The war between foreign investors and constructors over the HPP in Zvornik

The British company “Mineco” had in March of 2022 put into operation its small hydropower plant “Medoš” on Drinjača River in Zvornik, thus continuing the expansion of its business in this region through the first project concerning renewable energy sources. Two years later, the company “RDS – Rudarsko sednivne poslovi” from Serbia, which was the main contractor, filed a criminal complaint and asked the competent ministry to cancel the issued permits because, as they claim, the construction was accompanied by numerous omissions and deficiencies in the technical documentation, which came to their knowledge subsequently. Investors deny it, and competent institutions ignore the whole case.

The two companies ingloriously ended their cooperation on this project, and were “squaring up” at the Foreign Trade Court of Arbitration of Republika Srpska Chamber of Commerce, which was partially concluded in favor of the company from Serbia, and which is now using the decision to substantiate it claims.

Namely, “Mineco” had managed all the work related to the construction through its concession company “Medoš one”, which signed a contracting agreement, worth 4.2 million Euro, in February of 2018.

The contract was divided into three lots, i.e. LOT 1 – water intake, LOT 2 – supply tunnel and LOT 3 – supply pipeline.

“RDS” claimed that they had made the offer based on incomplete documentation that had them acquire wrong equipment, thus making their job, which they did not estimate properly, much more difficult.

More precisely, when submitting the bidding documentation and at the signing of the agreement they had received documentation titled “main project”, which in terms of contents was a preliminary project and did not contain elements of the main construction project such as geological foundations, on the basis of which the works are performed.

Expert: Documentation wasn’t valid

Their claims coincide with the findings of the geological expert, academician Neđo Đurić, who was involved in the arbitration proceedings.

He states that the project does not include geological works for the hydrotechnical tunnel and powerhouse, and that the designer had neither worked according to the data of geological surveys nor used the parameters obtained from the field survey as a basis for developing the main project.

“Instead of using geological and geotechnical field data, certain data were assumed by way of referencing to comparative legal examples and reasoning that the error on the assumed parameters will be smaller than the real one”, read his finding.

He further stated that he did not have the original main project with accompanying volumes during the expert examination, but the one that was subsequently edited, probably supplemented.

The geological documentation that was properly fitted into the main project was subsequently edited, because all the books of the main project show that it is not the original main project from April 2016, he noted.

He had the impression that everything was done experientially, not respecting the situation on the ground.

“Unauthorized professionals were constantly hired to monitor progress of the works. Reports are mostly theoretical without graphics and cannot be credible. In general, subsequent geological works, i.e. works in the construction phase of individual buildings, were done by persons who do not know the laws of Republika Srpska”, wrote expert Đurić.

According to his assessment, the investor did not comply with the Law on Spatial Planning and Construction, which refers to design, revision of technical documentation, construction, expert supervision.

Đurić notes that the investor controlled himself. So, the contract on geological supervision between the company “Medoš One”, as an investor, and the company “Antimon” from Banjaluka, as a supervisory body, is signed by Sava Mandić, the director of both legal entities, who appears here both as the client and as the contractor.

“Geological documentation that was made by unauthorized persons is neither valid, nor it was aligned with valid regulations, and cannot be taken into consideration as such”, concluded academician Neđo Đurić in his finding.

An expert in the field of architecture and construction, Momčilo Kovačević, assessed that the main project was made with shortcomings, that it was not adequate, and that it was submitted to the contractor as such.

However, he states, the auditor did not notice the shortcomings in the project, and it was his omission.

The audit was done in May 2016 by the company “Projekat” from Banjaluka and it gave a qualified opinion. Kovačević raised the issue of their expertise.

“There were no auditors of the geological profession represented in the aforementioned commission of the audit firm. The aforementioned audit firm made banal remarks without taking into account the shortcomings of the project”, read a portion of his findings.

Groundless termination of the contract

“RDS” was introduced to the business operations in September 2018, when it was hired as the main contractor.

According to one of the clauses of the contract, the investor could have requested the engagement of subcontractors, but not without the consent of the contractor as it was his task and responsibility.

However, this happened in June 2019, when “Medoš One” terminated the contract for LOT 2 – supply tunnel, introducing other contractors in addition to “RDS” for the other two LOTs. These are the companies from Foča “Siming Trade”, “Srbinje putevi” and “Tehnogradnja”.

The investors justified themselves by saying that “RDS” had an 11-month deadline for the completion of the works, and that the excavation in the tunnel and a very small part of the excavation for the dam and the water intake were the only works, of all contracted works, completed in the period from May 2018 to June 2019.

They estimated that the contractor had performed 27.6 percent of the total contracted works at the time the works were taken away from him, and instead of the contracted 11, he completed them in 37 months.

They assessed the comments to the geological foundations from the main project as completely unfounded because, as they claimed, “RDS” was aware of them a year and a half before signing of the contract and accepted them as a basis for the formation of its bids.

They asked for BAM 1.866.529 in damages, but their request was completely rejected as unfounded.

They also considered that the arbitration was premature, and that there was no clearly explained compensation claim, which is why they had requested the arbitration to be refused, but without any success again.

The arbitration panel presided over by professor Vitomir Popović stated that most of the misunderstanding arose because “RDS” was not provided with appropriate design and other documentation based on which it could have proceeded with the smooth execution of construction works in the manner and under the conditions prescribed by the agreement.

They also stated that “Medoš One” terminated the contractual agreement unilaterally and contrary to the contract. In their opinion, they should not have hired additional contractors.

“The investor and the construction manager cannot, without the main contractor, hire other contractors for the execution of construction works contracted with the claimant, but have the right to order the main contractor to hire a designated  subcontractor, with the provision that such subcontractor remains under the contractor’s responsibility and supervision”, they concluded.

“RDS” is only partially satisfied with the decision. The panel did not accept the findings of the economic expert that the price agreed with other contractors could be the basis for calculation of profit lost, so they received BAM 256.610 instead of two million marks in indemnity.

“The arbitration panel determines the percentage of the value of the works performed on the basis of the project documentation, which was found to be invalid and inadequate, which is nonsense”, said RDS director Mladen Popović.

They have therefore recently filed a lawsuit before the District Commercial Court in Banja Luka, requesting a partial annulment of the arbitration decision, and along the way they also sued “Medoš One”.

The lawsuit reads that the investor had terminated the contract with them unilaterally and without any grounds, and gave the contracted jobs to parallel contractors, due to which, they believe, they suffered damage in the form of lost profits.

On the other hand, they are asking the Ministry of Spatial Planning, Construction and Ecology of Republika Srpska to cancel the construction and use permit for the hydropower plant by referring to the experts’ statements in their findings.

The Ministry is silent, the BiH Prosecutor’s Office formed a casefile

They also withdraw their statement on the quality of the works performed from July 2021, based on which the mentioned permits were obtained.

They claim that it was misused because “Medoš One” presented them as the only contractor, which they say is not true. For example, they appear as the contractor in the construction of the powerhouse, but they were not working on it.

“Medoš One used this statement to apply for the certificate of technical acceptance and to submit a false application for the issuance of a use permit”, reads this document.

Portal CAPITAL has been waiting for more than a month for the response of the competent ministry about its plans concerning this request, but no one has deigned to answer our questions.

Also, a criminal complaint was sent to the SIPA and the BiH Prosecutor’s Office against the director of “Medoš One”, Savo Mandić, who is accused of fraud, illegal conduct in business operations and abuse of office.

The criminal complaint also reads that “RDS” was presented as the only construction contractor, whereby the participation of parallel contractors, who by the way did not even have licenses, was concealed.

“The entire process from obtaining a construction permit to reporting the completion of works and obtaining a use permit was irregular, which justifiably raises suspicions that a number of serious illegal and possibly corrupt actions were done,” reads the criminal complaint.

The BiH Prosecutor’s Office confirmed to CAPITAL that they had received the criminal complaint and formed the casefile in January of this year, and that they will work on it in accordance with the available capacities.

“The public will be informed once the prosecutor makes the decision”, they said briefly.

Popović says that he could not react earlier.

“Other contractors were put to work without my consent. I made complaints about it and warnings, but I couldn’t do much, I was in it alone, so I continued to work as to ultimately have sufficient grounds for a lawsuit. I had certain doubts before the arbitration and the findings of the experts, and once they were confirmed I alerted the competent authorities,” he said.

Investors are contesting experts and arbitration

The company “Medoš one” says that they are not aware of the criminal complaint, which is why they do not want to comment on it. Also, they claim that they don’t even know about the request for the cancellation of the construction and use permit. However, they believe that such demands are unfounded and unjustified.

They say that they have hired authorized designers, auditors, supervision, an international company as an umbrella body for monitoring the implementation of the entire project, including technical documentation and the execution itself, as well as all other necessary experts with whom the contracts were signed.

They claim that it was misused because “Medoš One” presented them as the only contractor, which they say is not true. For example, they appear as the contractor in the construction of the powerhouse, but they were not working on it.

“Medoš One used this statement to apply for the certificate of technical acceptance and to submit a false application for the issuance of a use permit”, reads this document.

Portal CAPITAL has been waiting for more than a month for the response of the competent ministry about its plans concerning this request, but no one has deigned to answer our questions.

Also, a criminal complaint was sent to the SIPA and the BiH Prosecutor’s Office against the director of “Medoš One”, Savo Mandić, who is accused of fraud, illegal conduct in business operations and abuse of office.

The criminal complaint also reads that “RDS” was presented as the only construction contractor, whereby the participation of parallel contractors, who by the way did not even have licenses, was concealed.

“The entire process from obtaining a construction permit to reporting the completion of works and obtaining a use permit was irregular, which justifiably raises suspicions that a number of serious illegal and possibly corrupt actions were done,” reads the criminal complaint.

The BiH Prosecutor’s Office confirmed to CAPITAL that they had received the criminal complaint and formed the casefile in January of this year, and that they will work on it in accordance with the available capacities.

“The public will be informed once the prosecutor makes the decision”, they said briefly.

Popović says that he could not react earlier.

“Other contractors were put to work without my consent. I made complaints about it and warnings, but I couldn’t do much, I was in it alone, so I continued to work as to ultimately have sufficient grounds for a lawsuit. I had certain doubts before the arbitration and the findings of the experts, and once they were confirmed I alerted the competent authorities,” he said.

Investors are contesting experts and arbitration

The company “Medoš one” says that they are not aware of the criminal complaint, which is why they do not want to comment on it. Also, they claim that they don’t even know about the request for the cancellation of the construction and use permit. However, they believe that such demands are unfounded and unjustified.

They say that they have hired authorized designers, auditors, supervision, an international company as an umbrella body for monitoring the implementation of the entire project, including technical documentation and the execution itself, as well as all other necessary experts with whom the contracts were signed.

“The entire project was done in line with the highest standards, and the regulations of Republika Srpska and Bosnia and Herzegovina”, said this company.

“The entire project was done in line with the highest standards, and the regulations of Republika Srpska and Bosnia and Herzegovina”, said this company.

They have a number of objections to the expert’s findings, as well as to the very procedure of determining their tasks, because none of their suggestions was accepted. However, they have accepted the result of the arbitration and settled their obligations emanating from it.

One of the causes of their dissatisfaction is the conclusion of the expert of the geological profession relating to the entrustment of oversight to a legal entity that is related to the client.

They say that the current Law on Geological Surveys did not allow geological surveys and oversight to be done by the same legal entity, while oversight tasks can be done by a legal entity that is related to the client of the survey.

“This is a common situation in large mining systems, where work related to geological surveying  is entrusted to legal entities with the necessary licenses, and oversight is even performed by the contracting authorities themselves, i.e. special services within the contracting authority established for this purpose (Omarska Mine, RITE Ugljevik, etc.). In this case, geological surveying was done by a licensed legal entity that was not related to the client, i.e. “Medoš One”, said the company.

They state that “RDS” had all documentation available even before the signing of the contract.

“All construction and technical documentation was provided to the company “RDS-RGP” Vrdnik for inspection on two occasions before the signing of the contract, and no objections were raised”, stated the company in its response.

They added that according to the signed contract, the contractor had a deadline of 28 days to express objections to the design and other related documentation, but did not do so.

“Also, if the contractor believed that there were certain “irregularities” in terms of documentation or any document obtained and used for the construction of the SHPP Medoš, the contractor had the option, in line with the concluded contract, to bring this to the investor’s attention and request the correction of the deficiencies”, said the company “Medoš One”.

They noted that during the process of obtaining a use permit “RDS” had issued a document in which it confirmed, under full under criminal and corporeal liability, that all works were performed in accordance with the project documentation and the issued construction permit.

They also claim that the director of “RDS” Mladen Popović blackmailed and threatened them in various ways and that he is putting pressure on them with his actions, which is why they are also preparing a criminal complaint against him.

They also see us reporting on this topic as a form of pressure on judicial institutions. They are afraid that CAPITAL will become “an instrument of those who are not satisfied with the arbitration decisions and are now trying to spread a negative campaign through the media for their personal interests”.

They used part of their letter to quote the Press and Online Media Code of Bosnia and Herzegovina, but also to say that they will use all legal means to protect their reputation.

The controversies surrounding the small hydropower plant “Medoš” have been going on since 2014, when the Government of Republika Srpska, at the proposal of the Commission, granted a concession for its construction and use.

As “e trafika” portal wrote at the time, the Swiss-Italian consortium made an offer that was more favorable for Republika Srpska, but it was rejected as sloppy.

The founders announced the filing of lawsuits and criminal complaints, because they claimed that “Mineco” obtained the concession illegally, and the outcomes of these proceedings are unknown.

The British company refuted these allegations, claiming that the entire procedure was conducted in accordance with the law.

Besides the hydropower plant in Zvornik “Mineco” also manages the lead mine in the local community of the same name in the Federation of BiH, as well as the lead and zinc mine “Sase” in Srebrenica. It also conducts geological surveys in Čelebići, the municipality of Foča.

In Serbia they manage lead and zinc mines in Gornji Milanovac, Ljubovija and Bosilegrad.