Chinese Company Convicted of Environmental Destruction to Build Foča-Šćepan Polje Highway

The European Bank for Reconstruction and Development (EBRD) was supposed to finance this project, with the initial estimated value of the works being 90 million euros. The EU delegation prepared the project and tender documentation, but the authorities of Republika Srpska did not approach the EBRD for fund withdrawal for years, which was officially confirmed by the institution last year.

Meanwhile, people were dying on the catastrophic road that does not meet the standards of a highway, as cars can barely pass each other on certain sections.

CRBC had previously attempted to undertake significant infrastructure projects in Republika Srpska, such as a 6 km section of the highway between the Rudanka Bridge and the southern end of the Putnikovo Brdo 2 Tunnel-Corridor Vc bypass in Doboj. The contract, worth over 183 million KM, was eventually awarded to Integral Engineering a.d. Laktaši.

In this tender, the Chinese company was not successful, but now they have been awarded the contract without a tender. Why they are considered the most favourable contractor and for whom, and whether this is a precondition of the EXIM Bank, remains to be seen.

Modus Operandi of CRBC

For decades, the EXIM Bank and CRBC have been present in the Western Balkans, and their operations are associated with numerous irregularities. The way some Chinese investors and contractors operate boils down to loans with questionable clauses and non-transparent contracts.

In Novi Sad, as in Republika Srpska, CRBC was awarded the contract for building a bridge over the Danube without a tender. Environmental activists protested, demanding the disclosure of the government’s contract with CRBC and an environmental impact study, as CRBC had planned to clear forests on the banks of the Danube as a precondition for starting bridge construction. CRBC’s disregard for environmental standards during construction was confirmed by a court in Podgorica, which ruled that the Chinese company must pay nearly 400,000 KM for destroying flora and fauna in the Tara River.

Two years later, the Basic Court in Podgorica ruled that CRBC had built structures in Kolašin without the necessary permits and documentation for the job, as reported by RTVCG.

“Acting contrary to Article 10 of the Law on Environmental Protection led to the disturbance of biodiversity to a greater extent and over a wider area, manifested in the negative impact on river biodiversity, hydrology, water quality, and landscape”, the verdict stated, as seen by RTVCG journalists.

CRBC operated in Montenegro with other irregularities, damaging not only nature but also the state budget. They are the second-largest tax debtor, owing the state over 11 million euros according to data from the Montenegrin Tax Administration.

The danger of Chinese loans lies in the fact that the EXIM Bank includes a clause in contracts whereby, in case of debt repayment problems, it lays claim to state assets.

“China is a serious country that heavily secures itself when it does something. So, if we are unable to repay this massive loan, not only for this road but also for other investments and construction works carried out by companies from China, if Republika Srpska is unable to repay these loans, of course, the Chinese state will secure itself and take various natural resources such as forests, water, mountain goods, agricultural land. You have the example of neighbouring Montenegro, which delayed payment to China, where Chinese authorities immediately reacted and almost wanted to collect it by taking over the Port of Bar”, said Ognjen Bodiroga, a member of the SDS party in the National Assembly of Republika Srpska.

Government of Republika Srpska Leads Parallel Process

While signing a Memorandum of Understanding with the Chinese CRBC, implying that the contractor has already been selected, discussions about financing the “death route” are still ongoing at the EBRD.

According to reports, the EU Delegation in BiH has been informed that the Ministry of Transport and Communications of Republika Srpska has signed a Memorandum of Understanding with representatives of the Chinese company “CRBC”, which includes a loan financed by the Exim Bank. However, they are not informed about the conditions.

“We note that projects funded by the European Union traditionally offer the most favourable conditions for investing in infrastructure in the Western Balkans, with loans at favourable rates, as well as a significant component of grants. In addition, projects funded by the European Union adhere to high standards in preventing corruption, environmental protection, and welfare”, said Ferdinand Koenig, spokesperson for the EU Delegation in BiH, to SPIN Info.

The European Union has already allocated 2.2 million euros for preparatory works for this project through funds from the Instrument for Pre-Accession Assistance (IPA) allocated to Bosnia and Herzegovina. The funds supported the preparation of technical documentation, as well as the tendering process for the construction works on this highway in 2017.

“The project’s value was estimated at around 90 million euros for a total length of 19.1 kilometres. However, this is an estimate that may need to be updated. The request of the Bosnian authorities to update the project documentation is currently under consideration by the ‘Connecta 2’ project funded by the European Union. The European Union has received a formal request from the Bosnian authorities for financing the road from Foča to Šćepan Polje. Considering the significance of the Foča-Hum project for regional connectivity, the European Union is considering this request. Whether this project will be considered within the Growth Plan depends on Bosnia and Herzegovina, as the Reform Agenda related to the Growth Plan has not yet been finalized and agreed upon between the EU and Bosnia and Herzegovina”, Koenig added.

It remains unclear why the Bosnian authorities are seeking funds from Chinese creditors when they have the opportunity to obtain funds under more favourable conditions from the European Union.

Rezo Bitsadze, responsible for external communications at the EBRD in the Western Balkans, emphasizes that the Memorandum of Understanding and the Financing Agreement are different types of agreements.

“In the end, it will be up to the government to decide which is the best means of financing their various infrastructure projects”, Bitsadze explains to Spin info.

He states that last year, the EBRD received a request from the government to co-finance this “strategic project, which is important for BiH and better connectivity between Sarajevo and Podgorica”, together with the World Bank.

“Since we received this request, we and the World Bank have been continuously discussing with the Government and road companies about all aspects of the project, such as financing, environmental impact, and climate change resilience. We hope to sign an official mandate letter with the Government of Republika Srpska soon”, said Bitsadze.

Differences Between EBRD and Exim Bank

We have already mentioned that while Republika Srpska authorities are reaching out to the EBRD, they are simultaneously turning to the Chinese. Why would someone choose a less favourable creditor?

“EBRD financing is transparent, with a set of conditions and, most importantly, aimed at the optimal realization of the given project, which is truly intended to contribute. There are mechanisms of internal consistency that are monitored, and therefore negotiating these credit lines, or implementing them, is not easy. In this context, other alternative investors may appear as ‘more favourable’ for the Government of Republika Srpska”, says economic analyst Admir Čavalić to Spin Info.

All of this raises the question of how wise it is to seek a Chinese loan, especially at a time when the financial situation in Republika Srpska is poor, and Chinese creditors in Montenegro are ready to seek debt repayment through privatization of public assets such as the Port of Bar or the highway.

“Chinese loans are increasingly present in the region and offer opportunities for rapid infrastructure development. However, caution is advised regarding the aforementioned, based on previous experiences, not only in Montenegro but worldwide. The public is often deprived of complete information about the loan terms. This complicates the analysis and criticism of arrangements in real-time. The effects, whether good or bad, only manifest later”, warns Čavalić.

Chinese creditors also follow a modus operandi – they seek guarantees for state assets, and their contracts are non-transparent. For a country on the EU path, such as Bosnia and Herzegovina, the focus should be on increasing transparency.

“There are several key things that Chinese creditors offer. Firstly, the speed of implementing the credit arrangement and ultimately the project. They may not be more favourable, but they react faster, which is very important in some situations – for example, when one cannot wait for a few years for the construction and maintenance of infrastructure. These credit arrangements are also not known for their transparency. On the contrary, sometimes basic contract details are not even known. Consequently, in countries with weaker institutions, such as those in the Western Balkans, this can be abused, for the specific interests of different parties”, adds Čavalić.

A member of the SDS party in the National Assembly of Republika Srpska believes that announcements about the construction of the Foča-Šćepan Polje highway are just part of the pre-election performance of the authorities in Republika Srpska because the start of construction has been announced for years.

“Just a few days ago, they had a pre-election cornerstone for the construction of the Foča-Tjentište road, and now they have a pre-election memorandum concerning the construction of the Foča-Šćepan Polje road. It is the worst highway in Europe that connects two major capitals, Sarajevo and Podgorica”, says Bodiroga.

According to Bodiroga, with the existing route of the Foča-Šćepan Polje road, it is impossible to build the road because it is full of underground water, landslides, and rockfalls, and it must be relocated.

“Just based on those promises, we see how contradictory and deceptive these statements are, to this, I must say, suffering people who are really more in delusion because they are fed up with promises, but there is nothing from them. The government that has been ruling continuously for a long time has long been selling off property in a way that sells land to its tycoons who are enormously wealthy, who are the main financiers of election campaigns, sells land, from agricultural to mountain properties such as attractive plots on Jahorina, soon I would not be surprised if they sell forests because especially in Herzegovina, we are rich in forest products. Look at how many small hydropower plants have been built by people close to the government, from which the local community benefits nothing”, says Bodiroga.

“Overnight” Loans from the EXIM Bank Cost Montenegro Almost Its National Assets

Montenegrin economist Mila Kasalica explains that Western Balkan countries need significant funds for infrastructure, which will finally lift the economies of the region from the ground-level patina of centuries of underdevelopment. She adds that, as a general principle of apparent comparison, Chinese infrastructure loans are more favourable than any credit arrangement globally.

“However, countries in the region must be more thoughtful and weigh the advantages and disadvantages of each infrastructure credit arrangement with any European and/or global creditor. By definition of development perspectives converging towards the EU, countries in the region should always tie the priorities of capital project development to any financing scheme from European funds (Western Balkans Fund, EIB, EBRD, EC support for development initiatives). However, countries in the region, much more often with the political and elite of public administration, are ready for all sorts of ‘overnights,’ hastily deciding according to publicly unverified backstage agendas. In parallel, with such non-transparency, the strictness of public procurement procedures and the gradual development of conceptual and main infrastructure projects required by European bodies and agencies are quickly discouraged”, explains Kasalica.

It is precisely these overnight loans and the speed at which the Chinese EXIM Bank provides loans that cost Montenegro the possibility of losing national assets and state property. The construction of the first section of the Bar-Boljare highway in Montenegro, less than a decade ago, caused significant conflicts on the public scene. The then-ruling political elite, due to the majority and without a conceptual project, took the risk of borrowing, secured by the Chinese development bank, due to favourable terms and significantly favourable interest rates.

“According to the Preferential Loan Agreement with the EXIM Bank, Montenegro guarantees state-owned property for the timely repayment of the loan, which remains the most important risk of the overall credit arrangement. However, due to justified pressure from the non-governmental sector, the loan agreement quickly became public property, and this is the most important moment in monitoring the execution of obligations by the contractor, CRBC, regarding the construction of the most demanding section of the highway, which obliges any country in the region that no contract for the construction of public capital projects should be secret. These are public goods for which significant public funds are allocated for the repayment of corresponding annuities”, explains Kasalica.

The Foča-Šćepan Polje highway, which is part of the Sarajevo-Podgorica regional road, is often referred to as the road of death among the people. An unguarded road, narrow lanes, and unpaved sections. Thus, figuratively speaking, this part of the road looks like through which hundreds of thousands of passengers pass annually. According to our information, the EBRD and the World Bank office in BiH still hope that they will finance the route of the death road, and for them, cooperation with Chinese creditors and contractors is only a mere announcement for now, as the memorandum is a non-binding document.