Construction of the Banja Luka-Prijedor Highway: Contract drafted in favour of Chinese investors, violates state aid rules

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Photo: Government of Republika Srpska

The Government of Republika Srpska has been persistently hiding the contract related to the construction of the Banja Luka-Prijedor highway entrusted to the Chinese company Shandong. SPIN Info has learned that before signing the mentioned contract, which obligates the government to allocate certain funds to the Chinese company or provide certain guarantees that favour the company, the government was required to submit an application for approval of state aid to the competent authority, namely the Council for State Aid, which they did not do. Therefore, state aid granted in this manner would be considered illegal and subject to recovery.

Written by: SPIN Info Research Team

The controversial nature of the contract and its negative impact on the citizens of Republika Srpska was acknowledged by Prime Minister Radovan Višković himself, who admitted that once the highway is completed, Republika Srpska will pay the Chinese company 30 million BAM annually as a fee for usage. Additionally, previous media reports mentioned that the contract stipulates that the RS government will pay a certain amount from the budget if the highway does not have sufficient traffic flow, which is necessary for it to be economically justified from the perspective of the Chinese company. Apart from being clearly detrimental to the citizens of Republika Srpska, the contract is not in line with the Law on State Aid System in Bosnia and Herzegovina.

Namely, this law regulates the general conditions for granting, controlling the granting and use, approval, and recovery of unlawfully granted state aid, as well as the list of state aid and reporting on it, with the aim of establishing and ensuring competitive market conditions and fulfilling the obligations arising from concluded international agreements.

Article 12 of the Law on State Aid states that “providers of state aid shall timely inform the competent authorities for the implementation of this law about the state of planned and existing state aid if it undergoes significant changes and submits an application for the approval of such aid to the mentioned authorities.”

An employee of the Council for State Aid confirmed in a phone conversation with SPIN Info that they did not receive an application for the approval of state aid for the construction of the highway. She also mentioned that each case is different and without specific documentation, she cannot provide further information.

The provider of state aid, in this case, the RS Government, can grant state aid to the Chinese company only after it is approved by the Council, in accordance with the law. Since the application has not been received yet, state aid granted in this manner is considered unlawful.

In case of a subsequent application, which represents an exception according to the law, and if state aid is not approved, measures are taken to recover unlawfully granted aid from the beneficiary. The amount of aid to be repaid includes the utilized amount of state aid increased by default interest. Interest is charged from the day the unlawful aid was made available until the day its amount is repaid.

It is clear from Article 4 of the Law on State Aid in Bosnia and Herzegovina that the system of state aid does not apply to the financing of infrastructure with public funds if the use of that infrastructure is not charged to its users. Since the use of the highway is subject to charges, it is evident that it falls under the law, as acknowledged by the Council.

“If commercial activities are conducted, if there is a charge, in that sense, it would affect the market, but I repeat, four cumulative conditions must be met for something to be considered state aid,” said the Council representatives.

Abuse of power and conflict of interest?

It is unclear why the request was not submitted for consideration, considering that the Government of RS has its representatives in the competent bodies. It is particularly interesting that the Chairperson of the Council for State Aid of Bosnia and Herzegovina, Radmila Čičković, is from Trebinje and was formerly the CEO of Elektroprivreda RS (power utility company of RS).

Namely, she previously decided on the permissibility of state aid to Elektroprivreda RS, and, of course, such aid was considered permissible.

Radmila Čičković signed the decisions approving state aid for the construction of the Dabar hydropower plant and the resolutions concerning Elektroprivreda RS. Čičković facilitated guarantees for enormous credit obligations to the company she worked for.

“It is clear that Čičković, as a member of Luka Petrović’s team, was appointed to the Council to approve aid to Elektroprivreda. We don’t know how the Secretariat of the Energy Community will react to this and whether they are aware of this fact and the obvious conflict of interest,” our interlocutor said.

Analyst Zoran Pavlović previously stated to the media regarding the construction of the multi-million project of the Dabar hydropower plant that whenever someone takes on a loan that exceeds their repayment capacity, as was the case with Montenegro, they must be aware of the potential risk of having to give up some of their assets.

The system of state aid is one of the conditions prescribed by the Stabilization and Association Agreement.

The government has circumvented the law. Even if state aid were to be approved by the government, as well as for other multimillion projects and guarantees, a situation similar to the construction of Block 7 of the Tuzla Thermal Power Plant could occur. In that case, the Energy Community challenged the decision of the Council for State Aid of BiH, which did not consider the guarantee for its construction as state aid. The Council later annulled the said decision and issued a new one stating that the guarantee of the FBiH government is not in line with the Law on the State Aid System.

We would like to remind you that the obligation to adopt the Law on the State Aid System in BiH and establish an independent body to control the allocation of state aid in accordance with EU rules is prescribed by Article 71 of the Stabilization and Association Agreement. Considering that BiH has obtained candidate status, we can expect the EU to request the competent institutions in BiH to investigate this case and emphasize the obligation to comply with the state aid rules prescribed by the Stabilization and Association Agreement.

The reasons behind the decision of the RS government to bypass the law and provide state aid without the approval of the competent institutions, as well as the secrecy surrounding the contract and the disregard for court decisions after the lawsuit by Transparency International, are not known to the public. These actions raise suspicions of numerous irregularities related to the construction of this highway.

Transparency International BiH stated to SPIN Info that it has become a general practice of the RS government and other institutions in recent times not to disclose information, and there has even been a noticeable decrease in proactive disclosure of information that was previously common.

“In this particular case, the problem lies in the fact that despite the public interest and significant public concern, as well as court rulings, they are not being respected in favour of the ‘financial interest’ of a third party. The government and the ministry seem to forget that they should serve the citizens of Republika Srpska, not the Chinese contractors. However, it is widely known that where transparency is lacking, there are usually higher risks of corruption, and such behaviour by the authorities only fuels greater suspicion that this public procurement was conducted to the detriment of public interest and public funds,” concludes Damjan Ožegović from TI in the interview for our portal.

It is evident that the government of Republika Srpska, apart from the deadlines and unreliable Chinese partners, is playing with millions when it comes to the construction of the Banja Luka-Prijedor highway. Through numerous non-transparent actions related to this significant project, as well as violations of regulations and laws, they have prioritized the protection of Chinese investors rather than working in the best interest of the citizens.

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