Chinese 'lessons' for the continuation of the highway in Montenegro

Has Montenegro learned its lessons after the construction of the first section of the highway, which was built by the Chinese state-owned company CRBC (China Road And Bridge Corporation), and was followed by non-transparency, fiscal and environmental problems, which the European Union (EU) has repeatedly warned about.
The first section of 41 kilometers was built for seven years, the completion of the works was postponed five times, and the final price is not yet known, except that it exceeded one billion euros.
Considering this experience with the construction of the first, Ines Mrdović from Action for Social Justice warns that the state should turn from Chinese to European partners in the announced construction of the second section, which will be 23.5 kilometers long.
The highway, which is being built in several stages, should connect Bar in the south and Boljare in the far north towards Serbia, with a length of about 170 kilometers.
Although the Ministry of Capital Investments (MKI) previously announced that they would finish the conceptual design for the second section, from Mateševo to Andrijevica, by June, they recently announced that the deadline was extended until the end of the year.
Conceptual project and feasibility study are documents that should answer the question of what the price of the works will be, followed by the creation of the main project, and then the tender for the contractor.

Hungary and Serbia are interested in getting involved in construction
Finance Minister Aleksandar Damjanović told Radio Free Europe (RSE) that the modality of financing the second section of the highway will be determined in the coming period:
"But it is excluded that it will be from the state budget, because it would not be sustainable".
As they announced earlier, they are negotiating with European banks on the financing of that phase of the highway:
"Whether non-reimbursed support from EU funds, a concession arrangement, or another model is possible will be defined relatively quickly in order to continue the construction of the highway as a priority project".

Damjanović points out the great interest of Hungary and Serbia in jointly building the remaining sections in completing the highway on the strategically important corridor from Bar to Belgrade and Budapest.

Incorrect cost estimates at the start
This share, according to the ministry's estimate, will cost over half a billion euros.
"The preliminary estimated value of the construction of this section is EUR 552.5 million," said the Ministry of Capital Investments on July 20.
The Government's estimates for this share four years ago were twice as low.
"The construction of the second section should, according to the estimate, cost 273 million euros", announced in 2018 from the Government of the then Prime Minister Duška Marković from the Democratic Party of Socialists (DPS), which contracted with the Chinese to build the first section of the highway, and in the meantime switched to the opposition .
They said that as part of the Investment Framework for the Western Balkans, Montenegro submitted a request for co-financing the construction of the second section of the highway.
"However, this request is pending until the completion of the cost-benefit analysis for the entire Bar-Boljara highway, which is financed by the European Union, and which also contains recommended construction standards and proposed ways of financing the remaining sections," the EC Report says.

If EU invests money, the EU will control both the works and the contractor
The announcements say that the EU, through its funds, could be involved in financing the construction of the second section of the Montenegrin highway.
Ines Mrdović from the Action for Social Justice told RSE that this would mean much stronger control of financial flows, but also of the construction itself:
"The control of the entire process would be much more detailed compared to how it was done during the contracting and implementation of the construction of the first section. They will certainly ask that the construction be started on the basis of the main project and not conceptual, as was the case with the first section, which is led to a significant increase in the price of works".
Mirza Krnić, an economist from the Preokret movement, told RSE that the EU's decision to provide funds for the second part would increase the transparency of the process:
"And it would significantly strengthen control instruments in the field of finance and environmental protection. It is also a way to reduce the risk of a credit trap that we could fall into if we were to borrow in the same place under the same conditions as for the Bar-Boljare highway section".

Namely, for the construction of the first section, Montenegro borrowed 944 million dollars from the Chinese Exim bank for a period of twenty years. Additionally, another 90 million was borrowed for access roads that were omitted from the basic contract.
Due to the country's fiscal problems in repaying the debt, with the mediation of the EU, the relevant ministry entered into a hedging arrangement aimed at protecting Montenegrin public debt from currency risk with two American and two European banks.
Hedging reduces or eliminates the risk related to another investment.

The EU will not be happy if the Chinese build another section
Chinese ambassador Liu Jin announced to TVCG in February this year that Chinese companies are ready to participate in the construction of other sections of the Bar - Boljare highway.
This interest has been going on for years, which former prime minister Duško Marković also spoke about in 2019.
The question is, however, how they would view it in the EU, from which they have repeatedly pointed to the non-transparency of the works, the fiscal and environmental risks of the arrangement with the Chinese:
"I hope they would look at it negatively, precisely because of all the events during the works on the first section, where some Chinese were carrying out work even without proper permits. It would be very bad for Montenegro if CRBC or some other Chinese company got that job. We need to turn around European companies," says Ines Mrdović.
Mirza Krnić believes that the state should encourage relevant companies to apply for a tender that would be completely transparent:
"It is a way to reduce any risk for the state, including geostrategic ones. When the project is accompanied by controversies, even at the level of speculation, then credible potential contractors, especially from the EU, may hesitate".

The construction of the first section left numerous "tails"
While plans are being made for the construction of the second, balance sheets for the first section are being drawn up.
The Ministry of Finance does not know how much the final figure will be, and Ines Mrdović estimates that it will reach one billion and three hundred million euros:

"One billion euros is an amount that refers only to construction. It is forgotten that the DPS Government exempted the Chinese from paying VAT worth 170 million euros, 25 million euros are the costs for controllers from the French-Italian consortium, 7 million euros for the two state commissions that supervised works".
Mrdović reminds that the state also gave up multimillion-dollar concessions for stone used for construction, and says that tens of millions of euros were also spent on expropriation.
She also warns about the compensation claims of the Chinese, which, according to her estimates, amount to 190 million euros, and about which, as she points out, the government is still silent.
What other Chinese projects are there in Montenegro?
According to data from the study of the Digital Forensic Center (DFC) on Chinese influence in the region, published in June this year, the consortium, which also includes the Chinese DEC (Dongfang Electric Corporation) International, is carrying out the ecological reconstruction of the Thermal Power Plant in Pljevlja.
The foundation stone was laid at the end of April this year, the works should be completed by 2023, and the project is worth 54.4 million euros.
Chinese investors, they add, are also involved in the Možura Wind Power Plant in the vicinity of Ulcinj.
It is an investment by the Maltese state company Enemalta, which is 33 percent owned by the Chinese company SEIP, and the main contractor was the Chinese company Shangai Electric Power Engineering.
The wind farm was put into operation in November 2019, and the project is worth around 90 million euros.
The company China Civil Engineering Construction Corporation (CCECC) participated in the modernization of the Kolašin-Kos railway, which was completed in 2017, and whose value was around six million euros.
By the way, more extensive business cooperation between Montenegro and China started ten years ago, when it was agreed with the Chinese partner to procure ships for two state companies, Crnogorska and Barska plovidba.
Namely, in 2010 and 2013, the Government issued state guarantees to Chinese companies worth 93.7 million dollars for the purchase of ships. A total of four ships were built by the Chinese company Poly Technologies, and the loan was provided by the Chinese state Exim Bank.