Sixteen kilometers of road from Budva to the Tivat airport, along the Montenegrin coast, will be built by the Chinese consortium Shandong for almost 54 million EUR, 14 million more than the authorities planned to spend.
Of those EUR 54 million, the state has provided less than EUR 15 million, it was announced at the Government session at the end of September. The government stated that the missing funds will come from the “capital budget or other means of financing”.
Radio Free Europe (RSE) did not receive an answer from the government’s Traffic Administration as to whether the state will incur debt because of this.
Montenegro has previously had a problematic experience of borrowing for projects carried out by Chinese companies, as was the case with the construction of a section of the highway.
Economic analyst Mirza Mulešković assesses for RSE that Chinese influence has grown in recent years, in Montenegro and in the region, partly because of the loans that country offers to governments with which its companies implement projects. And the fact that four out of eight bids for the construction of the boulevard came from Chinese companies testifies to the interest of Chinese companies in business in Montenegro.
Can the boulevard be more expensive than agreed?
The consortium Shandong foreign economic & technical cooperation and Shandong luqiao group registered a representative office in Podgorica half a year ago.
The price of the EUR 54 million road, however, could still increase, because the tender documentation includes a clause on a sliding scale that represents protection, especially for contractors, against inflationary movements in the market.
Whether it will be higher or lower than the bid amount, primarily depends on the price movement of metal products, fuel, sand, cement… – it is stated in the Government’s information on securing the missing financial resources for the construction of the boulevard.
Commenting on China’s business in the region, Mulešković points to the effectiveness of their business strategy:
It is a smart move by China, to make available the financial resources it had and thus further strengthen its influence in these countries. However, he says that countries must take into account the conditions under which they borrow, as well as what that debt includes. We often only talk about interest rates and debt conditions, but everything else related to those debts should also be seen there.
Which Chinese companies sent a bid
Of the eight bids received for the tender, the three cheapest ones were given by Chinese companies. The only one known to the Montenegrin public is China road and bridge construction, which built the first section of the 41-kilometer highway, for which the state borrowed almost 900 million USD from the Chinese Exim Bank.
Due to the danger to state finances, the European Commission helped the Montenegrin Government, with the help of Western banks, to protect itself from currency risk because the Chinese loan was taken in dollars, the value of which varied in relation to the euro.
The company also built the Pelješki Bridge in Croatia, which cost more than EUR 400 million. They are also working on several “heavy” Serbian-Chinese projects worth around EUR 3.5 billion, which were mostly contracted without a tender, and for which Serbia borrowed money from Chinese banks.
The other two companies that submitted bids for the construction of the boulevard are also interested in investing in Montenegro. Thus, Sichuan Road and Bridge Group Corporation has been helping the marketing of Montenegrin wines Plantaža 13. Juli on the Chinese market for years.
Sinohydro corporation limited previously expressed interest in the construction of hydroelectric power plants at Morača and Komarnica in Montenegro. Otherwise, they have a memorandum with the Government of Serbia on water infrastructure, and they are also involved in affairs in Bosnia and Herzegovina.
The second tender for the boulevard in Montenegro
The Shandong Consortium, which won the job of building the road from Budva to the Tivat airport, is not very present in the region, and won the job in the second tender where bids were submitted in July 2022.
At the first tender in 2021, the cheapest offer (EUR 42.6 million) was submitted by the Chinese company China Civil Engineering Construction Corporation (CCECC), which previously participated in the modernization of the railway in Montenegro.
However, the company gave up due to a large jump in prices on the international market, and the Administration initiated the procedure of collecting the guarantee for that offer, which was a condition for announcing a new tender.
For more than 10 days, the Traffic Administration has not responded to RFE’s inquiries regarding the collection of the guarantee.
The expropriation problem in Grblje
The construction of the boulevard should last two years, it was announced at the contract signing ceremony in Podgorica on March 29, which was also attended by Prime Minister Dritan Abazović.
However, one of the problems that has not yet been solved is the expropriation of land, especially in Grblje, a coastal town between Budva and Kotor, and part of the locals, among other things, oppose the increase in the number of traffic lanes.
At the Government session at the end of September, the then Minister of Foreign Affairs, Ranko Krivokapić, said that the costs of building the boulevard increased precisely because of the expropriation problem.
We were waiting for that road. In the meantime, the construction of illegally built buildings broke out on the stretch of construction, from the Kotor roundabout to the Jaz beach. And now we will pay at least three times more for the same trip. The widening of the road has been talked about for almost a decade.
Secretary General of the Government Boris Marić said that there are cases of double expropriation, i.e. that part of the locals who previously received money for the same land are now asking for it again.
Chinese projects in Montenegro
More extensive business cooperation between Montenegro and China began more than ten years ago, when it was agreed with the Chinese partner to purchase ships for two state companies, Crnogorska and Barska plovidba. The state borrowed from the Chinese state-owned Exim Bank for the ships.
The environmental reconstruction of the Thermal Power Plant in Pljevlja is carried out by Dongfang Electric Corporation, and Shanghai Electric Power Engineering completed the Možura wind farm in the very south of the country.
Cooperation with the Balkan countries is achieved by China through the multilateral Platform 16+1, which was formed in 2012 and is part of the Belt and Road Initiative on cooperation with the countries of Central and Southeastern Europe, the largest number of which are in the Balkans.
According to the Digital Forensic Center, the value of Chinese projects in the 16+1 countries exceeds 27 billion euros. More than half of that amount is in the five countries of the Western Balkans that are not members of the European Union (EU).
However, the EU and the USA detected negative consequences of the influence of cooperation with China. One of them is the creation of unsustainable debt, which threatens the economic stability and thus the overall social and security environment of the countries that take Chinese loans.