HUNGARY: The government has suspended work on Budapest's Southern Circle orbital capacity enhancement project after the European Commission warned that it could withdraw European Union co-financing due to a potential conflict of interest in the procurement.

Works on the current phase of the Southern Circle programme started in January 2024. This covers the construction of additional tracks over the 5.4 km of route between Kelenföld and Ferencváros through the south of the city, as well as the construction of two new stations.

According to national Transport & Investment Minister Dávid Vitézy, an investigation by the European Court of Auditors has uncovered a potential conflict of interest, specifically alleged collusion between lead contractor V-Híd Zrt, and design company Kontúr Csoport Kft. This could have led to V-Híd having prior knowledge of cost estimates, which should have led to V-Híd's disqualification from the procurement process undertaken in 2021, the minister said.

Based on ECA's findings, the European Commission has informed the Hungarian government that it could withdraw EU funding. This led the government to apply the brakes on the project in October.

The European Union has been providing a co-financing of HF108.4bn (€290m) through the CEF2 instrument, along with an additional HF210.4bn (€550.8m) as part of the 2021-27 EU Cohesion Programme, together covering 95% of the overall cost.

Site assessments and negotiations are currently underway, and these are expected to be followed by a re-tendering process, which will have to be approved by the EU authorities first.

This implies significant delays for the programme, even though part of the work has already been carried out, meaning the reduced timetable for rail services through the capital must remain in effect. A temporary single-track alignment is open to traffic on the affected section, but a retendering of the civil works could see this last for up to three years instead of the planned 16 months.

This section of line carries three Trans European Corridors across the River Danube and handles suburban, long-distance and international passenger and freight traffic.

‘This is a difficult but necessary decision. The Southern Circle project is one of the most critical developments for rail transport in Budapest and its agglomeration. I spent years working on its preparation and the underlying rail development strategy, and I remain convinced that this investment is absolutely essential. We must not abandon the development of the railway; rather, we must ensure it is completed properly', Vitézy said.