January 30, 2013 / 3:41 PM / 7 years ago

UPDATE 2-EU freezes 900 mln euros to Poland pending fraud probe

* Commission said hopes to unfreeze money soon

* Poland has charged road contractors with price-fixing

* Ministers say EU reaction too harsh (Adds EC spokeswoman on further road financing in para 14)

By Adrian Krajewski

WARSAW, Jan 30 (Reuters) - The European Union has frozen about 890 million euros ($1.20 billion) in aid earmarked for building Polish roads because of a suspected fraud by contractors, a Commission spokeswoman said on Wednesday.

The suspension, which is likely to be only temporary, comes at an awkward time for the Polish government which is already dealing with a sharp economic slowdown and thousands of lay-offs in the construction industry.

Poland’s Deputy Minister for Regional Development, Adam Zdzieblo, said the decision was “completely incomprehensible” and based on questionable assumptions.

Polish officials said they were doing everything they could to root out the suspected fraud.

The Commission said it acted after Poland launched a criminal investigation into allegations there was a price-fixing cartel involving companies bidding for road-building contracts.

Eleven people have been charged, including construction firm executives and one former director at the state road agency, GDDKiA.

A spokesman for the Warsaw prosecutor’s office said 10 Polish and foreign executives could face up to three years in jail on charges of colluding to divide three road building contracts among their companies.

One of the executives is also accused of giving an expensive fountain pen to the former agency official, who is suspected of telling the companies how much it was willing to pay for the contracts.

Both face up to eight years in prison on bribery charges.

The spokesman declined to name the people involved.

Poland is the biggest recipient of European Union funds, much of it spent on improving creaking infrastructure left over from Communist rule. Poland has generally been seen in Brussels as a model for the effective use of EU development aid.

“The Commission has prudently interrupted payments until the situation is cleared and the scope of the problem is established,” said Shirin Wheeler, Commission spokeswoman for regional policy.

“We would like to see the payments resumed as soon as possible and are hopeful that this will be the case,” she said in a statement emailed to Reuters.

Wheeler added later on Wednesday that around 4 billion euros of funds earmarked for ongoing road projects in Poland could also be blocked in the future, if the situation was unresolved.

Zdzieblo, the Deputy Minister for Regional Development said: “We believe the Commission will withdraw its decision.”

Construction projects have played an important role in sustaining economic growth, especially in the run-up to last year’s Euro 2012 soccer tournament, co-hosted by Poland and Ukraine, when the country was in a frenzy of building roads and sports stadia.

But spending on big infrastructure projects has tapered off since then, contributing to an economic slowdown. Dozens of construction firms have declared bankruptcy and many more have laid off workers.

In a separate case, the European Commission is investigating the way the road agency administered construction contracts that were partly paid for out of EU funds.

That investigation was launched after foreign contractors alleged that GDDKiA owed them millions of euros in unpaid fees for sections of highway they had built. The agency said it had done nothing wrong.

$1 = 0.7420 euros Additional reporting by Chris Borowski and Sam Harcourt; Writing by Christian Lowe; Editing by David Cowell and Rosalind Russell

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