Montenegro Pushes Ahead With New Chinese Project Despite Previous Debt Controversy

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Nine years after a controversial highway financed and built by China plunged Montenegro deep into debt, the Balkan country is once again turning to a Chinese company to build a new stretch of road.

Montenegro signed a memorandum of understanding with a Chinese consortium in late March to build a 54 million euro ($59 million) highway that will better connect the coastal towns of Budva and Tivat, providing a new route to the local airport. Officials have said construction for the 16-kilometer road should last two years and the project is part of Montenegro’s long-term plans to develop its transport infrastructure, boost tourism, and enhance its position as a regional transport hub.

But the move has been met with skepticism due to the country’s previous debt problems with China over a highway project completed just a few years ago.

The construction of that highway — which was set to range from the Montenegrin coast in Bar to Boljare across the border into Serbia — was plagued by controversy, delays, and scandal over cost inflation and alleged corruption. The saga also raised concerns about Montenegro’s indebtedness to China, whose Export-Import Bank provided the nearly $1 billion loan — which represented nearly a quarter of Montenegro’s GDP at the time.

Concerns over rising costs and debt have already surfaced for the new project, but Montenegrin officials have looked to head them off by only turning to Chinese entities for construction — not financing.

Questions have also been raised over how the authorities will pay for the new highway. The government has said it has so far only secured 15 million euros ($16.5 million) for the project and stated at a March 29 press conference that the missing funds will come from the “capital budget or other means of financing.”

Montenegro’s Traffic Administration, which falls under the authority of the Interior Ministry, did not respond to RFE/RL’s questions about financing and whether the new project will plunge the country further into debt.

But Mirza Muleskovic, the founder of the Podgorica-based consultancy Inteligencija MNE, told RFE/RL that the new project points to the staying power of Chinese influence in Montenegro and across the Balkans, as well as the effectiveness of Chinese companies in the region.

“China has been smart to make its financial resources available in a way that has further cemented its influence [in Montenegro] and [neighboring] countries,” Muleskovic said.

Clearing A Path

The construction contract was awarded to a consortium of companies from China’s eastern Shandong Province: Shandong Foreign Economic and Technical Cooperation and the Shandong Luqiao Group.

The consortium put forward the lowest bid for the highway, but neither company has an established presence in Montenegro or the Balkans, with the Shandong Luqiao Group only opening a representative office in Podgorica six months ago.

The consortium was one of four Chinese companies that put forward bids and out of the eight total proposals sent to Montenegrin authorities, the cheapest three were from Chinese companies.

The lowest tender had previously been supplied by the China Civil Engineering Construction Corporation (CCECC), a state-owned company that was involved in the modernization of Montenegro’s railways. But the company withdrew its 42.6 million euro ($47 million) offer before the second round of the bidding process in July 2022 due to rising construction costs.

Tracking soaring costs will be a top concern due to rising global inflation and Montenegro’s past experiences with the Bar-Boljare highway.

The $59 million price tag is already more than Montenegrin authorities had planned to spend, but they said they had to adjust their budget to keep pace with market fluctuations.

“Whether it will be higher or lower than the amount offered primarily depends on the changes in the prices for metal products, fuel, sand, and cement,” the Montenegrin government said in a press packet about the new highway’s construction.

Beyond construction costs, the authorities are also still grappling with the process of expropriating the land needed to build the new road. In particular, the project still faces public resistance in Grblje, a town between Budva and Kotor along the country’s Adriatic coast, and several officials said the total price tag for the project could go up further depending on how drawn out of a process securing the land becomes.

Chinese Appeal

Montenegro was one of the first European countries to sign on to China’s Belt and Road Initiative (BRI), the globe-spanning infrastructure and investment project stretching across Africa, Asia, Europe, and Latin America.

Since then, China has invested in Montenegro, including the construction of a luxury resort on the Adriatic coast and the modernization of a thermal power plant.But the most high-profile undertaking was the controversial highway, which was signed in 2014.

Amid multiple construction delays, the Balkan country of 620,000 began to face difficulties in repaying its loan that reached a tipping point in 2021. That eventually required help from the European Commission and a group of Western banks to protect against currency fluctuations and help the government meet its repayment schedule. The financial situation around the project has since stabilized, but to date only 41 kilometers of the planned 163-kilometer highway have been completed, and future construction remains uncertain.

Despite those big setbacks, Montenegro’s leadership does not appear to be turned off from the experience and continues to seek Chinese investment.

Source: Radio Free Europe

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