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Home , Banja Luka, Bijeljina, Doboj, Milorad Dodik, Sarajevo, Tuzla Canton

ISSN: 2560-1601

Vol. 16, No. 2 (BH)

March 2019

Bosnia-Herzegovina economy briefing: - highway construction project Ivica Bakota

1052 Petőfi Sándor utca 11.

+36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: Chen Xin

Kiadásért felelős személy: Huang Ping china-cee.eu 2017/01

Sarajevo-Belgrade highway construction project

Last week (February 27), the Serb member of BIH Presidency after the meeting with entity ministers and Brcko District representatives announced that the final decision on the route for the BIH section of the Belgrade-Sarajevo highway project has been reached. According to his statement, this decision will be presented to the Turkish investors on the meeting scheduled for this month and, if they agree, the (northern leg) of the BIH section of the highway going through Canton (FBIH), Brcko District, (RS) to the Serbian border will be a final version that will be adopted for the construction plan.

Overview

The “Sarajevo-Belgrade” highway is a significant infrastructure project that has been strongly suported by Sarajevo after Turkey expressed intention to finance its construction. Strategic importance of this project is argued to be primarily in connecting capital Sarajevo (and surrounding Central ) and neighboring with the modern highway system. It would be the first direct highway link Sarajevo has with other capital and other national highway systems (Corridor 10 and 11). Economic feasibility of the project is justified with cutting the mileage (and costs) of Turkey-Western transport. The highway is also important in connecting Sarajevo with (by making a link with Banja Luka- highway) and transportation revitalization of the eastern, northeastern parts of . The initial value of the project was estimated to be approximately 1.6 billion BAM (800 million EUR); however, recently presented adjusted calculations said the total value will reach 6 billion BAM (3 billion EUR, double the size of RS government budget). Although it is still early for announcing the time framework, its construction is expected to start within 2 years and will be successively done in several sections.

Although “Sarajevo -Belgrade highway” as an idea has been around for a long time, the project has been regarded as a low on the government priorities and its realization prospects were pushed indeterminately in the future, especially because the project lacked investor and slow pace of ongoing A1 highway construction project (Sarajevo- – Croatian border). It re-emerged in the media following the meeting of Turkish, Serbian and BIH ministers of economy in January 2017, when Turkey`s Minister of Economy announced a full financial support.

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During 2017, most of public discussions focused on a route of the future highway. BIH Federation opted for a ‘northeastern route’ (Sarajevo- Zenica- Tuzla- Brcko -Bijeljina) as strategically and commercially more important, while , according to existing strategic development plans, favored “southeastern” route that starts in Sarajevo and mostly goes through the RS territory (Pale- Ustipraca- Visegrad). Evolving disagreements over the route were put to an end when the Turkish President Erdogan on the 2018 investment forum in supported “two-legged” highway project, including both routes.

In December 2018, Serbian Deputy PM Mihajlovic signed several commercial contracts with Turkish Transportation Minister on construction of three subsections in Serbia. BIH, on the other hand, reached inter-entity agreement on the route of the BIH section of the highway. According to Dodik`s announcement, this decision should be communicated with Turkish partners, after which – the most important part - an agreement on financing of the Bosnian stretch of the highway should be defined. According to, Igor Pejic, a State Secretary in BIH Transportation Ministry, two pending questions still are: defining a financial framework for joint participation of Turkey and BIH in project implementation and project financing.

Issues and challenges

Divided jurisdictions. The fact that BIH entities (Republika Srpska, RS, and Federation, FBIH), and not the central government, are in of project implementation is conducive to administrative and political delays with the project implementation. Disagreements over the route of the highway that would likely end up in a deadlock if “two-legged” proposal wasn’t suggested is typical example of the ability of both entities to coordinate their infrastructure plans and development strategies. Even after the route has been defined, this discoordination will likely follow in financial negotiations, preparatory work that would require joint efforts (conducting feasibility studies, forming joint supervising committees, etc.), and prioritization of certain sections of the project.

Political instrumentalization. From the start of public deliberations regarding the construction project the main perceived challenge was political instrumentalization. First, there was inter-entity disagreements over the planned route. As it was argued, RS opposed “northern leg” because only a short part run through its territory, while “southern leg” is almost completely within the RS. Besides, “southern leg” run through “swing constituencies” of , Pale, etc. Second, intra-entity issues also came to a fore. For example, recent calls for prioritization of Tuzla section of the highway mainly mirror ongoing government

2 forming negotiations in . Additionally, mayor of Gorazde, a small FBIH panhandle surrounded by RS, cited “” in a claim that the highway should not avoid Gorazde and connect Sarajevo with Bosniak-inhabited Sanjak province in Serbia. Allegedly, this was a main argument of a, third, Turkish interest in allowing southern leg” of a highway, that is not looked very favorably in Serbia. These political considerations would probably be around until the start of the construction.

Financial framework. This is something BIH still has to talk through with the Turkish investors. The total project cost estimated to be 3 billion EUR, which is approximately two RS annual budgets (1.6 billion EUR for 2019) and even more of the FBIH`s (1.3 billion EUR in 2019). It is unlikely BIH could, like Serbia, take commercial loans for the whole project, Bosnian negotiators would likely offer some PPP or concession modality with longer returns. However, here the main question is what advantage BIH has in negotiating anything less than of what the Turkish investor (and so far the only one interested in the project) would require.

Cost and returns. Some actors objected essentially “political” decision to carry out the two-legged project, especially its “southern leg”. It is obvious that a southern route will connect Sarajevo with relatively uninhabited part of the country where only bigger is Visegrad with around 10 000 people. When checking data given by the experts, it shows that on average daily traffic between Sarajevo and Visegrad is 3000-6000 cars per day, while -Sarajevo road, for example, has more than 10 000 cars per day. Therefore, important point is the “opportunity cost” or wasting the chance to prioritize more urgent project for infrastructural development with more immediate windfalls for national and local economy. RS authorities argued that economic justification of building the “southern leg” is cutting the transportation costs on Western Europe bound Turkish commercial road transport. Nis- Visegrad-Sarajevo-Doboj-Gradiska- route is approximately 200km shorter than Nis- Zagreb route via Belgrade. However, BIH route is only partially built, Doboj-Gradiska, Sarajevo- Doboj sections are far to be fully completed. More importantly, connections with Serbia and , such as Gradiska bridge and whole section from the Serbian border to Cacak in Serbia are waiting to be initiated.

Coordination with Serbia. Relative lack of inter-entity coordination might also reflect on coordinating activities with Serbia vis-a-vis Turkish partner. Several meetings that BIH and Serbian high officials held (including the meeting in Belgrade and Istanbul on presidential and PM level) confirmed joint commitment of the both sides for the start of construction project. Serbian President Vucic was quoted to push the project as a crucial for intensifying bilateral economic cooperation between Serbia and BIH. However, in later stage of the project

3 negotiations, further steps in coordinating joint activities were absent. In December 2018, Serbia single-handedly negotiated a deal with Turkish partners for the start of Sremska Raca (BIH border) – Kuzmin (Zagreb-Belgrade highway) section. Milorad Dodik has also announced the start of Bijeljina-Raca section in RS, suggesting that the project might be carried out sequentially with typical miscoordination between state and entity levels. Idea proposed by BIH Transportation Minister Ismir Juskic is that the both countries should sign joint agreement to define joint strategies and possibly joint implementation plan regarding the project. However, this agreement is waiting to be implemented.

Boosting the local economy. The project was advertised as a chance to incite the growth of north-eastern part of FBIH (Tuzla Canton) and connect this relatively dense industrial area (with highest traffic congestion in BIH, estimated around 22 000 cars per day) with and, RS, Serbia and Croatia. As emphasized by the local authorities in Tuzla, Brcko District and Bijeljina, the Tuzla Canton, as well as the entire area of northern Bosnia, has the highest population and its economy and natural resources are one of the economic pillars of BIH. However, economic benefits for local subcontracting companies are left to be defined. The project is expected to be given to the Turkish construction giant Topyapi, but local authorities expect many opportunities for local subcontractors (logistics, catering, consulting, transportation). The total share of local subcontractors as well as the procedures through which subcontracts will be obtained will probably remain unknown to the public and probably subject to various speculations.

Project procrastination. Given the speed of the construction of the A1 highway (the most prioritized infrastructure project in BIH) and the problems project encountered on public tenders, land expropriation, increasing costs, etc.; the enthusiasm for implementation of “Sarajevo-Belgrade highway” project was almost all gone. Indications that the preparations for this project follows delayed timeframe, a pattern typical for other construction projects in BIH is evident in frequent moving the date of prep work completion (agreeing on the financial framework, making detailed construction plan) and the start of the construction. In 2017, when the construction project was introduced to the public, it was expected that the construction should start within two years. Also, FBIH and RS authorities by confirming several times during the last year that the construction of two-legged highway was “finally” approved, only indicated that little more has been done meanwhile.

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