UPDATE 1-Moscow and Kiev head for $3 bln debt showdown in English court
* Ukraine sold Russia $3 bln bond weeks before government change
* Executives accused of price-fixing on EU-backed road projects
* EU funds to Poland worth up to 5 bln euros are at stake
* Commission wants to know if fraud is more widespread
* Prosecutors cite wiretaps of executives colluding on bids
* Poland says has adequate safeguards to prevent fraud
By Chris Borowski and Adrian Krajewski
WARSAW, Feb 1 Polish prosecutors have charged executives who worked for nine construction companies, including several multinationals, of illegal price fixing to win European-funded road-building contracts, court documents seen by Reuters show.
The European Commission this week said it was putting on hold transfers of money due to Poland for road projects, which could add up to about 5 billion euros, because it wants assurances the alleged fraud could not be repeated on other projects in Poland, the biggest recipient of European Union funds.
The firms whose current or former executives have been charged include some of Europe's biggest builders or their subsidiaries: Austria's Strabag, Portugal's Mota Engil , and units of Spain's Ferrovial, and France's Bouygues Construction and Vinci.
When contacted by Reuters, Strabag and Mota Engil denied they were involved in price-fixing. Bouygues, Vinci and the Ferrovial unit declined to comment on whether they were involved. Several of the firms said the executives concerned were no longer with the company.
The investigation was launched three years ago. Media reports at the time mentioned some executives had been questioned. Now, for the first time, court documents provide a complete picture of the prosecutors' allegations.
The price-fixing which, according to prosecutors' allegations, the executives engaged in was on a scale and level of sophistication beyond what was previously believed to be at issue - raising the question of whether there is more possible fraud still to be uncovered.
Prosecutors have charged 10 current or former executives with nine firms, and a man who at the time of the alleged price-fixing was a senior official with the Polish state road-building agency, GDDKiA, but has since left.
In documents submitted to court, prosecutors allege that one executive bribed the GDDKiA official with a gold-embossed limited edition fountain pen, which was worth $3,800 and came in a glass case shaped like the ancient Lighthouse at Alexandria.
Prosecutors say they recorded phone conversations in which, they said, executives passed on sensitive bid information to executives from firms they should have been competing with to win road-building contracts.
"It's all about, how to say it, reducing the competition," the documents quote an executive from one of the bidding firms as saying in a phone conversation.
Poland's government and the road agency say their safeguards against fraud are adequate and that the case under investigation was an isolated one that they stamped out swiftly. It says the European Commission's reaction was out of proportion.
"The Polish system of choosing projects (and) naming contractors is working absolutely fine, and it's Poland which is the victim in the case," a spokeswoman for the state road agency said in a statement emailed to Reuters.
However, the scale of the alleged collusion, and the allegations of involvement by executives from major firms with dozens of projects in Poland, have prompted EU officials to ask if the alleged price-fixing was happening on other contracts, too.
"We need to establish the extent of the problem - to reassure ourselves and the Polish authorities that EU financial interests are being properly safeguarded," said Shirin Wheeler, a spokeswoman for the Commission.
Poland each year receives huge sums in EU aid - the figure was 10.9 billion euros ($14.9 billion) in net income for 2011 alone - and a large proportion of that is spent on upgrading the creaking road network, a legacy of Communist rule.
The Polish government is viewed in Brussels as one of the most successful and efficient of the ex-Warsaw Pact members at using EU development cash, known as "cohesion funds". But the fraud investigation could dent that reputation.
The timing is awkward for Poland because next week EU leaders will gather for a summit to decide on size of the bloc's next seven-year budget. Warsaw will try to resist pressure from other states for the budget to be shrunk.
"We have the EU summit ... and this creates a bad climate. This makes people reluctant to approve Polish requests. We want to keep cohesion funds at the desired level," Polish Deputy Prime Minister Janusz Piechocinski said on Friday.
The documents setting out the prosecutors' allegations were filed to the district court for Warsaw's Wola neighbourhood in December last year. They were seen by Reuters this week after a judge ruled they could be viewed by the public.
The documents state that, during questioning, the former GDDKiA official acknowledged he had committed the crimes alleged by prosecutors.
Prosecutors said one of the other executives charged, who at that time worked for Polish construction firm Przedsiebiorstwo Budowy Drog i Mostow w Minsku Mazowieckim (PBDM) admitted his guilt but later retracted the statement, while all the other suspects denied the charges.
Lawyers for the former GDDKiA official and three other defendants, two of whom at the time of the alleged price-fixing worked for Mota Engil and the one who worked for PBDM, did not respond to requests for comment. A lawyer for another defendant, who worked for Polish firm Mostostal Warszawa but has since left, declined to comment.
Pawel Broniszewski, lawyer for a suspect who at the time was a Strabag executive but has since left the company, said the prosecutors' case was based on a misinterpretation of phone-tap evidence.
He said executives had been feeding each other price information, but the numbers were false and designed to try to gain a competitive advantage. "It is not true that a price-fixing cartel was created," said Broniszewski.
But according to the documents submitted to the court by prosecutors, there was a price-fixing scheme.
It involved three consortia that should have been competing with each other for contacts to build two sections of the S8 highway, which links Warsaw to Poland's north-eastern corner, and a section of the A4, connecting east and west Poland.
Prosecutors allege they decided to divide up the contracts among themselves so each was assured of getting one.
The former GDDKiA official told an executive involved in the scheme that the budget for one contract was set at 700 million euros, prosecutors say.
Armed with that information, the documents say, executives agreed that one consortium would bid substantially below, ensuring they win the contract, while the others would effectively rule themselves out by bidding higher.
In one wiretap cited in the documents, the man who at the time was a Strabag executive tells an executive from Polish construction firm Mostostal-Warszawa in June 2009: "At this Hilton, there will be three rooms ... This room that I reserved for you at the Hilton, there are two rooms. You will have room number 698."
The room number, prosecutors say, was code for the lowest bid Mostostal Warszawa should lodge.
The Strabag executive is quoted as saying: "You know I can't talk openly because you know those sons of bitches are listening."
In the tender, Mostostal Warszawa bid 699 million euros, another group led by PBDM bid 703 million euros. The contract was awarded to a consortium including Strabag and Mota Engil, which bid lower than the others at 675 million euros.
Prosecutors allege that, under the price-fixers' plan, the companies that deliberately lost that contract were to have been allowed to win others. In the event, this did not happen because members of the consortia not taking part in the scheme did not play along.
A spokeswoman for Strabag said its manager who had been charged by Polish prosecutors had left the company earlier this month. Strabag "wasn't involved in any price-fixing or unlawful activity in relation to the S8 contract", and had strict rules on how contracts are implemented, she said.
The Strabag spokeswoman said the company had carried out an internal investigation, now completed, that did not reveal any violations.
A spokeswoman for Mota Engil Central Europe said neither the company nor any of its executives was involved in any way in price-fixing activities in Poland.
Ferrovial's Polish unit, Budimex Dromex, said a former employee was among those charged but had left the company years ago. "One has to remember these are cases against specific people, not their companies," a spokesman for Budimex Dromex said. He declined to comment when asked if the firm was involved in the activities set out in the prosecution case.
The Bouygues Construction unit whose executive or former executive has been charged is DTP Terrassement. The Vinci unit is Eurovia. Both parent companies, when contacted by Reuters, declined to comment.
A spokeswoman for Mostostal Warszawa said the executive named in the court documents left the company in March 2011. Asked if the firm was involved in price-fixing, she declined to comment. An employee at PBDM's office said no one was available to comment, and there was no response to questions sent to the company by email.
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