High price for the highways loan, China remains in North Macedonia constructing even with European money
North Macedonia obtained a loan from the Exim Bank of China for the construction of the highways Kičevo – Ohrid, and Miladinovci – Štip, and now we are repaying the loan installments expensively due to the record strengthening of the US dollar against the Macedonian denar. In the meantime, after more than eight years and six months since the beginning of the construction works, the highway Kičevo-Ohrid has not been completed and put into use. However, the Chinese state-owned company Sinohydro, after being selected as the contractor for the two highways, decided to become a competitor in the Macedonian construction sector and has so far received two new projects – the construction of the second phase of the expressway Štip-Kočani and the completion of the first phase of the expressway Gradsko- Prilep.
North Macedonia obtained a loan from the Exim Bank of China for the construction of the highways Kičevo – Ohrid, and Miladinovci – Štip, and now we are repaying the loan installments expensively due to the record strengthening of the US dollar against the Macedonian denar. In the meantime, after more than eight years and six months since the beginning of the construction works, the highway Kičevo-Ohrid has not been completed and put into use. However, the Chinese state-owned company Sinohydro, after being selected as the contractor for the two highways, decided to become a competitor in the Macedonian construction sector and has so far received two new projects – the construction of the second phase of the expressway Štip-Kočani and the completion of the first phase of the expressway Gradsko- Prilep, publishes Meta.mk
Author: Bojan Blazevski
The construction of the 57-kilometer highway Kičevo-Ohrid began in February 2014 and so far there have been two breaches of the deadlines for its completion, publishes Meta.mk. The politicians’ false promises regarding the date of commissioning began with the government of former Prime Minister Nikola Gruevski, which promised to finish the highway within four years, and the Chinese company Sinohydro was hired for its construction. The initial deadline in the spring of 2018 was postponed with an annex to the contract which envisioned a new end date – June 30, 2021, but this deadline was also breached.
After eight and a half years spent in construction at a variable pace, the Public Enterprise for State Roads of the Republic of North Macedonia informs Meta.mk that the fifth annex to the contract for the construction of the highway Kičevo-Ohrid has been signed, with a deadline 31 December 2023.
The Public Enterprise for State Roads expects this deadline to be observed. Up to this moment, about 95% of the route has been penetrated, most of the infrastructure projects have already been approved and the construction is ongoing. The percentage of realization is 70.40%, this public company informs.
In addition, in the spring of 2018, the Government led by ex-prime minister Zoran Zaev announced that it was necessary to extend the deadline for the final construction due to inconsistency of the project documentation with the actual conditions on the field. However, there was another reason and this was because some infrastructure facilities, such as the nine interchanges, were not placed where initially planned in the original project. In November 2019, an additional loan of 180 million US dollars was obtained from Exim Bank of China for the completion of the highway. The second highway that was being built with Chinese funds in North Macedonia was put into use at the beginning of June 2019. On the 47-kilometer section between Miladinovci and Štip in the east of the country, there were no toll stations for more than three years, and two toll stations were opened as late as July 18, 2022.
From today’s perspective, the State Audit Office directs criticism regarding the realization of the highway Kičevo-Ohrid in the Final Performance Audit Report “Indebting of entities from the public sector, degree of utilization of credits and loans, paid and created expenses”.
The state auditors point out in the Report that even with the latest, fifth annex to the contract for the construction of the highway Kičevo-Ohrid and the set deadline of December 31, 2023, there is a high risk of non-fulfillment of the undertaken obligations and additional compensation claims, additional costs after the loan and extended deadline.
As a result, there is a high degree of uncertainty for damage claims, an increase in the costs of the loan agreement due to a construction stoppage for interest paid on withdrawn funds and a commission on undrawn funds, the auditors’ Final Report states.
In addition, the audit draws attention to the fact that for the implementation of this project, as well as for the economical use of funds, coordinated action of several state institutions is needed, for the Public Enterprise for State Roads to fulfill the obligations in the role of an investor.
Also, if the obligations under the contract are not fulfilled, there is a risk of a dispute that can cause large financial damages, warn the state auditors.
At the same time, the State Audit Office in the Report criticizes the construction of this highway section, namely: the construction of a 57-kilometer highway according to outdated projects that do not reflect the real situation on the field, which were not made by planners with international experience, the absence of control and supervision in the design phase, the absence of a tender procedure for determining construction prices, uncoordinated action of institutions in the procedure for approving infrastructure projects and expropriation procedures, a complex legal framework for changes during the construction phase, lack of monitoring and supervision of the implementation of the project, which results in prolonging the deadline for its completion.
Due to all this, the state auditors add in the Report that there is great uncertainty whether the latest deadline for the completion of the highway (31.12.2023) will be observed, but also whether additional costs will arise until the completion of the project. SAO is skeptical about the current promises of politicians regarding the pace of construction of the highway Kičevo-Ohrid.
Chinese loan repayment installments are getting more expensive
And while the construction of the two highways was delayed, the Public Enterprise for State Roads started paying the first installment of the loan from Exim Bank of China as early as July 2019. The total repayment amount is 719 million US dollars and includes the interest rates and the additional loan for the highway Kičevo-Ohrid that was taken out in late 2019.
As of July 2022, the Public Enterprise for State Roads has paid seven installments of the Chinese loans for the highways, and 23 installments for each loan individually remain to be returned. North Macedonia would pay off the loan to China at the beginning of 2034. The public company informs Meta.mk that the last installments are due for payment on January 21, 2034.
For the highway, Miladinovci – Štip, 50 million US dollars have been repaid to the Exim Bank of China, and 164 million US dollars remain to be repaid. For the Kičevo-Ohrid section from the Pan-European Corridor 8, 77,6 million US dollars have been repaid so far, and 427,4 million US dollars remain to be repaid from the Chinese loan.
The Public Enterprise for State Roads has informed on several occasions so far that the revenues they have gathered from the collection of tolls, the excise tax on petroleum products, and the road tax that is paid when registering vehicles, are used, among other things, for the payment of the Chinese loan.
However, the strengthening of the value of the US dollar concerning the Macedonian denar in the past period creates additional problems for the country in the payment of the loan for the two highways.
The Public Enterprise for State Roads clarified for Meta.mk that the installments to the Exim Bank of China are paid in dollars, and given the fact that there are constant changes in its value, it is certain that this negatively affects the payment of installments, because the denar counter value is increasing.
Thus, in the period from 1 January 2022 to 21 July 2022, due to the growth of the dollar, the Public Enterprise for State Roads has paid 105,000,000 denars more, that is, for this period the value of the dollar increased by 6 denars concerning the payment, the public company explains the actual prices of the Chinese loan at present.
In addition to the increase in the cost of loans due to the growth of the dollar in relation to the denar, the State Audit Office in the Final Performance Audit Report entitled “Indebting of Public Sector Entities, Degree of Utilization of Credits and Loans, Paid and Created Expenses” states that the financing of projects with loan agreements, such as the loan from the Exim Bank of China, accompanied by non-adherence to the dynamics of construction and without creating performance conditions, also increases the value of the investment.
Thus, the state auditors determined that only for the highway Kičevo-Ohrid, which is being built with Chinese credit, there is an increase in the value of the investment based on costs per loan agreement for interest and commission for 39 million US dollars.
Sinohydro came to the country to stay in the construction business
The Chinese state company Sinohydro entered the implementation of capital infrastructure projects in North Macedonia after taking the loan from the Exim Bank of China and the two laws for the realization of the highways Kičevo-Ohrid and Miladinovci-Štip that were voted in the RNM Assembly in October 2013, after which Sinohydro started the implementation at the beginning of 2014.
Eight years later, in reality, this state-owned construction company from China stayed to compete with other companies from the country and abroad in the implementation of capital infrastructure projects. At the same time, Sinohydro managed to win the international tender procedures for the construction of the second phase of the expressway Štip – Kočani, i.e. for the realization of the section from the village of Krupište to Kočani. This project is implemented with a loan from the European Bank for Reconstruction and Development (EBRD).
Data from the tender procedure for this expressway published on the EBRD website show that there were six interested construction companies and consortia from Greece, Macedonia, Bosnia and Herzegovina, China, Italy, and Bulgaria that submitted bids. However, at the beginning of 2019 the Chinese company Sinohydro was selected because it offered the lowest price for implementation – about 18.2 million euros.
The Chinese company Sinohydro is building the 13.75-kilometer long expressway Krupište-Kočani, and the Public Enterprise for State Roads informs that the contractor was put into operation on April 12, 2019, and was supposed to complete the road by April 12, 2021. The construction deadline has also been breached for this expressway, and the most significant reason is that there is still an unsolved expropriation of the land, that is, one parcel, where a problem arose due to improper recording of ownership in the Real Estate Cadastre.
The second reason is the delay of the construction works and the current status of realization is 83%. The Contractor will be given 3 months as a final deadline for the completion of the construction after the expropriation of the plot is resolved, states the answer of the Public Enterprise for State Roads that was submitted to Meta.mk regarding this infrastructure project.
Chinese Sinohydro also managed to win the tender procedure for the completion of the construction of the section between Fariš and Drenovo of the new expressway Gradsko-Prilep on the Pan-European Corridor 10D. In addition, this infrastructural undertaking is financed with a loan from the European Bank for Reconstruction and Development, with a budget of 31.8 million euros, the Public Enterprise for State Roads informs.
The tender for the extension of the first phase of the expressway Gradsko – Prilep was announced at the beginning of September 2020, with two offers received by the deadline of the tender, and the Chinese company Sinohydro was chosen due to the lowest price for the construction works.
Sinohydro started working on June 9, 2021, the construction period is 730 days, and the value of the contract with the Chinese company is 2,065,129,316 Macedonian denars or over 33.5 million euros.
The realization of the project is 20%. Work is being done on the left tube of the tunnel, which has already been penetrated, and work has started in parallel on the right tube of the tunnel, the Public Enterprise for State Roads explains the current works on this expressway.
As the volume of work of the Chinese company increases in the Macedonian market, so does their profit from the operation. According to the latest analysis published by the financial magazine “PARI” on June 17 of this year, the Skopje subsidiary of the Chinese company “Sinohydro” made a profit of 7 million euros in 2021. A year earlier, in 2020, “Sinohydro Corporation Limited – Beijing, subsidiary Skopje” had a loss of 19 million euros, while in 2019, before the covid pandemic, it made a profit of 24 million euros.
As the volume of work of the Chinese company increases in the Macedonian market, so does their profit from the operation. According to the latest analysis published by the financial magazine “PARI” on June 17 of this year, the Skopje subsidiary of the Chinese company Sinohydro made a profit of 7 million euros in 2021. A year earlier, in 2020, “Sinohydro Corporation Limited – Beijing, Skopje subsidiary” had a loss of 19 million euros, while in 2019, before the Covid-19 pandemic, made a profit of 24 million euros.
The Chinese Highways indictment was filed in 2017, the trial is ongoing
For the construction of the highways Kičevo-Ohrid and Miladinovci-Štip, the former Special Public Prosecutor’s Office filed an indictment in the case “Trajectory” on June 30, 2017, and the indictment was approved by the court on November 1, 2017. The court scheduled the first hearing in the trial for December 6, 2017. However, the trial for the “Trajectory” case was sent back after several years of trial, after the Judicial Council of the RNM dismissed judge Goran Boševski because of high corruption, at the beginning of July 2021. Because of this, the trial restarted.
Former Prime Minister Nikola Gruevski, together with the members of the then government led by VMRO-DPMNE – Vice Prime Vladimir Peševski, Minister of Transport and Communications Mile Janakieski, and former director of the Public Enterprise for State Roads Ljupco Georgievski were charged and accused of damaging the state budget by more than 155 million euros. While the indictment was in the initial court proceedings, in November 2019, the absolute statute of limitations for the criminal prosecution of former Prime Minister Nikola Gruevski came into effect. In the case “Trajectory”, Gruevski was accused of the crime of “Receiving a reward for illegal influence” (Article 359, paragraph 2 of the Criminal Code), that is, of agreeing on commissions with the Chinese company Sinohydro, which was the contractor.
For the remaining three defendants in the case “Trajectory” for abuse of official position, the court process continues to this day. According to the data from the Coalition All for Fair Trials, which conducts judicial monitoring of the most important court cases in the country, the trial for the case “Trajectory” is currently in the main hearing, where material evidence proposed by the prosecution is presented. The last court hearing was held in the first half of July 2022.
Meta.mk sent journalistic questions about the case “Trajectory” to the Basic Criminal Court-Skopje, where the trial is taking place, but also to the Basic Public Prosecutor’s Office for prosecuting organized crime and corruption.
The Basic Criminal Court-Skopje, Department for Organized Crime and Corruption informs that after the trial of the case “Trajectory” was returned to the beginning due to the dismissal of the judge, the court proceedings began on December 6, 2021. However, due to the postponement of the court proceedings hearings and a lapse of 90 days according to the Law on Criminal Procedure, the case started anew on March 18, 2022.
Since the court proceedings on the case have started again, 19 hearings have been scheduled so far, of which 8 have been held. At the moment, the trial is in the evidentiary procedure stage with the presentation of evidence proposed in the list of evidence by the Basic Public Prosecutor’s Office for prosecuting organized crime and corruption-Skopje, the Basic Criminal Court-Skopje informs Meta.mk.
We inform you that since the court proceedings on the case have started, 9 hearings have been postponed. The hearings scheduled for 14.12.2021, 16.12.2021, and 23.12.2021 have been postponed due to the inability of the accused Mile Janakieski to attend the scheduled hearings because of injury and performed knee surgery. The hearings scheduled for 21.03.2022, 24.03.2022, and 29.03.2022 have been postponed due to the inability of the accused Vladimir Peševski to attend due to a serious health condition of a parent. The hearing scheduled for 05.04.2022 has been postponed due to the absence of a member of the judicial council, while the hearings scheduled for 17.05.2022 and 30.06.2022 have been postponed due to urgent and official obligations of the Public Prosecutor representing the case, informed the Basic Criminal Court-Skopje.
However, regarding Nikola Gruevski as a defendant in the case “Trajectory” case, the Basic Criminal Court-Skopje points out that their court acted according to the guidelines of the Court of Appeal and a decision was made on December 6, 2021, based on the proposal of the defense attorney of the defendant Nikola Gruevski, Goran Karkinski, a lawyer from Skopje, for rejecting the indictment proposal against the accused Nikola Gruevski.
The court rejected the defense counsel’s proposal as unfounded, for the reason that the proceedings, in this case, are in the stage of presentation of the evidence of the defense. The procedure was started anew before a changed trial council only for formal reasons provided for under the Law on Criminal Procedure and is a procedural state that is prescribed according to law. The council also pointed out that at this stage of the procedure it is not possible to reject the indictment proposal, considering the large number of evidence presented in the previous part of the procedure. During the procedure, each party will be given an equal procedural opportunity to present their theory of the case and to correctly determine the factual situation. In addition, the Council does not ignore the possibility until the end of the procedure to reject the charge against the accused Nikola Gruevski under Article 402 of the Criminal Procedure Code. The Skopje Court of Appeal with decision KOKŽ-120/21 confirmed the decision made by this court. While for the rest of the defendants in this procedure, the absolute statute of limitations of the criminal offense begins on 10.10.2033, the Basic Criminal Court-Skopje informs.
The Basic Public Prosecutor’s Office for Prosecution of Organized Crime and Corruption told Meta.mk that the statute of limitations of the criminal case for the remaining three defendants in the case “Trajectory”, that the criminal case “Abuse of official position and authority” under Article 353, paragraph 5, subparagraph 1, subparagraph 22 of the Criminal Code, which is imposed on the defendants, expires in 2033.
Moreover, the indictment accuses the four defendants (Nikola Gruevski, Mile Janakieski, Vladimir Peševski, and Ljupco Georgievski) of exceeding their competencies in the procedure for selecting a company for the construction of the two highway sections in the period 2012/2013, and the outcome was the selection to the Chinese company Sinohydro as a construction contractor.
In addition, former Prime Minister Nikola Gruevski fled from Macedonia to Hungary in November 2018 to avoid going to prison. Gruevski was granted asylum in Hungary, where Viktor Orban is in power. However, Nikola Gruevski and Mile Janakieski have already received prison sentences in North Macedonia with several court rulings. Thus, Gruevski has so far been sentenced to 25 years and six months in prison in five separate court verdicts by the first-instance courts. The former Minister of Transport and Communications, Mile Janakieski, has been sentenced to 14 years in prison by the courts of the first instance with five separate court verdicts. Additional criminal court proceedings are ongoing for both of them, which may result in new prison sentences.