China Overseas Land & Investment

Executive sacked over Covec row

PUBLISHED : Tuesday, 26 July, 2011, 12:00am
UPDATED : Tuesday, 26 July, 2011, 12:00am

A senior executive of a state-owned Chinese engineering company has been dismissed for failing to fulfil contract conditions with the Polish government, business news portal Caixin Online reported yesterday.

Fang Yuanming, general manager of China Overseas Engineering Group (Covec), has been removed from his position after Poland's highways authority cancelled an agreement with a consortium led by Covec after it stopped construction halfway through the job. It cited financial difficulties.

China's State-owned Assets Supervision and Administration Commission, the top agency overseeing state-owned companies, asked an organisation to audit the company two weeks ago, Caixin reported.

The General Directorate for National Roads and Motorways of Poland terminated the contract on June 13 because of construction delays. It said on its website that it expected to find a new contractor by the end of this month.

The agency is also demanding 741 million zlotys (HK$2.07 billion) in damages from Covec, according to Caixin.

Covec established a consortium with Shanghai Construction (Group) General Co and China Railway Tunnel Group and a Polish company to compete for a major road project to link Warsaw with the German border. The consortium won the contract to build the A and C sections of the A2 motorway between Warsaw and Lodz after offering a bid that was less than half the Polish government's budget for the project in September 2009.

Construction began in June last year but by this May, over a third of the way through the agreed construction period, less than 20 per cent of both sections of the road had been built, as funds were running low.

During this period, China tightened its monetary policy as it walked out of the global economic recession.

Construction of the highway project stopped altogether on May 18 after Covec failed to pay its subcontractor.

Covec and its partners submitted a proposal on June 9, attempting to increase the value of the contract on the grounds of unexpectedly expensive raw materials.

But the Polish roads directorate opposed the move, saying it was 'inconsistent with the law, the provisions of the contract'.

Attempts by the South China Morning Post to get comments from the company yesterday were unsuccessful, with staff workers refusing to talk.

A wholly owned subsidiary of China Railway Group, the world's third-largest engineering contracting company, Covec is the first Chinese company to enter the market of international contracting and overseas labour services, according to its online bio.

Although the company has created a good standing in the markets of Africa, the south Pacific and in Southeast Asia, the Polish highway contract was the first large European project it had won.

Covec had hoped to use it to promote its business in the region.