Cartel Agreement of the Road Lobby Cost the State Two Billion Euros

Due to cartel agreements and the distribution of jobs among domestic construction companies, the price per kilometer of Slovenian roads is among the highest in Europe – it has now risen to 10.3 million euros. In comparison, in Croatia, it is 6.8 million per kilometer, and in Italy, only 2.7 million euros.

Written by Dragoslav Košarić
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The revelation of the scandal that domestic construction companies in Slovenia have been colluding on prices and dividing jobs in highway construction for 12 years has echoed like a shock. At a time when the Slovenian government is seeking the best solutions to exit the financial and economic crisis by trimming all items in the state budget, builders have raised the cost of highway construction by about 30 percent through cartel agreements, thus lightening the state treasury by approximately two billion euros. Prime Minister Borut Pahor stated in the Slovenian Parliament that he was not surprised by the discovery of the construction cartel and that his government would check whether the legal solutions are compatible with the laws in other EU member states. He intends to improve the performance of supervisory institutions as he plans to introduce a single market regulator and prepare a new systemic law on public procurement. However, it is strange that this is a major news for the government. 

Back in February 2008, the government of Janez Janša launched a major police investigation called ‘Clean Shovel’. At that time, the heads of the three largest Slovenian construction companies, Ivan Zidar (SCT), Hilda Tovšak (Vegrad), and Dušan Črnigoj (Primorje), were taken into custody on reasonable suspicion that they had colluded on who would be awarded the construction of a hundred-meter control tower at Ljubljana Airport ‘Jože Pučnik’ near Brnik. The project was worth 20 million euros. A total of 29 house searches were conducted across the country during the extensive police operation. At the end of 2008, the left won the parliamentary elections, and Borut Pahor became Prime Minister. Coincidentally or not, with the change of government, media stories about the controversial cartel agreement among construction companies ceased. To date, no charges have been filed against participants in the alleged cartel agreement in ‘Clean Shovel’.

Zemon Cartel Agreement
Slovenian construction companies signed a cartel agreement on the division of the pie – the state program for highways – in 1998 at a secret meeting in Zemon near Ajdovščina. According to the Zemon Agreement, there were large and small coalitions. The large coalition included SCT, Primorje, Gradis, and Kraški zidar, while the small coalition included CM Celje, CP Maribor, CP Novo Mesto, and CP Ljubljana. Within the large coalition, the largest portion of the pie of the state program for highways was allocated to SCT (40 percent), while 21 percent went to Primorje and Gradis, and 4.5 percent to Kraški zidar. The remaining portion was divided within the small coalition. The builders also agreed on who would renovate the old highways: the small coalition received 70 percent of the route renovations, while 30 percent of the renovations of structures along the route were carried out by the large coalition. The signatories of the Agreement committed to aligning their positions before submitting bids and ‘acting in coordination’. Interestingly, in the seventh point of the Agreement, the first man of SCT Ljubljana, Ivan Zidar, was appointed as the supreme arbitrator in case of disputes. His decision in the case of a dispute was final.
In Slovenia, from 1994 to 2009, 513 kilometers of highways were built, which, along with those to be built by 2013, will cost 6.3 billion euros. Due to cartel agreements, the price per kilometer of Slovenian roads is among the highest in Europe. Interestingly, the price per kilometer of highway increased fourfold from the projected 2.65 million euros from 1994 to 2008, reaching 10.3 million euros. According to research data from the Czech institute IBR Consulting, only Hungary has such a high price among neighboring countries. In Austria, the price is below 10 million, in Croatia it is 6.8 million, and in Italy, only 2.7 million euros per kilometer. 

Croatian Model – Unacceptable
Speaking in Parliament about the state budget for 2006 and the method of constructing Slovenian highways, Milan M. Cvikl, who recently left his position as Secretary General of Prime Minister Borut Pahor to take on the role of European Auditor, also pointed out the following:  – Slovenia decided in 2004 that it would predominantly build highways with domestic construction operations. That is why we said we would do it a bit longer, not in three years as the Croats did. We opted for construction with domestic operations, and the money comes from three sources: the fuel tax (Slovenia still had a national currency at that time, note a.), borrowing, and tolls. For the Minister of Economy Matej Lahovnik, the most shocking aspect of the cartel agreement is that Janez Božič, the former director of the state company Dars, responsible for the construction and maintenance of highways, was aware of this story.

Božič left that position to become the Minister of Transport. Lahovnik believes that the tentacles of the cartel most likely reached the very political and state top and says that it needs to be determined whether, and if so, how, the cartel influenced the representatives, i.e., whether construction companies were granted various benefits such as cheaper real estate purchases. Due to the cartel agreement scandal, Minister Lahovnik considers the call for builders to have the state assist them in coordinating their appearances in foreign markets – absurd. According to current Slovenian laws, a penalty of up to ten percent of the annual turnover of the entire group or holding, not just the parent company, is prescribed for this criminal offense. The Association for the Protection of Competition intends to complete the investigation by the end of the year, which could mean that, along with the crisis in construction, companies from the cartel will also lose an additional 10 percent of last year’s turnover.