EP BIH on the Silk Road: The revitalization work of block 6 awarded to Chinese companies

Autor/ica 👤Predrag Blagovčanin 1.2.2023. u 11:41

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Photo: EP BiH

Elektroprivreda BIH awarded the project of “boiler revitalization of block 6” worth 29.7 million KM to the Bosnian-Chinese consortium. Thus, the key work on which the survival of EP BIH depends will be realized by the company ITC Zenica, which specializes in the sale of agricultural equipment, and the Chinese companies Dongfang Electric and Dongfang Boiler, whose business is marked by corruption investigations as well as unbreakable ties with the political leadership of Republika Srpska.

Written by: Predrag Blagovčanin

The never realised construction of thermal unit 7 Tuzla, a serious lag in energy transition processes, the general dilapidation of the thermal plant as well as increasingly strong pressures from the Energy Community are factors that positioned the uninterrupted operation of unit 6 of the Tuzla thermal power plant as a key point in the functioning of Elektroprivreda BIH.

A possible stoppage of the operation of this energy plant would also call into question the functioning of the entire Elektroprivreda BIH concern. They are aware of this in this company, which is majority owned by the Federation of Bosnia and Herzegovina, and in 2019 they announced a tender with a planned implementation in 2022.

As part of this reconstruction, which was last carried out in 2013, in addition to the turbines, other works would be carried out so that, after the cessation of operation of units 3 and 4 of the Tuzla thermal power plant, in addition to the supply of electricity, the supply of thermal energy for the needs of district heating would be enabled. With the planned activities, the operational work of this block would be extended for the next 15 years.

One year after the call for tenders, EP BIH makes a decision on the results of the prequalification of candidates. Dissatisfied with this decision, the Consortium “ITC Zenica-Mitsubishi Hitachi Power System Europe GMBH and Elcom Tuzla” submits an appeal, which the BIH EP approves.

The Polish Consortium “Zaklady Remontowe Energetyki Katowice SA Energotechnika-Energorozruch SA Gliwice” also appealed against the decision of EP BIH. The complete procedure is thus transferred to the Office for Review of Appeals and competent courts.

Thermal power plant Tuzla/Photo: EP BIH

After this delay in the selection of the contractor, Elektroprivreda BIH announces a new tender, which after the e-auction is won by the Consortium led by the company “ITC Zenica”, but now instead of the Japanese one with a Chinese partner – the state companies “Dongfang Electric International Corporation” and “Dongfang Boiler Group Co. “.

Regarding the reasons for which the company “Mitsubishi Hitachi Power System Europe GMBH” withdrew from the consortium with the company ITC Zenica, this Japanese company replied that they generally do not disclose details of business relationships, especially due to confidentiality agreements.

All the Chinese affairs: From Milorad Dodik to Blaž Đukanović

“Dongfang Electric International Corporation” – DEC, a key Chinese company for the construction and servicing of thermal, hydro, and nuclear power plants in Bosnia and Herzegovina, was initially engaged in the construction of the private thermal power plant Stanari owned by “EFT”, more precisely, Vuk Hamović.

The construction of the Stanari thermal power plant, which today produces a total of 13 per cent of electricity in Bosnia and Herzegovina, was financed with loans from the Chinese Development Bank, and the total investment at that time was 560 million KM.

However, the very construction and exploitation of coal would not be possible without the protection of the political leadership of Republika Srpska itself. In support of such a claim are the researchers of the Capital.ba portal, which established that this company’s concession fee was reduced by approximately 100 million KM.

Successful realization of the construction of the thermal power station Tenants, as the increasingly intense contacts of the political leadership of the RS, primarily Milorad Dodik, with the leaders of the Chinese company DEC positioned this Chinese company as a strategic partner of this BiH entity in future energy projects.

Opening of TE Tenants/Photo: Žurnal.info

Not long after the official visit of Milorad Dodik, at that time the President of Republika Srpska, to China, and talks with the chairman of the board of “Dongfang Electric Corporation” Zou Lei, this company signed the “Memorandum of Understanding on the realization of the Upper Drina hydropower system” in 2017, as part of which the HPP Buk Bijela project has not been realized to date due to political reasons.

The situation is similar to the construction project of the Banovići Thermal Power Plant in another BiH entity. Back in 2015, the company DEC was chosen as a strategic partner for the construction of a thermal power plant with a capacity of 350 MW. The investment worth EUR 405 million was supposed to be financed in such a way that 85 per cent of the total value was credited by a consortium of Chinese banks. Political turmoil within the SDA Tuzla Canton as well as the departure of Mirsad Kukić from this political party stopped this infrastructure project.

Just in 2015, the operations of DEC, together with five other state-owned companies, were the subject of investigations by the main Chinese anti-corruption agency, which established that the company’s leaders had accepted bribes. Accusations of political connections and favouring the Chinese company DEC also come from the American company “General Electrics” due to a tender worth 300 million dollars financed by the South African “Eskom” group.

Apart from Bosnia and Herzegovina, where the DEC company is currently engaged in the work of “boiler revitalization of Block 6 of the Tuzla Thermal Power Plant” and the construction of the Bileća solar power plant owned by “EFT”, which should be operational this year, the Chinese company in the consortium with “Bemax BB” and “Permonte” was selected as the best bidder for the ecological reconstruction of the Thermal Power Plant in Pljevlja.

Indicatively, the company “BB Solar” is co-owned by Blaž Đukanović, the son of Mile Đukanović, the President of Montenegro.

Milo Đukanović and Blaž Đukanović/Photo: Novosti.rs

Marko Banović from the organization Digital Forensic Center, which published a study on Chinese influence in the Balkans as well as data on Montenegro’s credit indebtedness to China, points out that DEC’s operations can be seen precisely through the expansion of foreign political influence.

“According to the information that we gathered from open sources, we did not notice that DEC was engaged in other projects. As for the spread of Chinese influence, this is one of the classic examples. Through economic cooperation, especially in the field of energy, China dominates the market of the Western Balkans. As for the ecological reconstruction of the Pljevlja Thermal Power Plant, the Chinese company won the tender ahead of the company from the EU.”

Through the plough to the stars: ITC Zenica

The domestic company in the consortium that won the infrastructural job of revitalizing block 6 of the Tuzla TPP is represented by ITC from Zenica. The company, founded in 1994, bases its business primarily on the sale and distribution of agricultural equipment and agricultural machinery.

In the past period, the company from Zenica focused on the execution of construction works, and the construction of the Rijaset Islamic Community Building in Sarajevo stands out as the first serious construction undertaking. They started cooperating with Elektroprivreda BIH in 2019, precisely through preparatory work on another Chinese project, the construction of block 7 of the Tuzla Thermal Power Plant.

Slobodan Stanković/Photo: Avaz

ITC Zenica, then in Consortium with the company “Integral” of Slobodan Stanković, which today is on the “black list” of the US Ministry of Finance due to financial and material assistance to Milorad Dodik and the company “Prijedorputevi”, which is also linked to a number of scandals, wins a tender worth over 21 million KM.

According to the portal Žurnal.info, the very awarding of the contract to the “ITC-Integral-Prijedorputevi” Consortium is disputed due to the fact that the offer for the performance of preparatory works for block 7 of the Tuzla TPP was ranked sixth, that is, five million more expensive than the offer of the consortium led by the company “Flock”.

Suvad Isaković/Photo: ITC.ba

Member of the Parliament of the Islamic Community, professor at the University of Zenica and owner of the company ITC Zenica Suvad Isaković points out that ITC has no experience in the renovation of boiler plants. The company DEC offered the necessary references for the contract “boiler revitalization of block 6”. He states that cooperation with Chinese companies is the result of business meetings over the past five years.

“The revitalization of boiler plants is carried out very rarely. The last revitalization of the boiler facilities was done in 2012. Consortium “ITC Zenica, Dongfang Electric International Corp. and Dongfang Boiler Group Company, the request for tender documentation in terms of technical and professional ability, which refers to the successful experience of implementing the same or similar contracts as the subject of procurement, was fulfilled based on the reference of the company Dongfang Electric International Corp.”

EP BIH: How do you spell tender again?

According to information from the Tačno.net portal, the beginning of the implementation of the contract with the ITC Zenica consortium and Chinese companies was marked by difficulties in securing the bank guarantees provided for in the contract, primarily advance bank guarantees.

Namely, the contract concluded in August 2022 defined an advance payment of 30 per cent of the contracted value and a bank guarantee for an equivalent amount. However, the EP BIH contract did not define the form of the advance bank guarantee, nor the terms in which it should be delivered.

This failure on the part of EP BIH, as well as attempts to later harmonize the form of the advance bank guarantee as well as the eventual collection of the advance with the aim of reducing the risk of the impossibility of collecting it, slowed down the implementation of the contract by a little more than 100 days. We remind you that the official deadline for the completion of works on the revitalization of the block 6 boilers is 390 days.

Admir Andelija/Photo: FENA

Elektroprivreda BIH emphasizes that they have solved the problem of bank guarantees and that the contractors of this most important project have not slowed down the implementation.

“The fact is that there was a delay in the payment of the advance due to the harmonization of the text of the bank guarantee for the advance. For now, the contractor, that is, the aforementioned Consortium, has not requested an extension of the deadlines due to the delay in defining the bank guarantee, and therefore the payment of the advance. If the Consortium sends a request for a possible extension of the deadlines, JP Elektroprivreda will take a position on the same.”

The current management of Elektroprivreda BIH believes that the equipment that will now be installed during the renovation will be compatible with the existing one because, as they state, this is precisely what was determined by the tender documentation.

“Tender documentation has been prepared for the delivery and installation of equipment that will be compatible with the existing one, without preferring bidders on any basis. The selected Consortium responded to all the requirements of the tender documentation, on the basis of which it was selected as the most favourable bidder. The equipment is manufactured and installed according to the documentation and project approved by the customer. On the basis of the above, there can be no doubt as to whether the equipment supplied by the contractor will be compatible with the equipment of the Block 6 boiler because it does not depend on the headquarters of the company where the equipment is manufactured.”

Regardless of the fact that the key project was delayed at the very start, Elektroprivreda BIH is optimistic about the upcoming activities.

Optimism is also present regarding the construction of block 7 of the Tuzla thermal power plant, given that this project is included in the business and strategic plans of this state-owned enterprise.

However, it is precisely the project Block 7 Tuzla, on which approximately 304 million KM, which in the past 17 years has financially threatened the Federation of BIH as well as slowed down the process of the energy transition, a blatant example of doing business with Chinese companies from which the management of Elektroprivreda BIH apparently did not learn any lessons.