Comment by Ivica Bakota\n
The signature project of the DPS government, “Bar-Boljare” highway connecting Port of Bar\nwith Montenegro-Serbian border has always been regarded as a “too big bite” but also “once in\nthe lifetime” opportunity for Montenegro, especially after the government started losing hope to\never find a creditor on the Western market. In 2014, despite the opposition from the IMF,\nMontenegro signed an USD denominated loan deal with Chinese Exim Bank to finance the first\nstretch of the highway. Exim Bank provided a loan for 85% of total value with 2% interest rate,\n6-year of grace period and 20 years for repayment. By the end of 2014, Exim Bank approved 697\nmillion EUR loan, 85% of the first offer given by China Road and Bridge Corporation (809\nmillion EUR), the main contractor on the highway.
\nFrom 2015 to 2019, China Road and Bridge Corporation (CRBC) was engaged in the\nfirst and the most complex, 41 km long, Smokovac-Matesevo section. Due to complex terrain\nfeatures, accessibility issues and frequent renegotiations on contract addendums this section was\nrelatively soon expected to exceed the initial value (809 million EUR). Yet, the government\nnever finished ‘due diligence’ in order publish adjusted value of total expenditures, as such it\nwas frequently subject of various unconfirmed and mostly politically motivated interpretations,\nwith estimates ranging from 890 million to over 1 billion EUR.
\nThe section was firstly expected to be finished by 2019 (within agreed period of 4 years),\nbut just about that time problems started to emerge. Due to not very foresighted prep work\nresulting in geological and hydrological studies commissioned after the start of construction,\ndelays in “prioritization” of certain sub-sections and some important construction works not\nincluded in the contract the government was forced to extend the deadline to Sept 2020 and\nrenegotiate separate annex to contract. Non-transparent business that sticks to a most of Chinese\ninvestments in the region was also, not entirely to a Chinese fault, raised in this project.\nNegotiations from the very beginning were carried out without due public scrutiny. More\ntransparency in conducting project supervision was the point raised by IMF, while several media\noutlets (Dan, Vijesti) continuously raised issue of non-transparent increase of expenditures and\ndeadline alterations. Environmental concerns (Tara river pollution) at this stage became salient in\nreports of Montenegro`s NGO organizations.
\nCOVID-19 lockdown made further delays in construction plans and the Chinese\ncontractor claimed vis major in seeking to extend the deadline for another year. Penalties were\nrumored to be put on table, especially because certain subsections (connecting roads not\npreviously included in the project) have altered and the total net expenditure has been criticized\nto be disproportionate with expected expenditure rate. There were scant promises from the\nMinistry of Transportation, the main body in charge for the project implementation, to tackle\nboth issues with CRBC, but negotiations dragged to the Aug 2020 post-election period and\ncommunication with CRBC virtually halted pending a new cabinet formation. As a result of the\nreshuffle that followed, Transportation ministry was dissolved and a new umbrella-scoped\nCapital Investments Ministry came in charge of resuming the negotiations.
\nThe 2020 government change open the way for fresh alignments and brought to surface\nthese fallouts between the project negotiations, and between the government and “the Chinese”\n(as creditor and contractor), which DPS government have tried to keep underwater. But, before\nanything decisive could have happened in negotiations, grace period on the loan expired in 2021\nand Montenegro was obliged to start with the debt repayment program. In the instance, the\nproject and the ongoing negotiations with the Chinese were caught in crossfire between DPS-\nsponsored and the new government mouthpieces. Both the highway project and negotiations with\nChinese contractors were prominent issues in the media; on the one side, to reveal ineptitude of\nthe current government in tackling the most important state matters, on the other, to fan anti-\ncorruption zeal and ancien regime revisionism proved the surest way to discredit DPS\npoliticians. Either way, Montenegrin public was brought up to discussions supposedly due before\nthe project had started.
\nThe project has been criticized by the public, media and international financial partners as\nsignificantly over-stretching Montenegro’s debt to GDP ratio, threatens fiscal stability and risks\ndefault on (reprogramming) credit repayment in the long-term. A tone not much different from\nwhat IMF and the WB had warned in 2015 and couple of times thereafter, but now instead of\n“reddish” debt level of 60-70% of GDP, some pessimistic figures show a debt rate soon\nexceeding 100%. After taking the office, ‘the twelve apostles’, as the new cabinet is being\nnicknamed, released EUR denominated bonds to “patch up” budget shortages, grimly\nannouncing to spend the next 200 days only running financial damage control. Commitments on\nkeeping fiscal stability were given to the Western partners, but the strategy on debt management\nwas not on sight.
\nMany actors went back to a bigger picture and objected “political” decision to carry out\nthe project as the impartial and comprehensive study on the costs and benefits was never done.\nImportant point was the squandering ‘tiger’ opportunity or maintaining the developmental leap\nMontenegro had sustained relative to the region since independence. Indeed, prioritizing the\nconstruction of highway along the Adriatic-Ionian corridor (part of E65, connecting Montenegro\nwith Albania in the south, and Bosnia and Herzegovina and Croatia in the northwest) would\nprobably be a more urgent project for infrastructural development with more immediate\nwindfalls for national and local tourist-oriented economy. The Peljesac bridge construction\nproject in Croatia, also done by CRBC on E65 is cited as a successful example of a project that\nfollows national development plans. On the other hand, having a stretch of a highway that will\nfor a while have a dead end in depopulating Montenegro’s North region (adjoining highway on\nthe Serbian side is still in the planning stage) is hardly economically justified; moreover, geo-\npolitically, having an ‘once in the lifetime’ project spent on building transportation dependency\non Serbia makes Montenegro’s developmental orientation fait accompli. This wouldn’t be much\ncontroversial, if the DPS regime haven’t become adamant in the late stage to ‘decouple’\nMontenegro from political, social and cultural attachments with Belgrade. Ironically, the\nconstruction of highway towards Serbia have already slowly progressed, while political relations\nwith Belgrade rapidly deteriorated. That the DPS government symbolically orphaned its\nsignature project, at least as the backbone of national development, was evident in failure to\ncoordinate or communicate with Belgrade the construction of the section on the Serbian side.\nThe new government, on the other hand, wouldn’t mind building infrastructure links with Serbia,\nbut staggering debt issue is prevailing. Mind that the cheaper Peljesac bridge project would be\nstill be called a “cathedral in desert” in Croatian media if it had to be build from local taxpayer’s\nmoney. Without the support from the EU at the first place, Montenegro started hoping Brussels\ncould be persuaded into assisting with the debt reprograming and even buying out financial\nobligations from the Exim bank.
\nGovernment’s desperation became obvious after a new element was injected into this\nalready heated situation in the form of the famous (deputy PM) “Abazovic testimony” before the\nEP Committee in March 2021. Early reports on this testimony, which purported Abazovic’s open\nwarnings on the Chinese ‘malicious influence’ in the region have been diluted or rebuffed in\nsubsequent government releases. The recriminations about authenticity of his statements in\nBrussels were, as usual, inconclusive, but it managed temporary to swing public scrutiny away\nfrom the government’s true intention. Raising (political) fears on becoming debt-dependent on\nBeijing was, as it seems, nothing less than appeal for European financial tutorship and evading\ndirect responsibility for austerity measures that are likely to occur in the near future.\nSome Western media outlets used fallouts of his statement to play ‘debt-trap’ card against\nBeijing. German HAZ, according to Vijesti, found a similar example in Sri Lankan port of\nHambantota, which due to financial problems of Sri Lankan government was handed over to\nChina under 99-year lease in 2017. A much biased account oblivious of the whole picture of\nChina-Sri Lanka cooperation and PR damage this particular lease caused to Beijing now\nclaimed: “A spectre haunts Montenegro, the spectre of Hambantota”. Subsequent concerns saw\nPort of Bar as a next Hambantota, even Montenegro’s “beautiful coastal destinations” fall a\nvictim to debt and “become Chinese”.
\nHowever, on the official level, the response was not as hoped it would be. EU\nCommission in several statements published after “Abazovic testimony” played down the idea of\nbuying off and taking the credit repayment program, through EUR denominated interest rates by\nsome EU funds or European banks. Chinese side was also alarmed with all signs of faltering\nfinancial commitments of its debtor, more it was concerned with long-term solvency of\nPodgorica if the EU refuses to mediate. At least this is how their patient silence pending the EU\nreply was interpreted among some experts. Sudden downfall of government-issued bond value in\nmid-April, some argue, was a consequence of shrinking confidence in Montenegro on the both\nsides.
\nBy the end of April, debt controversy has not yet downsized, but debt reprograming\nalternatives are not found, and could be exhausted soon unless the government returns to the\noriginal creditor and tries to bargain either lower return rates or grace period extension. The\nwhole episode with politicization of debt obligation seems as a coping mechanism in accepting\nits new fate. The current government would have rather hoped it had happened during the DPS\nmandate, instead presiding over the grand decline period looming over Montenegro.
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