Serbia Economy Briefing: TRANSPORT INFRASTRUCTURE PROJECTS IIPE

ISSN: 2560-1601

Vol. 21, No.2 (RS)

Sept 2019

Serbia economy briefing: TRANSPORT INFRASTRUCTURE PROJECTS IIPE

1052 Budapest 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

TRANSPORT INFRASTRUCTURE PROJECTS

Abstract For many years, intensive construction of transport infrastructure in Serbia has been under way. The Serbian Government and President often point to this fact as their contribution to Serbia's development and future. Opposition groups and parties do not support such an assessment. We want to shed light on the results so far, the way they are financed, the development potential of the transport infrastructure and possible alternatives.

There is almost general agreement among political parties and groups in Serbia on what contains the first best solution: parliamentary democracy, the rule of law, low-level of corruption, effective free market, high level of employment, etc. That should look like a combination of the statehood of Germany, Switzerland and England. Differences between them exist in commitment and ways of achieving these goals.

The current Serbian Government once faced several major obstacles: lack of domestic investment capital, high unemployment and underdeveloped transport infrastructure. The problem of investment capital was solved by an influx from abroad, mainly in the form of FDI. Foreign investment in Serbia has employed part of the unemployed workforce, generally with lower levels of qualifications. In this way, the unemployment rate is reduced to an acceptable level. Improvement of the existing and construction of new transport infrastructure was made possible through loans from abroad and in the extent to budgetary funds.

The importance of developed infrastructure, especially transport for the overall development of a country should not be emphasized. The previous governments have also achieved some results in this area, so the present activities are a continuation of the previous ones. Fortunately, activities of the Ministry of construction, transport and infrastructure are conducted in a very transparent manner. In that sense it is possible to have an insight into the completed projects, ongoing projects and those that will start soon. Summarized details will be provided according to the Minister’s Book of Projects and updated Ministry data.

Projects for the (re)construction of transport infrastructure in Serbia are being implemented partly within the Pan-European transport network, and others as regional projects. Of the ten Pan-European Corridors (defined in 1994 and 1997), two pass through the territory of Serbia: Corridor VII (Danube River) and Corridor X. Corridor X has the main branch

(Salzburg - Ljubljana - Zagreb - Belgrade - Niš - Skopje - Veles - Thessalonica) and four lateral branches two of which passing through the territory of Serbia: Branch B: Budapest - Novi Sad - Belgrade and Branch C: Niš - Dimitrovgrad - Sofia - Istanbul - via Corridor IV. Construction activities on Corridor X in Serbia are being implemented through five projects (total lenght of roads is 792km): Project North (Horgoš – Novi Sad) 108km; Project Main axel of Corridor X (border with Croatia – Belgrade - Niš) 358km; Project South (Niš – border with Northern Macedonia) 74km; Project East (Niš – border with Bulgaria) 86,9km; Project Belgrade bypass motorway. To this we can add so-called Corridor XI, or highway E 763 Belgrade - South Adriatic (Timisoara - Vršac - Belgrade - Čačak - Požega - Podgorica - Bar).

Roads

Corridor X – Branch B (Belgrade – Novi Sad – Subotica – Kelebija) Length 225,6km; Financing: Budget of Serbia

Project Main axel of Corridor X (border with Croatia – Belgrade - Niš)

Corridor X - Project East (Niš – border with Bulgaria) Lenght 86,9km; Worth of €267.552.293,77

Corridor X - Project South (Niš – border with Nortern Macedonia) Lenght 74km; Worth of €365.488.478,39

Corridor X - Project Belgrade bypass ring road Length 47km; Worth of €114,2 mil; Contractors: Planum and Ratko Mitrović; Strabag; Financing: EBRD loan, EIB loan, Budget of Serbia.

Higway E 763 Belgrade – South Adriatic (Length 270 km)

Finished 120,8 km; Worth of €880.132.106 Contractors: China Commination Construction Company, Beijing; Shandong Hi-Speed Group; The Roads of Užice Co; Planum Co; AzVirt, Azerbeijan; Financing: China EXIM bank loan; Loan of The Republic of Azerbaijan; Buget of Serbia.

Road rehabilitation and safety project Worth of €390 mil. Contractors: Serbian companies and Strabag. Financing: World Bank loan €73,8 mil; EBRD loan €100 mil; EIB loan €100 mil; Budget of Serbia €116,2 mil.

Railway

Total lenght of rail Corridor X is 799km. Most of the activities is related to the reconstruction and modernization of the lines on Corridor X, Railway station Belgrade Center, Container terminal Makiš as well as the acquisition of new train sets. In addition, it reconstructs and modernizes regional lines. Financing: EIB loans; EBRD loans; Russian export loan; China Railway International Corporation Co.Ltd; China Communications Construction Company Ltd; China EXIM bank loan; Serbian budget. Contractors: RZD International; Metrovagonmas O.A.D; Stadler Bussnang AG; Geismar; Shinvoz LTD Zrenjanin; CRRC Zhuhou Locomotive Co. Ltd; CCECC.

Bridges

Bridge Zemun – Borča with access roads (Danube River) Lenght of bridge 1.482m and roads 21,2km. Worth of US$255 mil; Contractor: China Road and Bridge Corporation (CRBC); Financing: 85% Chinese EXIM Bank loan; 15% Serbian budget and City of Belgrade.

Žeželj’s Bridge Novi Sad (Danube River) Length 474m. Worth of €52,57 mil. Contractor: JV Azvi – Taddei – Horta Coslada.

Bridge Ljubovija – Bratunac (River Drina) Worth of €13 mil. Contractor: MBA – Ratko Mitrović; Financing: Republic of Serbia; Republic of Srpska; Bosnia and Herzegovina.

Inner waterways projects are related to hydro-technical and dredging works (Danube River), navigation and monitoring fairway marking system (Danube River), rehabilitation of navigation locks at hydro plant Djerdap (Danube River), Smederevo Port – expansion of capacities of the terminal (Danube River).

In addition to the above, significant infrastructure projects have been contracted or initiated. Of regional importance are two routes that will connect Belgrade, Sarajevo and Banja Luka, which are being implemented in cooperation with Turkey. The Turkish company Taşyapi has completed preparations for the construction of the Kuzmin - Sremska Rača highway and a new bridge on the Sava River. Also, activities are ongoing on the extension and construction of the Ruma - Šabac - Loznica road. A new bridge over the Danube River will be built near Vinča. It is not an exaggeration to say that Serbia has become one big construction site.

Formulating economic policy goals and the means to achieve them is a matter of Government choice. Certain objections to Government activities, choice of priorities, method of financing and more can be heard from expert circles. In short, it is considered better for the Serbian economy to promote a competitive free market environment with equal treatment of all participants, i.e. without subsidies to foreign investors. Furthermore, how much sustainable economic growth can repay foreign loans that finance the construction of transport infrastructure? We can only note that the current market economy in Serbia is a result of the activities of all governments in the last few decades. When it comes to the cost-effectiveness of transport infrastructure, it is true that it has a very small investment multiplier. And the credits have to be repaid. A number of authors have explored a similar situation in countries where Chinese state-owned companies have built transport infrastructure with credits from Chinese state-owned banks (Africa and Asia). Indeed, in some countries there may be difficulties with annuity repayment. In the case of Serbia, it is difficult to predict with certainty the dynamics of economic growth and the ability to repay annuities in the future. It is only certain that this remains the obligation of the future generation. This requires serious planning and fulfillment of the payment dynamics of credit commitments, from today and in the future.

There are several important reasons for the development of transport infrastructure in Serbia: it enables and facilitates the movement of people and goods; encourages regional development and connects underdeveloped regions; includes the country in the Pan-European transport network; encourages domestic and foreign investment along transportation routes. It is indicative that the majority of FD in Serbia is located near the developed transport routes (road, rail, river). It is clear that quick and direct return on invested capital in modern and efficient transport infrastructure cannot be expected. Developed infrastructure is a prerequisite and basis for more profitable economic activities.

Conclusion

Investment and construction activities in the transport infrastructure have been particularly intensified in recent years. This is evident in the finalized and ongoing projects. Most of the required investment capital is obtained through foreign loans from Chinese state- owned banks, Russia, Turkey, Azerbaijan, and from IBRD and EIB. A smaller part is provided from the budget of the Republic of Serbia. In addition, most of the construction operations is performed by companies from countries that have lent to certain projects, with their construction equipment and their workforce.

If the question is whether such a choice of Government is optimal, the next question is, was there a better alternative? In any case, the result is a significant improvement of the main, regional and local transport routes. Also, an obligation to pay the annuities in the future. It is certain that more developed transport infrastructure will contribute to more intensive investment activities and economic growth. This would be the basis for the orderly payment of future annuities.