Are the Chinese 'quietly' taking over the railways of RS?

The Railways of Republika Srpska could soon become the property of investors from China under non-transparent conditions, according to our sources. Supporting this claim are the meetings that representatives of the RS Government and this public company have had with potential Chinese investors in the recent period.

At the end of May, the Minister of Transport Nedeljko Čubrilović and Slađan Jović, General Director of the Railways of Republika Srpska (ŽRS), visited China, where they met with representatives of China Railway International Co., Ltd (CRI). The only information made public from this meeting was that this company, which is engaged in the construction of railway infrastructure, is "seriously interested" in investing in the railway transport of RS.

However, as early as September of last year, Minister Čubrilović signed a memorandum with another Chinese company, Qiqihar Rolling Stock Co. LTD (CRRC), on "cooperation in strengthening and enhancing the workshop capacities" of the Railways of RS. According to public procurement experts, this memorandum created conditions for the acquisition of locomotives and wagons from the Chinese company, thereby eliminating potential competition in advance.

Public Secret

It is interesting that the minister and the management of the Railways of Republika Srpska (ŽRS) are negotiating with Chinese companies about certain parts of the Railways of RS, even though the restructuring process of this public company is not yet completed. Only upon the completion of this process should the ŽRS be transformed into a holding company consisting of three dependent companies, thus separating infrastructure from passenger and freight traffic.

The issue is not the investments, which would be more than welcome for this heavily indebted company, say our sources, but the way everything is once again being hidden from the public eye, along with the risks that doing business with Chinese investors entails.

When signing the memorandum with representatives of CRRC in September last year, Minister Čubrilović said that this document was the result of "successful cooperation between the Ministry of Transport and Communications of Republika Srpska and the company CRRC, which will contribute to the further development, improvement, and implementation of strategic plans in the field of railway traffic".

Approximately, that is all the public has been able to learn about the nature of the cooperation with this potential investor. There has been no information about the investment amount, deadlines, or the ways in which it would be realised.

The same situation was repeated at the end of May after the meeting with CRI representatives.

Regarding the unknown details to the public, we did not receive any answers from Minister Čubrilović, who did not respond to our calls or questions.

General Director of ŽRS Slađan Jović was somewhat more open to conversation.

He denies that there have been any discussions about the privatisation of the Railways with the Chinese investor. However, he expects the start of "work on infrastructure" and the acquisition of rolling stock next year. He also expects that the first phase will see an investment worth around 100 million euros.

"We did not discuss privatisation; we talked about renewing our infrastructure managed by RS, as well as improving and upgrading our rolling stock in terms of traction vehicles, locomotives, and passenger units to enhance passenger traffic in RS", Jović told Impuls.

However, he confirmed that the restructuring process of the company must be completed first.

The Chinese Cutting in Line

As Dragan Zelenović, Executive Director of ŽRS, announced at the beginning of May, the restructuring process of this company should be completed by the end of this year.

This process, ongoing since 2017 with the help of a 100 million BAM loan from the World Bank, was supposed to be finished by the end of 2021. However, all deadlines have been missed.

It should also be noted that last year, ŽRS ended with a cumulative loss of around 143 million BAM.

The restructuring plan also includes the conversion of debt into equity. This way, as announced, RS would become the owner of more than 90 per cent of the shares of the Railways.

In this way, our sources claim, the path would be simplified for the Chinese takeover of this company, and for the RS Government to provide guarantees to bankers.

"How is it possible to discuss with two alleged investors when the restructuring of the company is not finished and it is still unknown if and how the process will be completed? What are we supposed to give the Chinese as a guarantee for those investments? The minister should communicate this", says our source from ŽRS (name known to the editorial office). According to him, there is a serious danger that RS will simultaneously sell ŽRS at a bargain and also pledge its assets as a guarantee for Chinese investment.

Supporting these claims are the negative experiences with Chinese investors through numerous projects in Bosnia and Herzegovina.

On the other hand, the fact is that China has invested significant funds in many countries, including EU countries, through the "Belt and Road" initiative.

No one opposes investments, say officials from Transparency International BiH (TI BiH), but the problems are systemic.

"Where there were good laws, Chinese investors adapted to those laws and conducted business normally. However, where they encountered a weak system, they exploited the system's weaknesses. Many countries fell into these traps, losing significant public companies because they couldn't repay certain loans", warns Srđan Traljić from TI BiH.

China Railway International is already present in the region, and in 2017 a branch of this company was established in Belgrade for regional business needs. The company is implementing the construction of the Novi Sad – Subotica railway line, with the ultimate goal of connecting Belgrade and Budapest with a modern railway.

The project is part of China's "One Belt, One Road" initiative, aimed at bringing Chinese companies to new trade partners abroad. Chinese ambitions towards railway transport in the region fit into such plans. Who will ultimately bear the cost of the new Chinese investment remains to be seen.