98058 2/26/2007 13:24 07BUCHAREST212 Embassy Bucharest CONFIDENTIAL 07BUCHAREST144 VZCZCXRO7640 PP RUEHAG RUEHROV DE RUEHBM #0212/01 0571324 ZNY CCCCC ZZH P 261324Z FEB 07 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC PRIORITY 6119 RUCNMEM/EU MEMBER STATES COLLECTIVE INFO RUCPDOC/DEPT OF COMMERCE WASHDC C O N F I D E N T I A L SECTION 01 OF 03 BUCHAREST 000212
STATE FOR EUR/NCE - AARON JENSEN
E.O. 12958: DECL: 02/25/2017 TAGS: ECON, ENIV, PREL, RO SUBJECT: AMBASSADOR'S MEETING WITH TRANSPORTATION MINISTER REGARDING BECHTEL HIGHWAY CONTRACT: SAME OPERA, DIFFERENT SINGERS
REF: BUCHAREST 0144
Classified By: John Rodgers, Economic Chief, for reasons 1.5 (b) and (d)
1. (C) Summary: Bechtel's efforts to build a highway in Romania are still plagued by Romanian government obstructionism and inability (or unwillingness) to understand the basics of the contract. The Ambassador's most recent meeting with the Minister of Transportation revealed that some of the Romanian complaints against Bechtel may exist only in his mind and in that of the Prime Minister. We fear Bechtel may continue to suffer the slings and arrows of outrageous governmental "oversight." The Embassy, too, may be in danger of becoming a punching bag, furthering the tactical political ends of the Prime Minister in showing his "toughness" on a contract with a U.S. company, or ingratiating himself to the European Union, which has always opposed the Bechtel contract. End Summary.
2. (C) After a very blunt statement by PM Tariceanu to the Ambassador last week (see Reftel) that the GOR was contemplating breaking the multi-billion dollar highway construction deal with Bechtel because of the American company's non-fulfillment of the contract, the Ambassador, with Bechtel's concurrence, sought a meeting with Transportation Minister Berceanu to elicit his views on the problems related to the construction project and seek a resolution of the outstanding disagreements between the GOR and Bechtel. Embassy notes that the PM later went public with his dissatisfaction about the Bechtel contract, citing his conversation about Bechtel with the Ambassador, which the Embassy had assumed was confidential in nature.
3. (C) Bechtel representatives and Econ Chief accompanied the Ambassador to the meeting on February 16, and Minister Berceanu convened his ministry advisors and staff, including officials of the National Road Authority, which is the "contracting party" and main GOR partner for Bechtel. Minister Berceanu began the discussion by commenting that he has put a lot of emphasis on developing plans for building highways in Romania. This includes using EU funds. He has an ambitious agenda for construction. He wants roads built in Romania. Minister Berceanu then launched into a criticism of the slow pace of work on the Bechtel project. He said that, while it was understandable that there had been some change in the schedules due to the re-negotiation of the contract last year, he was concerned that the agreed-upon completion date of 2013 was now unattainable. Berceanu continued his rather lengthy exposition of the roadway,s problems by claiming that Bechtel had not spent all the money budgeted in 2006, and he therefore doubted that the company could spend all the money budgeted for 2007 (Euro 120 million). Berceanu asked how, at this pace, could the road possibly be finished by 2013? He said that the GOR needs to know in advance, even a year in advance, how much work will be done so that the GOR can come up with the funding. His basic demand appeared to be that Bechtel should assure him in writing that it could finish the project on time in 2013, while Romania would guarantee the funding for the work.
4. (C) The Ambassador, after coordinating his message with Bechtel representatives, succinctly laid out the reasons for coming to see the Minister with the Bechtel representatives: - He noted that he had received a rather sharp message from the Prime Minister and had committed to the PM to meet with Berceanu to understand the specific problems that the GOR has with the Bechtel highway contract. - Although he was not a negotiator for Bechtel, he wanted to find a way forward to get the deal on track. - He wanted to get the two sides together to work through the problems. - He also noted, however, that the GOR must give Bechtel what it needs to complete the work, and this included material, land and money. - Finally, the Ambassador noted that Bechtel has told him the work for this year was well ahead of the work plan and that Bechtel was very confident of its ability to finish the project on time.
5. (C) In the following back and forth between Minister Berceanu and the Ambassador and Bechtel representatives, it became quickly apparent that Minister Berceanu was not well informed about the contract or its actual contents or obligations. Conversation among the Romanian government representatives and Berceanu (in Romanian) to clarify points of arguments and provide basic information among themselves about the contract actually took as much time in the meeting
BUCHAREST 00000212 002 OF 003
as the exchanges between the Romanians and the Americans. Minister Berceanu was visibly (and audibly) impatient with his staff and seemed confused.
6. (C) At this point, Bechtel did not need to go on the attack, since the Romanians had already punched holes in their own arguments and complaints. Bechtel graciously offered to review the plans for the roadway, in particular to revise the schedule of completion of specific sections of the roadway, in order to meet the concerns of the Romanians. Bechtel told the Minister that it was only doing what the revised contract had stipulated. Bechtel also reminded the Romanians that they had taken from Bechtel the responsibility for designing the highway in the last revision and without plans, Bechtel couldn,t work.
7. (C) At the end of the meeting, a seemingly embarrassed Minister Berceanu apologized for the confusion on his part and among his staff regarding the contract. He said he wanted to be &personally and directly8 involved in the project. Saying in English what he had told his staff in Romanian, Berceanu said that he was responsible for making the project work. He offered to meet with Bechtel soon to discuss more technical issues. The Ambassador concluded the meeting by asking Berceanu to come to him if there were problems with the contract so that they could work them out without letting them fester into resentment (or messages of discontent from the PM).
8. (C) Although Embassy had perceived the meeting as a positive step forward, a subsequent phone call between the Ambassador and the Prime Minister revealed that the PM remained dissatisfied with the Bechtel contract and the GOR was continuing to demand that Bechtel revise its contract and agree to pay penalties for late fulfillment of the contract. The PM asked that the Ambassador meet with the PM and Minister Berceanu without Bechtel in the room as early as possible. A Bechtel representative told Embassy on February 23 that a high-level Liberal Party (PNL - PM's party) member had warned him that the PM was going to use the next meeting with the Ambassador to criticize the project yet again and to impose "severe measures."
9. (U) In the past couple of days, the real intentions and thinking of the GOR toward the contract have become even murkier through further public utterances of Minister of Transportation Berceanu. Press has quoted the Minister as reiterating earlier statements that he realizes the GOR cannot get out of the contract, but that it is still bad for Romania. Other press items mention that Bechtel is negotiating with the GOR to realign the work schedule and make proposals for the funding needed. Meanwhile, the Deputy Minister of Transportation this week told the press that the highway would be delayed by a year (until 2014) and Bechtel was to produce plans to reorganize the construction schedule.
10. (C) The meetings with the Prime Minister and Minister of Transportation, the subsequent telephone conversation between the PM and the Ambassador and the rumors circulating about the PM's continuing anger at the contract could simply be construed as more examples of how disorganized and ill-informed the GOR decision-makers are in their approach to project management. If this were truly the case, the Ambassador might be able to help Bechtel to work through the misunderstandings and mitigate the effects on the Bechtel project of the typical "stove-piped" management within the GOR, in which one ministry does not communicate with another at the mid-level. The GOR, however, has not taken repeated advice from Bechtel and the Embassy to create an integrated team of professionals to manage the project. Unfortunately for Bechtel, this makes it, at best, the "guinea pig" for large-scale contracts in Romania and it will continue to suffer through the experiment.
11. (C) Unfortunately, other forces may be at work to make Bechtel and the highway project stumble. The Prime Minister's decision to go public with his latest criticisms about the Bechtel contract and his request to meet yet again privately with the Ambassador about the contract appear to be an effort to put the onus on the U.S. side to come up with solutions that seem mostly to be fabricated by the GOR. The PM may also be using the issue to punish his coalition partners (Democrat Party - PD) which supports the highway since it goes through the PD political stronghold of Cluj, whose mayor, Emil Boc, is the head of the PD. Given the level of infighting and skullduggery in Romanian politics at
BUCHAREST 00000212 003 OF 003
the moment, Embassy cannot rule out these darker scenarios. In addition, the pro-EU faction inside the GOR may want to demonstrate its fealty to the EU on this contract issue, perhaps even scheming to reopen the bidding on the highway to allow European companies to bid.
12. (C) Bechtel is still concerned about money flow from the GOR (the project must be financed per GOR decision solely with external credits). Unless the issues of money and timely payments can be worked out, Bechtel may soon be forced to stop work yet again. Another deadline is looming for the GOR to pay a substantial sum to Bechtel (early March). If the money doesn,t come, then the machines will stop. This would provide yet another (unjustified) excuse for the GOR to snipe at Bechtel, or even worse, to abrogate the contract.
13. (C) Embassy will continue to monitor the situation closely and will provide all appropriate assistance to Bechtel to ensure that the contract is successful. Embassy is inclined, however, to decline any meetings with GOR officials unless Bechtel officials are also in the room so that we can reinforce the message that the GOR must negotiate directly with its business partner, Bechtel. Embassy will also reiterate, in public if necessary, that it is not a party to this contract, but the USG firmly supports the sanctity of legal contracts as a bedrock of the free market system. TAUBMAN