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Hidden pitfalls of road construction

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Hidden pitfalls of road construction

The Deputy Head of the Federal Road Agency spoke to Construction.RU on the peculiarities of land preparation for road construction.

Difficulties connected with territorial (land) issues often arise during the process of road construction and reconstruction. The problem of land buy-outs for transport construction may significantly increase the cost of the future road and delay the start of the construction. Due to this, road constructors can be taken to court or even made to move the construction to a new site. The Deputy Head of the Federal Road Agency, Dmitry PRONCHATOV, spoke to our journal on how to solve the problem.  

 

— Mr Pronchatov, where is the problem of land buy-outs the most acute?

  • The most difficult thing is the solution of land issues when a road is constructed in a densely populated area — for example, while preparing the infrastructure for the Sochi Olympics — so the land buy-out here significantly influenced both the cost of the construction and its terms.

A great number of land plots had to be bought out, and it was difficult sometimes to reach a mutual understanding with the owners: some did not agree with the buy-out price, whilst others refused to move.    

 

— And what should road constructors do if they do not manage to make an arrangement with the owners?

  — According to current RF law, if a land plot gets right-of-way in the process of the construction of roads and engineering objects, it is subject to withdrawal.  So, if one cannot make an arrangement with the land owner without going to court, the case will go to court.   

As a result, the court will make the owner cede the land plot, but this, of course, will impact upon the terms of the construction.

The mechanism itself for working with owners is as follows: we offer a land plot owner or user the opportunity to transfer the land to us for a definite price, the cost of the land being determined by an independent evaluator hired by the developer. If the price is good enough for the owner, we pay the money and take the land.

Sometimes we offer flats or similar objects in other places. The cost is calculated individually depending on the size of the plot, the level of improvement, the number of objects on it and their quality. Also, fruit trees growing on the plot are included.  

I do not know of cases when the price was lower than the market average. Neither do I remember people being offered low-quality housing. For example, in Sochi a new settlement was constructed for those who complained that they had nowhere to move to live, not far from their former housing.

Sometimes, due to tight deadlines, the owners were paid more than the market average, but still there were people who insisted on unreal prices. Because of their greed, a lot of criminal cases were initiated which influenced the terms of construction.

It should be admitted, however, that on the territory of the future road there were both shabby huts worth no more than 100,000 roubles and luxurious houses worth tens of millions.

 

— So, if there are many good quality houses in the place where the road is to be laid, their buy-out is the main expenditure?  

— Yes. In this case, buy-out expenditures will be immense. That’s why, when designing a road, the route is developed so that there are as few resettlements as possible. It often happens that the road becomes longer due to bypassing privately owned land plots, and more expensive in its construction, but overall it is cheaper because no resettlement is needed. The main economy is not so much money but time.

There are always people who do not want to move. So, if we have an opportunity not to rehouse people, we do not do so.

 

— But the solution of one land problem may generate another. Say the project includes the bypassing of private territories and the laying the road through a forest. There then arises the problem of designated forest concession from the forest fund (State Forestry) to the road constructors’ ownership, right?

— Yes, you are right, and it is a complicated issue, which takes time. To remind you, the forest fund is land protected by law, with a specific mode of use, preserving forests and natural reserves.  Construction work on these territories is strictly regulated by law.  

But there is a legal procedure within which such land may move into road construction administration. It is possible to build roads on such territories, under a number of restrictions, and they are assigned for our use free of charge. The procedure is time-consuming and demands lots of arrangements and long and detailed formal processes.  

 

— What can you say about road construction on land with utilities systems?

— Yes, this is a problem, and it is not simple either. There are different ways to solve it. When we construct or reconstruct a road, we relocate the under-road utilities or allot money to the owners, and they do it themselves, or we find some other way to please the utilities systems’ owner on their relocation.  

 

There are hidden pitfalls here. For example, if we are reconstructing (widening) an old road, the underground utility systems are also old, and it is necessary to lay new ones which, of course, influences the cost of construction. Besides, a tax should be paid on the difference in the cost between the new and old systems. Furthermore, the property tax here will be higher as the cost increases, and it is clear that systems owners are displeased with such a rise.

On the one hand, utility line replacement is a good thing, and on the other, it involves additional expenditures. It is the owner’s commitment to pay taxes, not the road constructors’. We often argue about it.

 

— Are there any ways to lessen the problem or to find an efficient  solution to it?

— The new land legislation has helped to reduce the number of improprieties in construction. Now road constructors, while determining the place for the construction of a new road, have the right to reserve the land thus forbidding its purchase.  It is a very important mechanism, and we try to apply it in a way which does not not allow for black-marketeering. It happens sometimes that, having learnt of a future road construction, people start buying land plots where the future road will be located in order to sell them later for big profits. The new law is intended to exclude such improprieties, so we try to reserve the land as soon as possible.

 

— May I clarify? How can the above-mentioned businessmen/profiteers ask for much more money for their plots, as there is a procedure of independent evaluation of the cost before the buy-out?

— Of course, independent cost evaluation exists, but land plots are often bought then sold on different conditions. For example, a plot located far from the road has one price, then when the plot receives the status of transport land, the price automatically grows.  

The problem is especially acute in Dagestan. There, unconscientious land owners do not agree to the offered price, they appeal to court, and, unfortunately, the results of the court judgments are often unfair: vast sums of money to buy out plots.  They bring to court the solutions of their estimates and examinations, and the courts often do not agree to ours. And then our lawyers have to argue the toss. By the way, there are no such problems in other regions.

Sometimes, incredible things happen. For example, when a tenant rents a plot of federal or regional land, according to the agreement he must clear the site as per our requirements. In our turn, we, the road constructors, are to recompense the tenants for, say, the buildings erected on the plot.

Well, on one plot like that there was not a single building: it was just a field used as pasture by a farmer. When we asked him to surrender the territory, he petitioned the court about compensation. In his claim he wrote that he planned to build a farm on the plot and thus intended to receive significant income for 10 years. The court doubtlessly multiplied the specified annual profit for 10 years and demanded that we compensate his losses, which, from our standpoint, did not correspond the real cost of the plot.

Of course, we appealed to the Supreme Court of the Republic of Dagestan, and proved that we were right.  To be honest, it is hard to work in this region.

 

— A very interesting case! But our talk will be incomplete without actual examples of how much land preparation increased the cost of road construction. Do you have such data?

— Yes, sure. In 2015 the “Rosavtodor” FRA adopted 36 projects for the construction and reconstruction of federal road sections with a total length of 460.07 km, including the construction of 14.7 km of engineering structures (bridges and overhead crossings). The total cost of the project implementation was 154.5 bln roubles at the values of the 3rd / 4th quarters of 2014.  

Expenditures for the preparation of the territory, including compensation payments, totaled 11.5 bln roubles (7.4 %). The expenditure for the territory’s preparation depended on the peculiarities of a specific section’s location and might have varied a dozen-fold.

Consider: it was 0.21% of the total cost of construction of the object “The R-257 “Yenisei” highway reconstruction”, 0.35% of the total cost of the construction of the object “The R-255” “Siberia” highway reconstruction”, 21.3% of the total cost of the construction of the object “The A-105 accessway to Domodedovo airport from Moscow reconstruction”, and 30.8% of the total cost of the construction of the object “Bridge reconstruction across the Velinka river on the M-5 “Ural” highway”. So you can see that the figures vary enormously.

 

— Mr Pronchatov, you are talking about the commercial price and even overpricing. I wonder if road constructors buy out land plots at cadaster cost?

— Well, let’s consider: when land plots are withdrawn for state purposes, the market price of a plot is determined in accordance with №135-FL “On evaluation activity in the Russian Federation” dated July 29th, 1998. Besides, according to federal law, the calculation of the payment includes:

  • the market cost of the land plots, the private property rights to which are to be cancelled;
  • the market cost of other rights for land plots, which are to be cancelled;
  • the losses caused by land plot withdrawal, including losses arising from the inability of proprietors to satisfy and discharge obligations with third parties, including those based on concluded agreements;
  • lost profits.

So, as we see, the cadaster cost of the plot is not taken into consideration in the calculations, and it is the market cost which is calculated. In some cases it may turn out to be lower than the cadaster one.

As far as the notions of commercial and speculative costs are concerned, these are casual definitions; they are not objective while calculating the pay-back cost.

  

I see now. By the way, they say that road construction in Russia is much more expensive than in Europe. Is it so?

— Absolutely not! Vice versa: the cost of construction and repair work is considerably lower in Russia; it’s just calculated differently. The cost of a kilometer of constructed road in Europe is just the cost of the construction itself. With us, it includes all expenditures, including those for the land preparation we have been talking about here.


Stanislav DONIN

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