China-Russian bypass for European sanctions: Aluminij Industries Mostar

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Photo: bljesak.info

The strategic partners of the Israeli company MT Abraham, which took over the infrastructure of the Mostar aluminium plant for a symbolic 30 thousand KM monthly rent, are the Chinese state companies “CMEC” and “NFC”, one of which is on the World Bank’s black list and the other, according to world media. cooperates with Iran in developing a missile program. In that context, the collapse of the aluminium plant Mostar as well as the takeover of this strategic company today raises the question of the role of Bosnia and Herzegovina in the geopolitical relations of the great powers.

By: Predrag Blagovčanin

After several announcements, in July 2019, Elektroprivreda Hrvatske of the Herceg-Bosna community cut off the electricity supply, thus shutting down the production at the aluminium plant Mostar owned by the FBIH Government and small shareholders by 44 per cent and the Republic of Croatia with 12 per cent. By shutting down the plant, a path was created toward the handover of the aluminium industry in the FBIH to “the best bidder”.

The cessation of production has accumulated the dissatisfaction of about 900 workers who organized mass protests in front of the party’s headquarters in Mostar, targeting President Dragan Ćović as the person most responsible for the situation at the aluminium plant.

Along with the protests in front of the HDZ, the FBIH government, led by Prime Minister Fadil Novalić and line minister Nermin Džindić, negotiated with interested bidders to take over Aluminij Mostar. Primarily Swiss Glencore, which has been working intensively with the aluminium plant since 1997.

Due to the request for preferential electricity prices, representatives of the FBIH Government rejected the offer of Glencore as well as Dubai-based WAQT Trade LLC, which opens space for the Israeli group MT Abraham and Chinese strategic partners led by Amir Gross Kabiri.

Unlike Israeli investor and art collector Amir Gross Kabiri, who maintains strong business ties with Mikhail Piotrovsky, longtime director of the State Hermitage Museum and one of Vladimir Putin’s most loyal cadres since his tenure as mayor of St. Petersburg, Aluminij Industries’ strategic partners have rich experience in the aluminium industry and construction of energy facilities.

According to the writings of Reuters, China’s Non-Ferrous Metal Industry’s Foreign Engineering & Construction (NFC) has worked closely with Iran’s missile program to create aluminium powder, a key propellant ingredient used to launch missiles. In a statement to Reuters, NFC representatives stressed that the company’s business in Iran is related exclusively to civilian use. NFC has been present in Iran since 2005, where they participated in the project of technical modification of the aluminium oxide factory in the city of Jajarm.

Given the decades-long continuity of political conflicts and tensions between Israel and the Islamic Republic of Iran and the fact that the Israeli company’s strategic partner, according to media reports, cooperated with Iran on the development of aluminium powder, we asked Israeli Ambassador Noah Gal Gendler for comment.

The Israeli ambassador denied the existence of an agreement between MT Abraham Group and NFC, emphasizing that “this is historical information that has not been relevant for some time.”. Shortly after our communication from the official website of Aluminij Industries, NFC was removed from the Strategic Partners section.

The second strategic partner of MT Abraham Group, China Machinery Enegineering Corporation (CMEC) has long been present in Serbia and Bosnia and Herzegovina through projects for the construction and rehabilitation of energy facilities. This Chinese state-owned company has been under World Bank sanctions since 2018 due to fraud in the process of the energy efficiency project in the province of “Shandong China“, more precisely, false representation of the completion of works and payment of advances.

Nermin Džindić, Fadil Novalić and Jelka Miličević/photo: Klix.ba

The Federal Minister of Energy, Mining and Industry, Nermin Džindić, who represents the interests of the FBIH in Aluminij d.d., pointed out that he could not comment on this information, which is not official and has not been submitted to him for inspection.

Freedom for green energy exporters

Energy infrastructure of Aluminij d.d. Mostar, once the largest consumer of electricity in BiH, substations, access lines, and connection with a maximum capacity of 235 MW worth tens of millions of KM, was left to MT Abraham Group through a lease agreement for a symbolic 30,000 KM per month.

It is in this data that the interest of the Chinese company China Machinery Enegineering Corporation (CMEC) is contained. As stated in the contract, the Israeli-Chinese “investors” in Aluminij d.d. are left with the possibility of building solar, wind and gas power plants with individual power up to 30 MW.

Amir Gross Kabiri and Isak M. Tamir, another man of the MT Abraham Group, confirmed in earlier statements that the Chinese company China Machinery Enegineering Corporation will participate in the construction of the energy facility.

“We have joined forces with our strategic partners, CMEC, and will build power plants using renewable energy sources, solar and wind, to provide Aluminij with the full capacity of electricity needed for foundry and anode propulsion.”

Insignificant amounts of energy required for the operation of these two plants, as well as the assumption that Aluminij Industries d.o.o. Mostar will not start the electrolysis plant, will open the possibility of creating profits from the free sale of electricity from renewable sources in the European market.

Aluminij Mostar / photo: Zenit.ba

The Chinese state-owned company CMEC expressed interest in investing in renewable energy sources in 2015, after a meeting with Dragan Ćović during his official visit to China.

After this meeting, the then-member of the Presidency praised every effort of Chinese companies to start or continue all projects that are of mutual benefit and lead to the further development of BiH.

That the meeting with Dragan Čović was fruitful for the company CMEC is shown by the signed partnership memorandum with the company VE Gradina from 2016, which concerns the development and construction of the first phase of the Wind Farm near Tomislavgrad with an installed capacity of 41.6 MW.

Photo: BL portal

While Chinese companies in BiH are investing in green energy, the FBIH Government led by HDZ Finance Minister Jelka Miličević is borrowing 1.2 billion KM in 2019 from the Chinese state bank “EXIM” for the construction of Termo blok 7 Tuzla, although at that time it was already clear that the electricity produced from this plant will not be competitive in the market due to CO2 taxes.

In this context, the trend of investments in renewable energy sources of foreign investors in BiH raises the question of the lack of legislation of the FBIH and RS, which would encourage the mandatory purchase of green energy for public supply. Prof. Mirza Kušljugić believes that such a policy during the construction of renewable sources will not contribute to the process of decarbonization and opens the possibility of placing renewable energy in exports.

“A more detailed analysis indicates that the export of renewable energy, especially from wind and solar power plants, does not have to contribute to the economic development of BiH. Namely, the construction of such facilities has large investment costs for technologies, and during the operation of this power plant, they create a very small number of jobs. Therefore, if such power plants are built with foreign capital and if the energy they produce is exported, the only economic benefit for BiH is usually only the concession fee (which is a few per cent of total revenue). At the same time, locations with the best wind and solar potentials are “occupied” and the transmission network is “burdened”.”

Mirza Kušljugić/photo: Akta.ba

According to Kušljugić, the right approach would be for the state to encourage the construction of renewable sources through auctions, thus ensuring the takeover of part of the energy, for example, 50% at affordable prices for public supply. However, the precondition for this way of decarbonisation is the existence of a vision, strategy and plans, which BiH does not currently have.

The work of the decade: Chinese-Israeli partnership with the blessing of Russia

The “saving” lease agreement signed in April 2020 is a glaring example of taking over strategic companies without foreign direct investment. For 30 thousand KM in the first two years of lease, MT Abraham Group, more precisely Aluminij Industries d.o.o. Mostar, in addition to using energy infrastructure, has realized a number of other benefits, such as the lease of the complete movable and immovable property of Ljevaonica.

The contract also enables the registration of a lien on property, the introduction of additional partners, and the possibility of buying part of a factory or a complete factory with the exclusive right of pre-emption. It is also possible to take over intellectual property.

Available business data clearly illustrate the economic potential of the aluminium industry.

The company Aluminij Industries d.o.o. Mostar, founded by Amir Gross Kabiria with a founding capital of 5 thousand KM in 2020, had a turnover of 790,000 KM.

Next year, the turnover of this company grows to approximately 470 million KM and the realized profit of almost 30 million KM. It is important to mention the fact that the ownership structure of this company has changed so that instead of Amir Gross Kabiri, the registered company MT Abraham Group SA is registered in the “Offshore” zone of Panama.

The reason for the sharp increase in turnover of Aluminij Industries is in correspondence with the business relationship with Glencore, as well as the fact that the Swiss company officially signed a new contract with RUSAL for the delivery of 6.9 million tons of aluminium in 2020-2024.

We remind you that the business of the Swiss company Glencore AG International, the world’s largest ore trader, was marked by a series of corruption scandals, violations of international sanctions, money laundering charges, tax evasion and excellent business connections with sanctioned Russian oligarch Oleg Deripaska, former owner of RUSAL, the second-largest world aluminum producer.

Deripaska and Glencore are also co-owners of EN+ Group, one of the world’s largest producers of “Green Aluminium” produced from renewable energy sources. Due to sanctions, Deripaska EN+ Group and Rusal were on the OFAC list in the period from April 2018 to January 2019.

According to the available data from the Foreign Trade Chamber of BiH, Switzerland is the largest importer of aluminium in BiH in this period. Between 2021 and April 2022, 683 million KM worth of aluminium was imported from this country to BiH.

Although it does not have its own raw materials, Switzerland is one of the largest traders in ores, whose raw materials exchange has a turnover of one billion USD a year. The Swiss organization Public Eye emphasizes that the ore trade is insufficiently transparent without clear legal regulations and as such is one of the main revenues of authoritarian regimes.

A very interesting fact is the fact that in 2021, Aluminij Industries achieved a record turnover that Aluminijski kombinat Mostar has never reached in its history. In accordance with these figures, the question arises of the benefits that the FBIH has from renting the plant.

Goran Đukanović, an expert on the aluminium market, speaking about the rental prices of the “Foundry” plant, believes that they are stimulating at the time of the takeover, given the need to take care of some workers of the former Aluminij. However, as he points out, it is necessary to calculate the benefits and profits for the owners of Aluminij d.d. Mostar from this business cooperation.

“The question arises for a reason: couldn’t all this have been done with the previous or some new local management and the workforce of Aluminij? Why was it necessary to lease Aluminij to a foreign company for the business of smelting aluminium and making a profit on the difference between two aluminium products without and with added value (ingot-log), when all this could be done without any problems in the old Aluminij? Everything that is done today and produced in Aluminij has been done before.”

Photo: Aluminij.ba

Đukanović believes that the electrolysis process should have be closed in a planned manner in the period 2015-2016 when it was clear that due to electricity prices this production is not economically justified.

“When it was known that the price of electricity was high and that it would not be possible to pay, why didn’t they start buying ingots and melting them into logs? Now, the salary for that job is up to 700-800 euros per ton of aluminium with low electricity consumption (5-7%) in relation to the production of primary aluminium in electrolysis, so that the profit is guaranteed. The aluminium foundry has a melting capacity of about 160,000 tons per year, so calculate the potential earnings. Why is that profit not provided to a local company, even the former Aluminij, but to a foreign company? What is the profit and benefit from all this for the state of BiH? Or rather, what is the income and benefit of individuals from the top of the government who made this job possible, a foreign company? “

Chronology of industrial devastation of BIH: One billion debt Aluminij d.d. Mostar

The increase in electricity prices, a key component in the electrolysis process, in the late 2000s signalled the beginning of problems in the operation of the aluminium Plant Mostar.

The impossibility of a political agreement between the SDA and HDZ at the federal level, which would subsidize the purchase of electricity, the lack of a common energy strategy and the idea of restructuring this giant, as well as increasing corruption, opened space for various stakeholders, directly or indirectly related with the Russian Federation like the Croatian Prvog plinarskog društva – PPD (translation: First Gas Company).

The owner of Luka Ploče and Gazprom’s representative in Croatia PPD and its subsidiaries in Bosnia and Herzegovina have worked closely with the Mostar aluminium Plant from 2016 until its closure. Only with the entry of the Federal Financial Police into Aluminij Mostar were the media allegations confirmed and it was clearly presented how the unfavourable contracts for Aluminij Mostar were concluded, with a total value of approximately half a billion KM.

Unfavourable contracts with suppliers and the “misunderstanding” of JP Elektroprivreda HZHB, founded in part due to the supply of the largest consumer of electricity in BiH Aluminij Mostar, led in 2019 to an accumulated debt of 400 million KM. Exactly three-quarters of the debt referred to the claims of Elektroprivreda HZHB and other suppliers, primarily Glencore as well as domestic companies such as FEAL Široki Brijeg.

Amir Gross Kabiri / Vecernjak Seal Award photo: MT Abraham

Today, almost three years after arriving in Mostar, Amir Kabiri is positioned as a central figure in economic, cultural and sports life created directly or indirectly by the HDZ BIH. The winner of “Večernjakovog pečata” (translation: evening seal) for Businessman of the Year, sponsor and member of the board of HŠK “Zrinjski” and patron of the former aluminium Gallery, which he recently opened under a new name together with Dragan Čović, greatly amortized the responsibility of this party for the collapse of Aluminij Mostar.

Officially, the arrival of MT Abraham Group led by Amir Gross Kabiri and Chinese partners in Aluminij Mostar is most due to the entrepreneur Marko Laco with a strong “background” in the HDZ. As Žurnal.Info states that Marko Laco, owner of IT-odjel d.o.o. and at one point manager of MT Abraham Group for the Balkans, has family ties with Milenko Čović, owner of the company “Katarina”, which has been generously funded by the party’s staff for years.

And the fact that political actors in BiH, primarily HDZ, were not focused on rescuing the Mostar aluminium Plant, which they ruled for decades, is shown by the example of an indolent attitude towards property that is not the subject of business cooperation with the Israeli-Chinese group.

They certainly had the support of the FBIH Government and Minister Nermin Džindić, whose mandate so far has been marked by a series of scandals, including the resolution of institutional chaos in OIEIEK, which allowed investors close to the HDZ a monopolistic position on subsidies for solar power plants worth 51 million KM.

It was from this ministry that they informed us that they do not have data on how many financial resources have been paid to the account of Aluminij d.d. Mostar so far on the basis of a contract with the company Aluminij Industries d.o.o. Mostar. They also do not have data on who participated in the negotiations with this company, and as they say, the control of the business relationship of these companies is done with Aluminij d.d. every 6 months submitting information on the status and implementation of the contract.

Zdenko Klepić, the current president of the Supervisory Board of Aluminij d.d., did not want to talk to the Tačno.net portal, while director Danijel Bukovac pointed out that he did not have the permission of the Supervisory Board to talk to the media.

President of the Supervisory Board of Aluminij d.d. Mostar Zdenko Klepić / photo: Avaz.ba

With the currently responsible staff at Aluminij d.d. Mostar, we wanted to discuss the allegations from the report on financial crime related to the sale of anode / petroleum-coke stocks to Aluminij Industries at a price 10 times lower than the market value.

According to the data from the application submitted to SIPA, FUP, the Prosecutor’s Office of the HNK and the Prosecutor’s Office of BiH, 4,000 tons of finished anodes, specific raw materials used for electrolysis, which remained after the shutdown in Aluminij d.d. Mostar, were sold to the company Aluminij Industries for approximately 65-70 USD per ton, although at that time on the market this raw material cost from 650 to 670 USD. According to estimates, Aluminij d.d. was damaged in this way by 4.6 million KM. After being sold by the Russian ship “Darina”, the anodes were transported from the port of Ploče to Ancona, Italy.

SIPA confirmed that it had received three reports at the beginning of 2022, two of which were submitted to the HNK Prosecutor’s Office, and one to the FUP for further action.

The response of the HNK Prosecutor’s Office did not specify whether they had launched an investigation in this case. Following the Report of the FBIH Financial Police on the operations of Aluminij d.d., this judicial institution sent a request for additional checks on possible criminal offences related to operations with large suppliers. To this day without an epilogue.

The FBIH Government did not answer questions about the reasons for the continuous prolongation of the financial consolidation of Aluminij d.d. Mostar.

By prolonging the consolidation, the FBIH Government froze any form of possibility of paying or resolving debts to creditors amounting to about 400 million KM.

Elektroprivreda HZHB confirmed for the Tačno.net portal that the company Aluminij Industries d.o.o., although specified in the contract with Aluminij d.d. Mostar, has not concluded any agreement on the compensation of claims with this creditor currently amounting to 295 million KM.

Director of PE EP HZHB Marinko Gilja / photo: Hercegovina.info

Today, Aluminij d.d. exists only as a legal entity with revenues from the collection of plant rent, which achieves a book loss of approximately 15 million KM per year. Given the fact that Aluminij d.d. was leased for a period of 15 to 15 years, it is estimated that this company will accumulate an additional 450 to 500 million KM.

When we take into account default interest and court costs on the total debt of 400 million KM to creditors, we come to the fact that Aluminij d.d. in thirty years will be in financial doubt of about one billion KM.

They did not want to comment on the details of the lease agreement from the relevant ministry, justifying the decision with “unconditional confidentiality of all provisions of the Agreement”.

Strategic interests of China and Russia: Dragan Čović and Milorad Dodik

The sale, or more precisely, takeover of state-owned companies such as the Brod Oil Refinery or Aluminij d.d. Mostar and their transfer to Russian or Chinese ownership has obviously conditioned the political positions of Milorad Dodik and Dragan Čović, which is especially visible in the context of events in Ukraine. With these facts, one should not be surprised by the lack of support of Dragan Čović for the decision to impose sanctions on Russia or Dodik’s support for the invasion.

Dragan Covic and Milorad Dodik / photo: Hayat.ba

Security studies professor Edina Bećirevicć emphasizes that experts have for years believed that China, unlike Russia, does not have an “alternative political vision” for the Western Balkans. According to her, Western officials were surprised by the alliance of China and Russia in the UN Security Council and attempts to destabilize BiH.

“Experts have argued for years that China is responsible for investing in a stable economic situation that is possible only if Bosnia and Herzegovina becomes a member of NATO and the European Union. Today, it is obvious that China has given up its neutral position on the political orientation of Bosnia and Herzegovina. In the last few years in alliance with Russia, they have realized that the rise of populist policies in the Western Balkans naturally facilitates its entry into the region. Anti-Western and Eurosceptic leaders in the region have been very open to seeing an alternative to the EU and NATO in Beijing and Moscow, and China’s alliance with Russia is seen as an effort to close the OHR, and in support of Milorad Dodik’s secessionist policies.”

Edina Bećirević / photo: Klix.ba

According to Professor Bećirević, China’s role in political relations within BiH will depend on the broader geopolitical context and future relations between China and Russia. Emphasizing that if this alliance is strengthened against the “enemy West”, it will certainly affect Bosnia and Herzegovina and the Western Balkans as a whole.

At this moment, no one can predict with certainty in which direction the political relations within Bosnia and Herzegovina will develop, because they largely depend on the geopolitical relations between the West on the one hand and Russia and China on the other.

However, what is quite clear is the fact that Bosnia and Herzegovina, by continuously destroying its own industrial potentials and handing them over to foreign investors, has greatly missed the opportunity to determine its own destiny.

The inquiries of the tačno.net portal did not receive answers until the publication of this text: the embassies of the Russian Federation and the embassies of the People’s Republic of China in BiH. Representatives of Aluminij Industries d.o.o. thanked us for the interest but refused to answer inquiries.

The HDZ BIH did not respond to the request for an interview with the president of this party, Dragan Čović.