Chinese companies 'skip' the tender for work on the Drina between Serbia and Bosnia and Herzegovina

Chinese companies have submitted three bids for the construction of the "Buk Bijela" hydroelectric power plant in the Republic of Srpska, worth around 250 million euros, confirmed for Radio Free Europe (RSE) by Milan Baštinac, Assistant Minister for Energy of the RS.

The received bids are under consideration, and by the end of August it will be known which company will be awarded the construction job.

The hydropower plant, for which the foundation stone was laid in May 2021, will be built in the upper reaches of the Drina River, which separates Serbia and Bosnia and Herzegovina, about 12 kilometers upstream from Foča, in the east of Bosnia and Herzegovina.

According to the agreement on the establishment of the joint enterprise HPP Gornja Drina between Serbia and Republika Srpska from 2020, in addition to "Buk Bijela", the construction of two more hydropower plants on the Drina, Foča and Paunca, in the east of Bosnia and Herzegovina is planned.

 

How did the job negotiation go?

Everything was done at the invitation of the company "Hydroenergetski sistemi Gornja Drina" (HES Gornja Drina), a joint project of Elektroprivreda Republika Srpska (ERS) and Serbia, which own 49 and 51 percent of shares in HES.

Milan Baštinac, Assistant Minister for Energy of the RS, who is also the Chairman of the Board of Directors of HPP Gornja Drina, told RSE that the Chinese companies were chosen because of their "reputation and experience on similar projects in Serbia and Republika Srpska".

 

According to the estimates of the Agency for the Promotion of Foreign Investments in BiH (FIPA) from 2022, the value of Chinese investments in BiH ranges between 1.9 and 2.9 billion euros. Almost all of them are in the field of energy and infrastructure.

Baštinac also claims that they did not need to call for a tender to invite Chinese companies, assessing how the Law on Public Procurement of Bosnia and Herzegovina allows them to do so.

He points out that there was no public invitation under the Law on Public Procurement, because "nominally, the project is carried out by a foreign company".

"We have no obligation to act according to the Law on Public Procurement, because the majority capital is a foreign company, that is, in this case, a company from Serbia (Elektroprivreda Srbije). Accordingly, we were not obliged to carry out the public procurement procedure," Baštinac said.

 

What does the law say?

Article 10 of the Law on Public Procurement of BiH describes the conditions under which the law does not apply.

The exemption under this article refers to contracts that "create international legal obligations between BiH and one or more other states or their parts, and which includes works, goods or services intended for the joint implementation or use of the project by the signatory states".

However, BiH never signed an agreement with Serbia on the implementation of this project. This was done by the Republika Srpska entity.

 

The competence of the entity to implement interstate contracts and dispose of state property is also disputed, and UNESCO is also afraid of environmental consequences and cross-border influence in Montenegro.

 

Offers from companies with questionable reputations in Bosnia and Herzegovina

The offer worth EUR 263 million was submitted by the companies "Synohidro Corporation Limited" and the company "Power Construction Corporation of China". These are Chinese state-owned hydropower and construction companies.

Since May, Synohidro has been on the "black list" of the Federation of Bosnia and Herzegovina Highway for violating the contract on the construction of the Počitelj bridge in the south of Bosnia and Herzegovina. This recently completed bridge is already damaged, and it was built a year ahead of schedule.

The offer worth 264 million euros was submitted by the Chinese state energy conglomerate "China Energy Engineering Corporation" together with "China Energy Engineering Group Guangxi Hydroelectric Construction Bureau Company".

"China Gezhouba Group Co. Ltd", which was recently disqualified as a bidder for the tender for the construction of the Prenj tunnel, on the route of the highway on corridor Vc, in the south of Bosnia and Herzegovina, operates within the "China Energy Engineering Corporation".

As confirmed for Radio Free Europe from the Public Enterprise of Highways of the Federation of Bosnia and Herzegovina, "China Gezhouba Group Co. Ltd" submitted ˝incorrect information and false documentation˝ in the tender.

In response to RSE's inquiry, the reason for the disqualification was cited as "negative experience, attempted fraud, i.e. submission of false documentation".

Autocest FBiH did not clarify what was "incorrect" and "false" in the documents sent to the tender by this company.

At the end of June, Gezhouba Group started the construction of the "Dabar" hydroelectric power plant, also on the territory of the Republika Srpska entity, in the east of Bosnia and Herzegovina, worth 338 million euros.

The lowest submitted offer for the construction of "HE Buk Bijela", worth 248 million euros, was submitted by the company "Dongfang Electric Corporation". It is a state-owned Chinese company that manufactures equipment for power plants and projects in the field of energy.

This company built the Stanari Thermal Power Plant (in the north of Bosnia and Herzegovina) worth about 550 million euros, which has been operating since 2016, and so far is the only private thermal power plant in the country.

The same company should build a solar power plant near Bileća in the south of Bosnia and Herzegovina, and is also working on the revitalization of block 6 of the Thermal Power Plant in Tuzla.

Why were Chinese partners chosen?

"We chose based on our analyzes and assessments of the working group, which analyzed a dozen companies that could have the possibility of carrying out the works", explained Milan Baštinac, Assistant Minister for Energy of the RS, the reason for choosing these companies.

"And on the basis of experience in the region, especially in Serbia, and companies that had signed contracts on business and technical cooperation with our company (HEP Gornja Drina). All this was done before the invitations for submission of offers were sent," says Baštinac .

The registered companies should provide financing, that is, the bank that will credit the construction. The loan will be repaid by the Republika Srpska and Serbia, in accordance with the share in the joint venture, and will be secured by guarantees from the Governments of the RS and Serbia.

"The investor provides the bank that will credit the project. We also carry out detailed negotiations with the bank. We take on debt, we carry out the negotiations and we as a company (HEP Gornja Drina) sign a loan agreement with the bank. We are supported by the Government of the RS with bank guarantees as collateral indebtedness, because as a company we are not financially capable of guaranteeing this type of loan," Baštinac points out.

Preparatory works at the HPP Buk Bijela location should be completed at the end of September. About 25 million marks (about 13 million euros) have been spent so far for these purposes.

 

This means that the construction of settlements for workers and other supporting infrastructure, as well as access roads to the construction site itself, will be completed.

 

Doubts about the transparency of the project

Awarding large jobs to Chinese companies, without public insight into the contents of the contract, has become a practice in the RS, according to Transparency International BiH.

Damjan Ožegović, from this organization, says that Chinese companies are mostly chosen through direct negotiation procedures or self-initiated offers, eliminating competition.

In this way, he says, data from contracts that are paid with public money are concealed without the possibility of insight into what and how it is spent.

"The purpose of competition is to select the best bidder for the least amount of money. This is missing in these procedures, which are accompanied by lack of transparency. We will not know at all under what conditions payment will be made, how much will be paid, what are the deadlines for completing the works," Ožegović believes.

He also casts doubt on the future quality of the works, considering, as he says, previous experiences on similar projects (construction of the Počitelj bridge).

"What will surely follow this project, which there is great doubt about, is that the quality of the works will not be satisfactory, since it is very likely that the supervisory authorities will not do their job either, because non-transparency follows all the previous works (of Chinese companies)", Ožegović believes.

 

The project is disputed by the Constitutional Court of Bosnia and Herzegovina

The construction project of "HE Buk Bijela" continues, despite the fact that the Constitutional Court of Bosnia and Herzegovina has not yet made a decision on the appeal of 24 members of the state parliament, filed for this project in mid-2021.

The parliamentarians raised the question of constitutionality, considering that the construction of the hydroelectric power plant was started on state property (Drina river), which the RS entity has no right to dispose of.

 

Accordingly, the Constitutional Court found that there is a dispute over the jurisdiction to issue concessions between Bosnia and Herzegovina and its entity Republika Srpska.

At that time, the BiH Concessions Commission was ordered to resolve the dispute within three months. The Commission did not comply with this, and the deadline was extended, after which the case was returned to the Constitutional Court for a decision.

The Constitutional Court has not yet discussed this case, and the Court did not respond to RSE's inquiry as to when the issue of Buk Bijela and other hydropower plants on the Drina should come before the judges.

The authorities of the RS implement hydroelectric power plant construction projects in accordance with the provisions of the Law on Internal Navigation of the RS, by which all rivers in the entity of Bosnia and Herzegovina, including the Drina, are declared "internal waters of the RS".

However, in February 2020, the Constitutional Court of Bosnia and Herzegovina declared that legal solution unconstitutional. In the decision, they stated that rivers are state property at the disposal of Bosnia and Herzegovina.

And Bosnia and Herzegovina does not yet have a Law on State Property.

 

UNESCO is also worried about the project

The joint project of the Electric Power Company of Serbia and Republika Srpska is also controversial for Montenegro, which is concerned about the negative impact of the project on the protected area of the Durmitor National Park, which is under the protection of UNESCO.

The Ministry of Ecology, Spatial Planning and Urbanism of Montenegro did not respond to RSE's inquiry about what has been done so far in this matter, with the explanation that they are on collective annual vacation.

At the end of last month, a meeting of representatives of the Government of Republika Srpska with representatives of UNESCO for World Heritage was held in Paris.

Milan Baštinac, Assistant Minister for Energy of the RS, says that at the meeting it was agreed to prepare additional impact studies for the Buk Bijela project.

"We have agreed with the representatives of UNESCO to conduct an additional study on the impact of the project on the protected area of the Durmitor National Park in Montenegro. Also, to conduct an additional analysis and study of the impact on the Danube salmon in the area of the Drina that includes the site," said Baštinac .

He adds that apart from these disputes, there are no obstacles to starting the works, because, as he says, "all the necessary permits have been obtained".