Chinese, Turkish Firms Dominate Infrastructure Projects in Bosnia

Ilustration. Photo: BIRN BiH

Chinese, Turkish Firms Dominate Infrastructure Projects in Bosnia

30. March 2023.13:39
30. March 2023.13:39
Chinese and Turkish companies have had almost no competition from foreign companies in winning lucrative construction contracts worth over three billion euros in Bosnia and Herzegovina, research by Detektor reveals.

This post is also available in: Bosnian

These screens will also show a section of motorway running between Doboj and Brcko as soon as it is fully built. The construction of the motorway that runs to Bijeljina and then on to Belgrade started last year, when the Republika Srpska entity authorities proudly announced that a Chinese company would be working on it.

The idea to connect Bosnia and Herzegovina with Serbia was given support by Turkish President Recep Tayyip Erdogan several years ago, and since then there have also been various meetings between representatives of the Bosnian and Turkish authorities.

But behind the scenes of these high-profile, top-level meetings talking up the future motorway which would strengthen economic cooperation with Serbia and interconnect the two countries, a lack of transparency and absence of competition has raised suspicions about whether the deal to build it was made in the best interests of the public.

On a dusty metal shelf in the Laktasi Centre’s archive, untidily filed bids from eight companies for the construction of part of the motorway don’t give the impression that these are important documents related to a deal worth more than 700 million Bosnian marks (over 350 million euros).

The ripped and Sellotaped-together file boxes only contain bids from Chinese and Turkish companies; no European companies applied for the work.

In Bosnia and Herzegovina, this has become the rule rather than the exception, according to data collected by Detektor about more than 20 large construction projects in the past six years. Besides domestic companies, contracts worth more than seven billion Bosnian marks (over 3.5 billion euros) have all been won by Chinese and Turkish companies and a few others from Eastern Europe and Asia. Not one has been awarded to a Western European firm.

Signing of the contract for the construction of the Vukosavlje – Brčko highway section. Photo: Government of the Republic of Srpska

The contract for financing, designing and building a motorway between Vukosavlje near Doboj and Brcko was signed in August last year with Chinese company China State Construction Engineering Corporation Limited, CSCEC. The total cost was around 60 million Bosnian marks (over 30 million euros) higher than the original estimated cost in the tender.

Chinese and Turkish companies have been selected because it is easier for the authorities to acquire money through them, said Srdjan Traljic of Transparency International Bosnia and Herzegovina, which investigates corruption in public spending.

“Citizens support that because they want the projects to be realised, but at the end of the day, I’m afraid we will be in a situation where those projects will cost us too much since the public interest has not been taken into account,” Traljic said.

Besides CSCEC, a consortium of three Chinese companies made a bid with an estimated cost 30 million euros lower than the one made by the selected bidder. Only Turkish and Chinese companies applied for the tender. According to the official registry of companies in Republika Srpska, CSCEC has an office in Banja Luka. However, when Detektor’s journalists visited the address, they found a private house with no one inside.

The next-door neighbour explained there was no company there. No one answered the phone number listed in the official registry.

CSCEC was also awarded a lucrative deal in 2019 by Federation Motorways in the Bosnia and Herzegovina’s other entity, following a meeting with the entity’s minister of communications and transport, Ismir Jusko. The meeting was held in 2018 on the initiative of the Chinese embassy in Sarajevo through the Foreign Trade Chamber of Bosnia and Herzegovina.

A statement issued by the ministry after the meeting said that Jusko had been informed that the company was “the largest construction and investment enterprise globally with its annual turnover reaching $158 billion”.

Jusko declined to be interviewed for this article.

CSCEC was then chosen in 2019 to construct a section of motorway between Pocitelj and Zvirovici for nearly 130 million Bosnian marks (some 65 million euros). Federation Motorways did not fulfill a request to see the contract and bids, saying in a telephone conversation that the request was forwarded to the Chinese company for approval.

Domestic public companies and institutions rarely reveal details of contracts signed with Chinese companies.

Vuk Vuksanovic, senior researcher with the Belgrade Centre for Security Policy, said that Turkish and Chinese companies enter markets with the help of officials from their countries.

Vuksanovic said he thinks that Turkish and Chinese companies noticed that Western companies were not active in the infrastructure sector in the Balkans, so they jumped in. He added that the main problem was the lack of transparency of the contracts being signed.

“Most often, these contracts are proclaimed to be either a business secret or sometimes a state secret, because cooperation in the field of infrastructure takes place on the basis of an international agreement,” Vuksanovic said, adding that senior officials in the countries involved conceal information from the public by mutual agreement.

This enables China to win projects for state companies that use Chinese construction materials and also spread Beijing’s political influence, he added.

Contracts awarded without competition

wdt_ID Projekat Ugovorni organ Izabrani ponuđač Zemlja ponuđača Ostali ponuđači Vrijednost ugovora (KM sa PDV-om) Godina potpisivanja ugovora Izvor finansiranja
1 Izgradnja tunela „Hranjen“ Autoceste Federacije BiH Euro-Asfalt d.o.o. Sarajevo. Bosna i Hercegovina 39,388,871 2022 Budžet Vlade FBiH
2 Izgradnja dijela brze ceste Lašva-Nević Polje: „Vitez-izlaz iz poslovne zone“ – Nević Polje” Autoceste Federacije BiH Hering d.d. Široki Brijeg Bosna i Hercegovina Integral Inženjering a.d. Laktaši, Strabag d.o.o. Sarajevo i Strabag d.o.o. Zagreb, Euro-Asfalt d.o.o. Sarajevo i JATA Group d.o.o. Srebrenik 74,904,570 2022 Budžet Vlade FBiH
3 Izgradnja Sarajevske zaobilaznice Autoceste Federacije BiH Euro-Asfalt d.o.o. Sarajevo. Bosna i Hercegovina 23,283,000 2020 Sredstva Autoceste FBiH
4 Izgradnja autoceste na Koridoru Vc: Putnikovo Brdo – Medakovo Autoceste Federacije BiH Euro-Asfalt d.o.o. Sarajevo. Bosna i Hercegovina 325,771,984 2022 EBRD i bespovratna sredstva EU
5 Izgradnja autoceste na Koridoru Vc: Poprikuše – Nemila Autoceste Federacije BiH Cengiz insaat Sanayi ve Ticaret A.S Turska 405,715,532 2020 EBRD i EIB, te bespovratna sredstva EU
6 Izgradnja autoceste na Koridoru Vc: Nemila – Vranduk Autoceste Federacije BiH HGG Insaat Anonim Sirketi Turska Azvirt L. L. C. i Hering d.d. Široki Brijeg, Cengiz Insaat Sanayi ve Ticaret AS 126,665,233 2022 Kuvajtski fond KFAED
7 Izgradnja autoceste na Koridoru Vc: Vranduk – Ponirak Autoceste Federacije BiH Azvirt L.L.C i Hering d.d. Široki Brijeg Azerbejdžan, Bosna i Hercegovina Cengiz insaat Sanayi ve Ticaret A.S., Euro-Asfalt d.o.o. Sarajevo i Strabag AG;
KOLIN Insaat Turizam Sanayi ve Ticaret A.S.;
Konzorcij Azvirt L.L.C. i HERING d.d. Široki Brijeg
149,355,958 2019 OPEC-ov fond OFID
8 Izgradnja autoceste na Koridoru Vc: Ponirak – Vraca Autoceste Federacije BiH Euro-asfalt d.o.o. Sarajevo Bosna i Hercegovina Cengiz insaat Sanayi ve Ticaret A.S 135,541,234 2019 EIB i bespovratna sredstva EU
9 Izgradnja autoceste na Koridoru Vc: Počitelj – Zvirovići: LOT 1 Autoceste Federacije BiH China State Construction Engineering Corporation Limited Kina China Gezhouba Group Company Limited, Strabag AG i Euro – Asfalt d.o.o. Sarajevo, Cengiz Insaat Sanayi ve Ticaret A.S., Fernas & Ozgun Insaat, Konzorcij: Azvirt L.L.C. iPower Construction Corporation of China Ltd 128,956,860 2019 EIB i bespovratna sredstva EU
10 Izgradnja autoceste na Koridoru Vc: Počitelj – Zvirovići: LOT 2 Autoceste Federacije BiH Azvirt Limited Liability Company, Sinohydro Corporation Limited i Powerchina Roadbridge Group Co. Ltd. Azerbejdžan, Kina China Gezhouba Group Company Limited, Strabag AG i Euro – Asfalt d.o.o., Cengiz Insaat Sanayi ve Ticaret A.S., Fernas & Ozgun Insaat, Konzorcij: Azvirt Limited Liability Company and Power Construction Corporation of China Ltd 64,144,120 2019 EIB i bespovratna sredstva EU
Projekat Ugovorni organ Izabrani ponuđač Zemlja ponuđača Ostali ponuđači Vrijednost ugovora (KM sa PDV-om) Godina potpisivanja ugovora Izvor finansiranja

Contracts on major infrastructure works in Bosnia and Herzegovina in the last six years

Chinese and Turkish companies have won more than half of all the construction projects worth over 50 million Bosnian marks (over 25 million euros) in the past six years, according to tender documentation analysed by Detektor. Out of 23 projects, companies from those two countries have won 14, worth more than six billion marks (over three billion euros), which is over 80 per cent of the value of all large infrastructural projects in the period.

In a market in which there is no competition from European bidders, details of contracts signed by those companies and the final value of the works carried out remain unknown.

In late February, a contract was signed for the construction of the Bijeljina-Brcko motorway worth more than 400 million marks (over 200 million euros) with a Chinese consortium in Banja Luka. Like all the other contracts signed with companies implementing infrastructural projects, this one will not be made public, it was announced at the time.

“That primarily depends on the Chinese side. You must speak to them, as they have contract exclusivity,” said Republika Srpska’s Prime Minister Radovan Viskovic when asked about the publication of the contract, adding that the entity itself would have no problem making it public.

But, he explained, “they [the Chinese] give the money and the loan agreement can only be published once the loan terms have expired”.

A consortium of three companies is involved – China Overseas Engineering Group, COVEC, China Tiesiu Civil Engineering Group and China Construction Bank. They will build a 17-kilometre section of the motorway. Republika Srpska will pay for this project over the next 15 years.

“Given that those are very lucrative contracts worth several hundred million marks each, one of the conditions set by the investors is obviously to hide the terms and circumstances of the deal from the public, because the authorities always cite the fact that the third party does not agree to these pieces of information being published,” Traljic of Transparency International Bosnia and Herzegovina said.

This is the fourth contract awarded to Chinese companies for the construction of motorways in Bosnia and Herzegovina. The value of the contracts signed to date exceeds 1.3 billion Bosnian marks (over 650 million euros), with a third of the money being provided by Chinese banks.

“It is a trend that we’ve been seeing in recent years, with our authorities refusing the terms set by international loan institutions in terms of fiscal responsibility and the implementation of reform and also anti-corruption policies, and turning to creditors not setting such conditions,” said Traljic.

He said that Chinese and Turkish creditors often make only one condition – that contractors come from those countries.

Over the course of the past six years, 15 contracts have been signed for the construction of motorways in Bosnia and Herzegovina. Half have been reached with Chinese and Turkish companies and the other half with domestic construction firms.

European companies have either applied as part of consortiums with domestic companies or have not applied at all.

Of 12 new motorway sections of the in the Federation, five are being built by domestic companies Euro-Asfalt and Hering, five by Turkish and Chinese firms and two by domestic firms in a consortium with companies from Azerbaijan and North Macedonia. As for the building of the Prenj tunnel, a decision is awaited that will choose between three Turkish companies, two Chinese, one Indian and two consortiums from Turkey and South Korea.

Not one company from Western Europe applied to the tender worth around 800 million marks (some 400 million euros) for the construction of what will be the ninth-longest road tunnel in Europe.

Few senior figures in Bosnia and Herzegovina are willing to be interviewed about this phenomenon. Detektor contacted current and former officials, directors of large construction firms and individuals who once were or are still involved in decision-making processes, but none of them agreed to talk.

State minister of transport and communications and former Sarajevo cantonal prime minister Edin Forto asked to receive questions in writing, but he never answered them. Appearing as a guest on N1 TV, he said that questions had arisen about why so few European firms were expressing interest in tenders.

“For them, it is a reputational risk to do business in Bosnia and Herzegovina. So when a good company from Turkey or China applies, it is not that bad given that no one wants to come from Europe,” Forto said.

In Republika Srpska, two out of three new motorway sections are being built by Chinese companies.

The most recent agreement was signed with Chinese consortium COVEC, China Tiesiu Civil Engineering Group and China Construction Bank.

The consortium will finance, design and build the Brcko-Bijeljina motorway section after winning the tender two months after the publication of the call.

Li Hong, president of one of the consortium member companies, COVEC, demonstrated interest in working on infrastructure projects in November 2022, when he met Republika Srpska’s President Milorad Dodik and Radovan Viskovic.

COVEC said in a statement at the time that Hong reached a deal on cooperation on infrastructural projects.

Three months after the meeting, a representative of COVEC said when signing the contract that Republika Srpska had potential that should be used and confirmed Dodik’s statement that the company will move its office to Banja Luka.

The Chinese have no political preconditions for cooperation and a Chinese company moving to Republika Srpska is of great importance, said Dodik when explaining the company’s move from Warsaw to Banja Luka.

On the official website of the registry of companies, it is still not possible to find an entry for COVEC. In early March, Detektor journalists were told verbally by the District Economic Court in Banja Luka that the company had still not been registered. COVEC is a subsidiary of the China Railway Engineering Corporation, CREC. Its other subsidiary, China Railway No. 10 Engineering Group Co., CREC 10, is one of the companies that was selected for the reconstruction of the tramway in Sarajevo.
In a previous investigation into the contract awarded to the company, Detektor discovered that COVEC and CREC 10 worked on a project for construction of the Sigiri Bridge over the Nzoia River in Kenya, which partially collapsed in June 2017, injuring 27 workers. The bridge construction cost $11 million.

The Ministry of Transport of Sarajevo Canton insisted that this information had was not known to it before, but in April last year, following Detektor’s investigation, minister Adnan Steta said he would ask the consortium about its past deals.

Asked if the company’s past had now been examined, the ministry answered in writing, stating that the consortium had responded that it was not directly associated with the accident.

“The company that was working on the project is separate and independent, without any direct link with one of the partners in the consortium working on the project. They pointed out that their consortium met the requirements in terms of stability of financial position and history of realised contracts,” the Ministry of Transport wrote, paraphrasing the consortium’s response.

But based on photographs published during the construction of the bridge, Detektor can confirm that it is the same company that is now rebuilding the tramway in Sarajevo.One of the court verdicts concerning the accident stated that the project developer COVEC accepted the Chinese consortium’s responsibility for the bridge collapse.

Republika Srpska Motorways did not answer Detektor’s query about the selection of the Chinese company, nor did it answer Detektor’s request for an interview about other motorway sections in the entity being built by Chinese companies.

No contract transparency

Ceremony of the start of construction of the Banjaluka-Prijedor highway. Photo: Government of the Republic of Srpska

Domestic institutions continue to seek permission from foreign companies to publish contracts even after the District Court in Banja Luka decided in the first instance that this practice was wrong.

The Ministry of Transport and Communications of Republika Srpska has still not followed the court’s order to provide the contract for construction of Banja Luka-Prijedor motorway to Transparency International.

The court’s decision stated that the Ministry of Transport and Communications was concerned about protecting the interests of a foreign company instead of prioritizing the public interest.

The start of construction of the motorway section was made official in November 2021, after the concession contract with Chinese company China Shandong International Economic and Technical Cooperation Group was signed back in 2018.

The company building the motorway from Banja Luka to Prijedor is also involved in the reconstruction of the tramway in Sarajevo.

The deadlines and details of the contract have been announced publicly on various different occasions, but the details were often different. The contract itself has never been published. The Ministry of Transport explained that a state body is obliged to publish basic data about contracts that have been awarded, but it could not publish contractual details without the consent of the contracting party and financier.

Asked by Detektor about the delay in the reconstruction of the first part of the tramway, the ministry stated that the deadline for reconstruction of the tramway between Ilidza and Marijin Dvor was 730 days, and that there was no possibility of alternative deadlines being given.

In its response to Sarajevo Cantonal Assembly member Mahir Devic dated January 18, 2022, the ministry wrote that the contract for the modernisation of public transportation in Sarajevo envisaged that work on the Nedzarici-Cengic Vila section would be completed by March 26, 2022 and the Ilidza-Nedzarici section by April 25, 2022.

Trams started running on the new tramway in late September 2022.

A completely new tramway line in Sarajevo, running from Ilidza to Hrasnica, will be built by Turkish companies Yapi Merkezi Insaat ve Sanayi A.S. and Yapiray Demiryolu Insaat Sistemleri Sanayi ve Ticaret A.S.

The contract worth nearly 50 million Bosnian marks (some 25 million euros) will be financed by the European Bank for Reconstruction and Development, EBRD.

Turkish companies are also involved in four large projects worth 1.4 billion marks (around 700 million euros). Cengiz Insaat Sanayi and HGG Insaat Anonim Sirketi are involved in the construction of motorways in Bosnia and Herzegovina.

A previous investigation by Detektor showed that the Cengiz company had been hit by lawsuits for failing to protect workers since 2012. While the court cases have been progressing slowly, the authorities have been choosing to overlook the allegations of irregularities against Cengiz and awarding the company new contracts.

Business without conditions

The work on the construction of the Počitelj bridge should have already been completed. Photo: Highways of the Federation of Bosnia and Herzegovina, March 2023.

There is a difference in doing business with Western European companies and Chinese ones, explained Mirko Sarovic, a former minister of foreign trade and economic relations and national coordinator for cooperation with China.

The European Union is Bosnia and Herzegovina’s main trading partner and has a large share in investments, he said.

“When they give us money, Bosnia and Herzegovina is invited to harmonise its legislation with that of the European Union,” he explained, while the Chinese invest without setting conditions.

“However, we had to set conditions for them to meet the standards [of both Bosnia and Herzegovina and the European Union],” Sarovic said.

The former minister said that his role is to pave the way for cooperation, and then the conclusion of the contracts is always left to other Bosnian officials.

During his visits to China, Sarovic met representatives of companies operating in the energy and construction fields. In 2017, he met officials from China Power and Sinohydro, as well as representatives of Exim Bank.

The Sinohydro company is participating in a project to build the Pocitelj bridge, which is worth over 60 million marks (over 30 million euros) jointly with another Chinese company, Powerchina Roadbridge Group, and Azerbaijani company Azvirt.

These companies missed the 30-month deadline for construction, so the contract was extended, but the bridge has still not been built. As a consequence, Federation Motorways initiated a procedure to collect penalties for the first time due to the delay in the work. The penalties could amount to up to ten per cent of the contracted amount.

Two years before Federation Motorways signed the contract with Sinohydro, the company had been penalised in Africa for misrepresenting its previous works. An investigation conducted by the Anti-Corruption Office of the African Development Bank discovered that Sinohydro gave false data about successfully completed projects to win the job although the previous work had actually not yet been completed. For that reason, the African Development Bank put a three-year moratorium on doing prohibited business with the Chinese company.

Federation Motorways did not respond to Detektor’s request for an interview with its director, nor has it answered questions sent by Detektor.

“Receiving Chinese capital brings some benefits to a country in the short and medium run, but it brings uncertainties and risks in the long run,” said Vuksanovic.

“Some countries may accumulate debt which they cannot handle, so a form of political dependency is created,” he added.

Nermina Kuloglija-Zolj

This post is also available in: Bosnian