GACKO AND BUK BIJELA Government of Srpska Grants Chinese Companies Projects Worth Over 1.6 Billion KM

GACKO – Chinese companies have no competition on major state construction sites in Republika Srpska. Currently, they are engaged in energy and infrastructure projects worth more than 1.6 billion KM, but this is just the beginning as their plans are much larger.According to CAPITAL‘s findings, the Chinese are once again interested in the construction of the “Gacko 2” thermal power plant, a project that was announced more than ten years ago but had since fallen into oblivion.

However, this story is becoming relevant once again, as evidenced by the recent establishment of the company “Thermal Power Plant Gacko, Development and Investment” by “Elektroprivreda RS” (the Electric Power Industry of Republika Srpska).

This company is tasked with preparing the project documentation and securing the environmental permit for the construction of the “Gacko 2” thermal power plant.

Igor Milojević, the acting director of this company, told CAPITAL that the company's task is to provide the project documentation to progress towards obtaining the environmental permit.

He mentions that the citizens of Gacko are complaining about poor air quality and that a solution needs to be found.

“The solution is for people to live in a healthier environment while also retaining their jobs. The newly established company, which I lead, needs to complete the entire project documentation. We will not build, but we hope that interested parties will emerge for this task“, Milojević stated.

He adds that they have already had discussions with individuals who are prepared for the construction of a new unit with a capacity of 350 megawatts.

“It's a Chinese-Czech corporation that would carry out the works, and they guarantee that they can complete them within four years. If we manage to obtain the environmental permit, it would be a significant green light to proceed with the implementation“, Milojević emphasised.

However, the Center for the Environment Banja Luka argues that this project doesn't make sense, especially considering the obligations that Bosnia and Herzegovina has undertaken, which relate to shutting down thermal power plants.

“‘Gacko 2’ is a project that brings us a new phantom investor every year, whose name appears in the public, only to be forgotten by everyone after two weeks. If that project had any sense, it would have been completed long ago. However, it hasn't even started, nor does it make sense to start it, as the existing plant operates at a loss. Furthermore, the draft of the National Energy and Climate Plan (NECP) was recently published, clearly stating that certain units of various thermal power plants in Bosnia and Herzegovina will gradually be shut down, which is natural. NECP announces thousands of megawatts of installed capacity from renewable energy sources, and that's the direction we should be moving in“, says Dragan Ostić from the Center for the Environment.

As a reminder, back in 2017, the Government of Republika Srpska also signed a cooperation agreement for the realization of this project with Chinese companies “China Africa Investment and Development Co”. and “China Machinery Engineering Corporation”.

The initial plan was to construct a facility worth a billion KM with an installed capacity of around 300 megawatts.

In addition to this story, the unfinished project of building the Banja Luka – Mliništa highway remains unresolved.

Highways in Republika Srpska signed a preliminary agreement in 2014 with the Chinese state-owned company “Sinohydro Corporation Limited” for construction.

A commercial contract was also signed, with financing expected from the Chinese “Exim Bank”. However, apart from a feasibility study, little progress has been made towards implementation.

Particularly Interested in the Energy Sector of Republika Srpska
In general, Chinese companies are currently building the “Dabar” and “Bistrica” hydropower plants, the highways Banja Luka – Prijedor and Brčko – Bijeljina, as well as a hospital in Doboj.

These projects are worth over a billion KM, and new projects are in preparation, for which, given the long-standing relationships and collaboration, there is no doubt that Chinese contractors will be the favoured choice.After several delays, the construction of the 160-megawatt “Dabar” hydropower plant began at the end of June this year.

This is a project worth 222.4 million euros contracted with the Chinese company “Gezhouba Group”.

The construction of the hydropower plant is financed by the Export-Import Bank of China, based on guarantees from Republika Srpska.

Luka Petrović, the CEO of “Elektroprivreda RS”, previously stated that the deadline for completing the work is 46 months.

The “Dabar” hydropower plant belongs to the projected hydro-energy system of HET (Hydroelectric Power Plants on the Trebišnjica River) and is the most important hydropower plant in the “Upper Horizons” system. With the completion of the “Dabar” and “Bileća” hydropower plants in the “Upper Horizons” system, the existing balance of HET is planned to be doubled.

In addition to the “Dabar” hydropower plant, Chinese companies are also constructing the “Bistrica” hydropower plant in Foča.

The foundation stone for the start of construction on the Bistrica River hydropower plants was laid on December 27, 2021, in the presence of RS Prime Minister Radovan Višković and RS Minister of Energy and Mining, Petar Đokić. This was done without the necessary construction and environmental permits, as well as without funds for construction.

The construction of the energy system of the Bistrica hydropower plant, which will consist of three power plants, will cost a total of 102 million euros. The funding for the construction is supposed to be provided by the investor, the company “Hidroelektrane Bistrica”, which is majority-owned by “Hidroelektrane na Drini”, that is, the Electric Power Industry of Republika Srpska (RS).

The hydropower plants on the Drina River as investors have faced significant challenges in securing funding for this project, and this issue continues to be a major concern, as seen in the shareholders’ assemblies of this company.

The penetration of Chinese firms into the energy sector of Republika Srpska doesn't stop here.

According to information from CAPITAL, they are also interested in the construction of the “Buk Bijela” hydropower plant.

The “Buk Bijela” project, worth 250 million euros, is expected to be built by one of three Chinese companies, as per our information.

It is a joint venture between the Electric Power Industry of Republika Srpska and the Electric Power Industry of Serbia and is part of the hydro-energy system project “Gornja Drina”, which includes the construction of two more hydropower plants.

The entire project will be financed in a ratio of 51% by “Elektroprivreda Srbije” and 49% by “Elektroprivreda Republike Srpske”, which is also the ownership share in the joint company “HES Gornja Drina”.

However, due to numerous disputes at the level of Bosnia and Herzegovina, the entire project is currently on hold.

Chinese companies are also involved in lucrative projects in the transportation sector, where they are currently building two highways: Banja Luka – Prijedor and Brčko – Bijeljina.

Construction of the concession-based highway from Banja Luka to Prijedor began in September of last year. The estimated cost of this project is 297 million euros. The Prijedor – Banja Luka highway will be 40.7 kilometres long with access loops in Prijedor, Omarska, and Kuljani near Banja Luka.

The construction deadline is five years. The contract with the Chinese company “Shandong Hi-Speed International (SDHS)” was signed back in 2018, and this company has secured the funds for construction, which will be repaid through tolls collected for a period of 30 years.

“Shandong Hi-Speed International (SDHS)” previously stated that the construction speed of the highway depends on land expropriation.

This highway has been in the public spotlight for years due to a contract that the Ministry of Transport and Communications of Republika Srpska persistently conceals and refuses to publicly disclose, despite court rulings obligating them to do so.

Earlier this year, a group of Chinese companies led by China Overseas Engineering Group Co was selected as the most favourable bidder for financing, designing, and constructing a section of the Brčko – Bijeljina highway. The project is worth 345 million KM.

Furthermore, since 2019, the Chinese company “China Sinopharm International Corporation” has been building a hospital in Doboju.

The initial value of the hospital project was 103.5 million KM, but as additional works that were not originally included in the basic contract emerge, the value of this project is increasing, and estimates suggest that this healthcare facility will cost the citizens of Republika Srpska over 120 million KM.

The first deadline for completion expired last year, and the second was the end of September this year, but even that will not be met.

Mutual Affections
Based on everything observed, it seems that Chinese companies will not change their course and will continue their presence in Republika Srpska in the coming years.

Their interest in Republika Srpska is evident from the fact that the European representative office of the “China Railway Engineering Corporation” (China Railway Engineering Corporation) is planning to move from Warsaw to Banja Luka.Representatives of this company have previously stated that Republika Srpska has great potential which they saw as their business opportunity.

On the other hand, the government of Republika Srpska does not hide its sympathies towards this country.

As we recently discovered, the Government of Republika Srpska has made a decision to establish a representation in the most populous country in the world, and the Minister for European Integration and International Cooperation, Zlatan Klokić, stated that there is socio-economic justification for this.

Prime Minister Radovan Višković recently visited China during which he stated that projects worth two billion KM are in the negotiation and implementation phase with Chinese companies.

Moreover, what appeals to the Chinese is that regulatory authorities do not bother them too much.

In the past five years, republican inspectors have only inspected one Chinese company in Republika Srpska, and to make matters even more surprising, the inspections were conducted by labour and occupational safety inspectors who only found the lack of a Risk Assessment Act for workplaces as a deficiency.

In addition to transportation and energy, Chinese businessmen have shown interest in the wood processing industry.

At least three sawmills in the areas of Brčko and Pelagićevo have been leased by Chinese nationals, where they cut and package timber into containers for export, sending it back to their home country.

To circumvent the ban on log exports that has been in effect in Bosnia and Herzegovina since June of last year, they perform minimal processing in these sawmills to obtain proper documentation.

Chinese companies in Republika Srpska have not only worked for the government and its enterprises. They have provided financing to the largest electricity trader in the region, Vuk Hamović, and subsequently built a thermal power plant in Stanari for him.

The power plant was built by the company “Dongfang Electric International Corporation” (DEC), which will also construct its solar power plant in Bileća worth 43.5 million euros.