business focused on PPP infrastructure. We have been involved in a number of significant projects – from toll roads in Chile, to hospitals in the UK, to schools and other municipal infrastructure projects across Europe – so we believe we have good experience running very significant infrastructure projects. We look forward to being able to meet the challenge that is now being set by governments across the region in terms of strict, very aggressive goals for trying to meet their project criteria. A major challenge is the timeframe in which they want to finish these projects, and this is something we in the private sector now need to help meet.

EUI. And so are there any regional projects that you’re working on at the moment that you’re particularly excited by?
RM. Well, there’s a number of projects that are ongoing. In Poland we have the A1 Motorway, from Gdansk down to Torun. The first phase, a 90km stretch of road between Gdansk and Nowe-Marzy, is currently in construction and is more than halfway complete; we aim to deliver that in late-2008, on schedule. We are even looking at potentially opening some sections early, but that is still work in progress. In other regions we are looking to get involved in projects that the local governments have been talking about for a while – in the Czech Republic, Slovakia and Hungary too.

EUI. Let’s focus on the A1 Motorway development in Poland. What kind of challenges has this presented, and how have you overcome these challenges?
RM. Well, the development of the A1 project has presented a number of significant challenges – not least because of its troubled gestation. It took about seven to eight years from awarding of the tender to the consortium to the financial close, and during its development period there have been seven different governments and seven different ministers of transport. This has made the project quite challenging from a management perspective.

Now however, we’re working towards delivering on that project and being one of the prime deliverers of motorway in Poland. Last year, Poland delivered approximately six-and-a-half kilometres of new motorway, so there’s not exactly been much progress in terms of actual delivery of new road. That’s part of the challenge, and is one of the reasons I think the private sector has so much to offer through these PPP projects; with new elections coming up, we hope that the government will continue the development of PPPs in Poland. We are certainly working hard to deliver our road, and that’s the challenge for us at the moment, regardless of any external factors.

EUI. Obviously the political will needs to exist in the first instance for PPPs to be successful. But is there more that the private sector can do to make these projects a success and to really promote the benefits of PPPs across the region?
RM. I think the private sector has been successful in the projects it has been able to deliver so far. The proof is always in the pudding, and once we start delivering projects on budget and on time, the public will see the value and get behind us. For example, in Poland the local region is very supportive – everyone wants to see this road constructed on a PPP basis because it allows it to be done quickly, efficiently and on time.

I think actually seeing projects being delivered successfully is what will lead to the increasing uptake of the PPP model in this region. It also provides a test for the local governments – they’ve all been talking about various projects for years that, for the reasons already outlined above (along with others too numerous to bring into this discussion), have been delayed or have been slow in delivery. I think as long as the contractors in the private sector can keep on delivering on their promises, it will really help in terms of convincing people in the region as to the value of large infrastructure PPP projects.

EUI. You mentioned the upcoming European championships in Poland in 2012. So what sort of infrastructure needs must to be met in order for that tournament to be successful? What remains to be done, and what do you hope Skanska’s role will be in that development?
RM. First of all, they need a major football stadium, which I think is still a challenge for them. Second – and more importantly – is the infrastructure to get people around the country to the five or six venues where the games are being played. And that means roads, it means rail, it means airports – all types of public infrastructure to improve the movement of people around the country. There’s also additional infrastructure needed in the cities to accommodate the large crowds expected, be it hotels, be it car parks, be it buses and things like that. So there’s a massive amount of infrastructure that needs to be built.

Our strength is obviously in road construction, as well as delivering a lot of the social infrastructure such as hospitals, schools, power plants, and other such developments; we’re also looking at some rail projects in the region.

EUI. Okay, so when does the tendering process begin for those projects? What stage are they currently at?
RM. There are currently a number of projects ongoing. Is there a specific program of projects for 2012? Not yet, but they are ongoing in terms of upgrading the transportation infrastructure, with improving the national road network being one major element. The cities and the municipalities are starting to get their heads around PPP and now want to run their own programs at a municipal level, so that is slowly coming together too.

EUI. An increasing number of companies are championing the importance of sustainable or environmentally friendly practices to their business. How is Skanska building a greener focus into its design and construction processes, and reducing the environmental impact of large infrastructure projects?
RM. Well, this is something that is integrated into all our projects. We take sustainability very seriously; it’s one of the pillars of our corporate and social responsibility programme, and we’ve built it in to our approach to how we develop our projects –everything from the sourcing of our materials to the execution of the project itself. This is something I know will feature heavily at our upcoming management meeting, and there is a high level of importance attached to sustainability because we look at things as long-term investors. So therefore, sustainability is part and parcel of everything we do.

EUI. And so looking forward over the next 18 months, what will be the main projects that you’ll be involved with in the region and what will be your main areas of focus?
RM. Well, I would say roads and motorways is probably the biggest sector in this region, and obviously we still have the A1, which will continue to be a major project for us. In addition to that, we hope that there will be more programs in Poland, but I also see a number of opportunities in Slovakia, where the Prime Minister has, in the last two months, said that they want to complete all the unfinished sections of the D1, which is the motorway from Bratislava to Košice. It’s the main route linking the western side of Slovakia to the east and represents a massive undertaking. The government has committed itself to that development, so I can see a number of projects coming up there.

The Czech Republic has been talking about developing a number of motorways and other projects that we are obviously watching with interest. We anticipate an announcement regarding this work to be made sometime next year, and it’s a similar story in Hungary, which has been successful in a lot of its earlier PPP projects. The Hungarians are very well trained and experienced in running PPP projects, so we expect there’ll be further opportunities in Hungary too.

EUI. I know that one huge area of focus for the European Commission in the last few years has been the concept of the Trans-European Network; and obviously as a big infrastructure company that’s focused on roads, this must be of interest to you. What are the main challenges in terms of realising this goal of the Trans-European Networks, and how can a firm such as Skanska be involved in helping to meet those challenges?
RM. Well, all these major motorways that I’ve talked about – be it the D1 in Slovakia, or the D3 in the Czech Republic, or the M6 in Hungary, or the A1 and A2 in Poland – they’re all part of the Trans-European Network. So these are high priority, major networks that are being developed by these countries. Skanska has worked on a lot of Trans-European Network projects, and we understand the needs of being able to deliver them on time, on budget, and to full specification. We’ve had experience in the Nordic countries and others in delivering these projects, so I think we’re well positioned to be able to meet the individual governments’ needs, and understand the sensitivities of working in different European countries and the challenges that poses.