Rising costs squeeze road construction projects

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Road construction works are continuing on Latvian roads, despite sharply rising costs in the construction sector, reports Latvian Radio. 

However, while most projects are continuing as planned, others are being put on hold as they become too expensive to complete.

According to Latvian Radio last week repair or construction work was taking place on 77 sections of road.

So far, only five agreements signed by Latvijas Valsts Ceļi (Latvian state roads, LVC) have been terminated due to price increases, but the remaining agreements are also being reviewed, and the average price increase of contracts is running at around 15%.

State-owned company LVC manages more than 20,000 kilometers of state roads, administers road financing and organizes procurement contracts. Anna Kononova, a spokesperson for the company, says that works on more than 100 road sections were planned for this season, but not all will proceed as a result of rapidly-rising costs.

"Currently, road construction works on the state road network have been started in more than 70 locations.  More than 100 locations were planned, but, of course, the situation with the increase in construction costs is likely to lead to some adjustments in these plans," Kononova said. "This situation is changeable, but we hope that most of this year's plans will be achieved,” she said.

According to Andris Bērzinņš of industry body Latvijas ceļu būvētājs (Latvian roadbuilder), which unites the 15 largest road and bridge builders in Latvia, prices for bitumen have increased by 39% this year, and prices for the metal needed for bridges, tunnels and overpasses have also risen sharply. On top of that, energy and fuel prices have also risen, placing severe strain on builders' profit margins in contracts already concluded.

Latvian Radio reports that signatories of both sides of contracts are showing understanding and a willingness to comprosmise. As early as April 5, the government agreed that in connection with the rise in prices of construction raw materials and supply disruptions caused by Russia's war in Ukraine, it will be able to review contract prices for public infrastructure projects and extend construction deadlines if necessary. 

The Ministry of Economics is responsible for the regulation of this construction, and thus the Ministry of Economics is also working on rules that will further provide for indexation in construction contracts on the part of public contracting authorities, Kononova points out.

Bērziņš agrees that as it is not clear what will happen to prices in the future, indexation of contracts must be a long-term solution.

"All the solutions that have been reached this year are short-term solutions for this year. And the question is what will happen in the coming years if there are still any price fluctuations up or down," he says.

The largest road construction works should take place this year and next as planned: on the Ķekava bypass, repair works will continue throughout the summer in the section of the Ventspils highway from Kūdra to the Smārde turning, and in the section of the Jelgava highway from Rīga to Jaunolaine.


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