Infrastructure Projects

Germany's Unfinished Business

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The Berlin Palace, the Stuttgart Train Station, the Elbe Philharmonic in Hamburg, the Berlin-Brandenburg International Airport -- all big-name projects unfinished, over-budget and delayed.
  • Why it matters

    Why it matters

    Germany is criticized for spending too little on its infrastructure, creating a hurdle to economic growth. Cost overruns limit the budget even further.

  • Facts

    Facts

    • A new study looks at 170 infrastructure projects carried about between 1960 and 2014.
    • Germany spent a total of €200 billion on infrastructure during that time, €59 billion of which were cost overruns.
    • The infamous airport Berlin-Brandenburg, BER, is currently 116 percent over budget, the Elbe Philharmonic Hall almost 150 percent.
  • Audio

    Audio

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Germany is a country that tends to splash out big on publicly funded building projects – over the past four decades, it has spent an estimated €200 billion, or $226 billion, building new airports, installing wind turbines and solar energy farms and digitizing many functions of the federal government.

But 30 percent of that tab, about €59 billion, was spent on cost overruns, most of which could have been avoided if planners, contractors and supervisors had done their jobs properly, according to a new study by Genia Kostka, professor of governance of energy and infrastructure at the Hertie School of Governance, a business school located in Berlin.

Ms. Kostka and her researchers looked into 170 infrastructure projects in Germany financed at least in part by taxpayers between 1960 and 2014. Almost a third of these projects are still underway.

On average, they found that completed projects had exceeded their original budgets by 73 percent, and “the cost of the projects which are still unfinished is likely to go up before completion,” she said.

The Elbe Philharmonic Hall, a dramatic musical venue being built on a peninsula jutting into the Elbe River in Hamburg, easily beats this baseline.

The concert hall under construction in the historic northern German port is almost 150 percent over budget. The euphoria over the prestigious showpiece quickly faded when the price rose from an originally projected €352 million to currently €865 million.

Off-shore wind parks, the study found, were 20 percent more expensive than planned, less than in other sectors.

With the explosion in expense came delays: Originally to be completed in 2010, the Elbe Philharmonic Hall is now projected to open in 2017, taking three times longer than planned.

Another German prestige project not only cost much more money than planned but cost one of the country’s aspiring political leaders his job: Berlin’s former mayor, Klaus Wowereit, whose career was brought to a screeching halt by the notorious Berlin Brandenburg International Airport, or BER.

The unfinished airport, designed to be a symbol of German efficiency, innovation and modernity, has become an embarrassing, costly reminder of the opposite. Its costs have more than doubled, from €2.5 billion to a projected €5.4 billion ($2.7 billion to $5.9 billion).

A hulking, empty shell located southeast of the German capital, the airport, to be named after the former chancellor Willy Brandt, has been plagued by management ineptitude and corruption. Its owners – the city-state of Berlin, the surrounding state of Brandenburg and the German federal government – have refused publicly to commit to a final opening date.

Originally scheduled to begin operations in 2012, the airport is now tentatively set to open in 2017.

Shortly before the initial opening in 2012, the airport’s overseers, including ex-Mayor Wowereit, were forced to put the project on hold after learning that a complicated, expensive ventilation system for the main terminal building designed by a German architect did not function.

The computer-guided system was supposed to automatically close the terminal’s fire doors and suck smoke out of the building through a complex, expensive underground ventilation system, which had been installed improperly.

Safety inspectors ordered a stop to the opening and in the ensuing investigation, it emerged that many building contractors had used sub-standard methods when wiring the ventilation system, which now has to be removed and rebuilt at additional cost before the terminal can finally open.

The airport has provided a constant stream of embarrassing visual reminders of the failure of one of Germany’s largest public sector projects. An empty subway car is driven through the vacant facility regularly to move the air in the station to discourage mold. The lights were left on in the main unfinished terminal building for almost a year because no one could find the off switch.

 

092 BER Airport Berlin Brandenburg Airport- Neu 2015-05-29-01

 

The list of undertakings whose costs are spiraling out of control goes on and on: The Stuttgart21 project in Baden-Württemberg’s state capital Stuttgart has provoked vivid civic protest for years now; the budget of the elaborate train station has risen from an originally planned €4.6 billion to a currently projected €6.5 billion, with six more years to go before the scheduled opening.

Many smaller public works projects are also limping along, but their problems are not as publicized.

“It’s really not just a few large projects, but basically all infrastructure projects have cost overruns,” Ms. Kostka told Handelsblatt Global Edition.

One sector that performed particularly badly is information and communication technology where spending on average has quadrupled the initial estimates.

These include projects such as a planned Autobahn road toll system and a computer chip health card issued by insurers that patients use as a form of identification when visiting a doctor. Both projects cost much more than advertised and took longer to accomplish.

“The ICT sector often faces so-called pioneer risks,” Ms. Kostka said.

IT and communications projects often employ new technology, lack best-practice examples and involve untested methods, making their budgets especially vulnerable to cost overruns.

Like the FISCUS software for government accountants for example.

The computer program was intended to become the standard software for Germany’s tax authorities, but its development was scrapped after more than 12 years – and a record cost overrun of 1,150 percent.

 

Wind parks by Paul Langrock Zenit laif
Off-shore wind parks: Still 20 percent over budget, but much cheaper than other projects. Source: Paul Langrock/Zenit/laif

 

There was better news from other sectors, such as in green energy projects, where the federal government is spending billions of euros to accelerate a national shift to sustainable forms of energy.

Off-shore wind parks, the study found, were 20 percent more expensive than planned, less than in other sectors. But the parks tended to go on the grid after an average delay of 13 months, which hiked costs to German taxpayers by more than €1 billion by the end of last year.

Nuclear power projects, which had been publicly subsidized in the past, turned out to be particularly risky and costly. On average, nuclear plant construction exceeded their budgets by 164 percent.

The main reasons for the overruns and delays were tied to mistakes in planning, the Hertie School concluded in a study called “Large Infrastructure Projects – Between Ambition and Reality.’’

In many cases, the initiators of the public bodies running the nuclear power plant projects had little or no experience in private sector construction.

“If you really want to address these cost overruns in Germany, you first need to identify the problem. And for that you need data.”

Genia Kostka,, professor at the Hertie School

Supervisory boards that are meant to control costs and monitor strategic decisions frequently were staffed with overseers who did not have the necessary expertise, often local politicians.

And often, construction was allowed to start before the planning was even finished.

Once such infrastructure projects get off on the wrong foot, it is difficult to keep costs from spiraling out of control, dooming them to years of costly, unnecessary revisions, the Hertie School study found.

Currently, Berlin is closely watching yet another big undertaking that fits this bill: The reconstruction of the historic Prussian City Palace Berlin, once razed by East German authorities. It is supposed to be rebuilt as a cultural center, with the outside facade closely mimicking the historic original, while the interior will be a modern space for events and a gallery.

The project is still in an early phase of construction, but first critical voices caution that the budget of €590 million, already upped from original estimates, won’t suffice because the famous dome of the palace is not yet included in the calculation, and that work will take longer than the currently targeted 2019.

Ms. Kostka’s research revealed an even bigger surprise: The German government, which monitors tax evasion closely and is known to routinely audit even low-wage earners in search of extra revenue, was not monitoring the costs of its biggest public infrastructure projects in a systematic way.

“I couldn’t believe that there was no database on all these projects. When I started out, I thought I could just request the data with the finance ministry,” Ms. Kostka said.

But it turned out that no authority in Germany had been collecting data on major infrastructure projects across the country or monitoring whether taxpayer money was being spent wisely.

In the Britain, for example, the Major Planning Authority maintains close records on public spending.

“If you really want to address these cost overruns” in Germany, Ms. Kostka said, “you first need to identify the problem. And for that you need data.”

With her research, Ms. Kostka has taken the first step toward providing greater accountability in German public works projects.

She has her hands full: Readers have tipped her off about eight new projects that are experiencing cost overruns and delays that were not in her initial study.

An updated version of her work might follow in a year or two, she said.

 

Franziska Roscher is an editor with Handelsblatt Global Edition in Berlin. To contact the author: f.roscher@vhb.de

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