Road Builders to Be Compensated for Sharp Bitumen Price Rise

The Ministry of Transport (MoT) has endorsed a proposal by the state-owned company Latvian State Roads (LVC) to compensate for the significant increase in bitumen prices in state road construction contracts. This step aims to mitigate risks that external and unforeseen circumstances could disrupt the implementation of major infrastructure projects.

The compensation will be funded using savings achieved in state road construction procurements. Transport Minister Rihards Kozlovskis noted that road builders had requested such a solution already in spring, when geopolitical factors made price hikes foreseeable. According to him, the common goal is to ensure that ongoing road works are completed with quality and on time, and that all planned projects for this year are realized.

Justification for the Solution

The MoT has assessed that LVC, as the contracting authority, has the right and obligation to individually evaluate the need for contract amendments, in compliance with the Public Procurement Law and other regulations. Contract amendments are permissible if the price increase is objectively justified and resulted from circumstances unforeseeable at the time of contract signing. This approach is supported by clarifications from the Ministry of Finance and guidelines from the Procurement Monitoring Bureau.

The compensation decision applies to the bitumen component in construction contracts where price proposals were submitted before March 1 this year. LVC has already informed contractors and the association "Latvijas ceļu būvētājs" (Latvian Road Builders). Contract amendments will be prepared and sent in the coming weeks. The compensation amount will be determined individually for each contract, based on detailed calculations of the impact of bitumen price increases on costs. The total required funding is not yet known.

Funding and Methodology

Kozlovskis explained after a government meeting that the compensation amount will be determined using a methodology developed by the consulting firm Ernst & Young, and will not cover the entire increase. The decision on support will be made by LVC, not the Cabinet of Ministers, and will be financed from LVC's existing funds, not from additional budget resources. The minister noted that the issue had not been addressed for five months and could potentially affect contracts such as that for the Sēlija polygon construction. Information about the process has been submitted to the State Audit Office.

Prime Minister's Remarks

Prime Minister Andris Kulbergs emphasized that the state previously lacked a clear approach to dealing with price increases affecting projects and tenders. He noted that without proper regulation, it is impossible to make timely decisions on such matters, especially during fluctuations in energy costs. Kulbergs also stated that this support is not comparable to aid for the forestry sector, as it concerns signed construction contracts where one component has risen beyond the initial tender price. He added that the Ernst & Young methodology could serve as a basis for other industries as well.