Montenegro in chinese debt trap? Highway to nowhere

Montenegro in Chinese debt trap? Freeway to nowhere

Montenegro builds one of the most expensive freeways in the world. The money for this is given by china. montenegro loses tourism revenue due to the corona crisis. This could cause problems with repayment, the government has already had to issue additional government bonds to meet its obligations. Is montenegro in the chinese debt trap?? Unreported europe has researched.

It is probably the most controversial highway in the entire mediterranean region- and montenegros first. 40 bridges and 90 tunnels are being built and bored through the breathtaking mountain landscape of the small balkan state with china’s help. But of the 170 kilometers, only 40 are (almost) finished.

The mountain highway is being built at the request of montenegro’s strongman, milo đukanovic. For three decades, he has dominated the political landscape, sometimes as prime minister, sometimes as president.

French and U.S. feasibility studies had warned against the oversized mega-project. european investment Bank and international Monetary fund waved off the idea. The IMF strongly recommended that Montenegro wait until it is a member of the EU before embarking on this huge project – but that may take some time.

Montenegro’s politicians did not want to wait. The megaproject and the accompanying promises were used in the election campaign as a means of developing the economically weak north of the country. China jumped into the breach and put a billion dollars on the table as a loan for the first mini-section.

Now the corona crisis puts a spanner in the works: montenegro is addicted to tourism. The coffers are empty. Revenues are collapsing. 2020 was a catastrophic year, montenegro’s economic output fell by 15 percent – more than anywhere else in the balkans.

By this year, 2021, the country must start repaying the loan to china, 60 to 70 million euros annually. For a small country with low tax revenues, it’s a huge burden. Especially since there is still no toll revenue, since even the first section can not be driven on yet.

A highway to nowhere?

Montenegro has around 600.000 inhabitants and an economic output of just four billion euros. Where will it come from, the money for further construction??

The highway will connect the port city of bar in the south with the serbian border in the north. Section one should be ready by 2020, but construction is still going on. The government does not expect the highway to be completed this year.

visit to truck driver bojan. He lives right next to the construction site. Politicians promised thousands of jobs, but bojan got none. The chinese brought their own people with them. And local subcontractors are making rubbish with illegal workers from neighboring states. Without social contributions, there are fat profits for the bosses, says bojan.

Bojan’s family has lived in the area for many generations. He describes himself as a citizen of Montenegro with Serbian roots, and sees the future of his country in the European Union. Some of the family’s land was expropriated for the construction of the highway; Bojan and the other family members are still waiting for full compensation. Understandably, the man is pissed off.

In addition, the client, Montenegro, and the service provider, China, simply "forgot" in the highway contract they negotiated in 2014, that a highway is not just a concrete road to drive on. Such a mega-infrastructure needs a water management concept, needs to be electrified- access roads and driveways can also be quite practical for a freeway. Discover now the involved additional costs for water, electricity and feeder in the amount of 100 million euro. For a low-income economy, it’s not just a pittance – it’s a pittance but a terrifyingly huge sum of money. And all this only for the first 41 kilometers of freeway. The total cost for this one start-up phase could add up to a billion euros.

"I would have preferred if europe had financed the highway loan", says bojan rajkovic. "With europe, things would be more orderly, not the total chaos we have now, where it’s like a marketplace or a bazaar. No papers, no documents, only verbal agreements. And it’s all because the chinese and croatians are getting involved. If europe were here, there would be better control- and the construction would be finished now. Ten percent were stolen, one hundred million euros, that is the money that is now needed (all at once) in addition to complete the first section."

Montenegro: vulnerable to corruption?

A high-ranking manager from the Chinese state-owned CRBC does show the construction site to the euronews reporter- but the deputy project manager refuses to be interviewed. He is not authorized to do so. euronews inquiry to chinese embassy in podgorica also hits wall of silence.

Montenegro is considered corrupt. The population is increasingly annoyed. On the way to the chinese headquarters, we discover graffiti: milo, you are a thief it is written. An allusion to president milo dukanovic and his alleged connections to construction companies.

Dirty tricks of corruption

400 million euros of china’s billion-dollar loan funneled to local subcontractors, including some president’s friends. The corruption investigators of the EU co-funded association MANS explain to us some dirty tricks how money is diverted.

MANS director dejan milovac tells us that there were no public tenders for subcontractors: "large parts of the project are considered state secrets. CRBC has been granted benefits, the group does not pay value-added tax, social security contributions or customs duties on imports- and all these advantages were given to local subcontractors without any control. opening the door to corruption and unfair business practices."

New government calls for transparency

Popular discontent is making itself felt at the ballot box: a new team has been in power for several months now. The deputy head of government is considered to have integrity and demands full transparency- a precondition for montenegro’s rapprochement with the european union.

Interview with the deputy prime minister of montenegro

Euronews reporter hans von der brelie:
"is there a problem with dirty tricks and corruption, in this highway project?"

Dritan abazovic, deputy prime minister of montenegro:
"we can make all documents available and initiate an investigation. If we come across anything problematic, we will call in the prosecutors."

Euronews:
"this is interesting! So there will be investigations?"

Dritan abazovic:
"i am more than sure, in any case! Everything related to this project is quite opaque."

Euronews:

"So far, only one section is finished. Who continues to build the highway?"

Dritan abazovic:
"this is exactly our request to brussels. And I am absolutely convinced that we will find a solution with the European institutions to finance the two missing sections."

Euronews:
"what needs to change now?"

Dritan abazovic:
"the rule of law must finally be enforced in our country. Our biggest challenge is the fight against organized crime and corruption."

Speculation about montenegro’s deep-water port

There are rumors that china is interested in the deep water port of bar. In the loan agreement with china, montenegro agrees to waive sovereignty rights in the event of payment problems. In other words, china would have access to montenegrin state property as compensation for payment defaults – should this ever come about. It could be land – or it could be the acquisition of state concessions.

Since this infamous article 8 of the loan agreement came to light, local media have been speculating about what china intends to do. Does the long-term thinking state leadership in peking want to build a second logistics center in the region next to the greek port of piraeus with montenegro’s deep water port of bar? This would only make sense if the mega-highway from bar is actually quickly continued and completed, all the way to the serbian capital belgrade. There the chinese are building the railroad connection to budapest. Transportation routes and times shorten enormously for goods from china. Compared to northern european ports like antwerp or rotterdam, chinese exporters gain seven (very expensive) days of transport. Ports and logistics centers in the north of europe are left out in the cold.

Incidentally, if Beijing goes that far (which is not certain), arbitration would be handled in China according to chinese rules. in other words, montenegro has signed a gagging agreement and has surrendered itself skin and hair to the benevolence of the chinese contracting party. this is also the opinion of the new government in podgorica – which is why the economic crisis in 2020 caused something like a slight panic in the capital city.

A port concession fits in well with china’s "silk road" project, with which peking wants to expand its access to and influence in europe. To avoid arbitration and signal China’s willingness and ability to pay, the new government quickly raised government bonds. The additional money is supposed to bridge short-term budget problems, ensure repayment of the first installments to China – and last for two years. However, montenegro will have to pay many more years to china. Whether or not tourism revenues recover quickly? And even then, the next decade will be extremely difficult for the small state, there is zero room for other investments or other government spending, be it economic, cultural or social.

In cash we have an appointment with the deputy port manager deda đelovic. The government’s plans for port privatization are still unclear, he explains. Partial privatization already took place years ago. But the core parts of the deep-water port are still state-owned. but will it stay that way? Be that as it may, the port manager is in favor of the highway project, sees opportunities, economic boom, better utilization of existing unloading terminals (current utilization is catastrophically low) – and is already planning two new terminals: "our main economic goal for the next ten years is to develop our facilities into a port of regional importance. We want to increase freight and thus also stimulate industry and commerce."

No regard for nature

With our all-terrain production truck we set off for the mountains north of podgorica. destination is the valley of the tara, a natural jewel – actually. china’s state-owned corporation has driven the pillars of the highway into the middle of the tara river valley- although a different route would have been possible. the tara was in a way the wildest of all the wild waters of montenegro. We made an appointment with nataša kovaCevic. The green home employee (a nature conservation association) documents the water quality and the damage done with pencil and international rating tables according to the UK standard: down from top grade 1 to red lantern: grade 5. That’s bad, really bad. UNESCO is now taking legal action against it. Conservation standards have been and are being disregarded, say conservationists.

KovaCevic studied law, now she works full-time for the nature conservation association green home. Construction waste and mud destroyed the ecological balance – no fish spawn there anymore:

"We have devastated the most valuable section of the tara river. The tara is now uninhabitable for many fish species. There will be no fish in the water for the next 20 years and some species will never return, the environmentalist complains. Chinese managers disregarded basic EU standards- and montenegro’s regulators looked the other way: "that is simply unbelievable. It says here: the tara is protected by UNESCO. The removal of gravel and sand are prohibited. The dumping of excavated material and rubble is prohibited.. while that is exactly what is being done here", so kovaCevic. "It says: keep the area clean! – a joke, it’s just unbelievable!"

China’s investments in Europe and the Balkans are not always compatible with EU standards and in some countries China’s Silk Road is detrimental to European interests and values.

maybe europe is willing to finance the missing sections of the highway after all, but only – according to the result of this research – if some radical changes take place in montenegro: it is about environmental protection, rule of law and transparency. although brussels has made it clear that the EU will not take over loans from third parties. But that’s not what montenegro is about either (anymore).

What the new government has proposed is a restructuring of existing loan obligations to include european financial institutions. And/or a model to give montenegro access to the Western Balkans fund established by the EU – endowed with loans and guarantees in the multi-billion range. "Here montenegro can of course apply for funds/credit lines", a european commission official told euronews.

But in order for montenegro to be taken seriously from a brussels perspective, some things must first change in the country itself. The brussels mantra of "rule of law" principles, "transparency", "environmental impact assessments", "öpublic procurement" are not just empty words – but (as can be seen in the case of montenegro) very concrete demands that have to be implemented on the ground. Otherwise, there will be no EU membership and no financial aid.

Other sources – reporter& mojo camera: hans von der brelie; fixer& translator: asim bešlija; editing: christele ben ali; drone pilot: anes turkovic; production: geraldine mouquet; engineering: robin richard; sound mix: gilles sprecher, production manager: sophie claudet

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