A project worth 200 million euros in the hands of a suspicious Chinese company

According to the announcement made on February 21, 2022, the realisation of the tunnel connection between the municipalities of Pale and Istočno Sarajevo was supposed to begin this spring. On that February 21st, and as previously reported by Inforadar more than a year ago, the Mayor of Istočno Sarajevo, Ljubiša Ćosić, signed a Memorandum of Cooperation with the representation of the Chinese company Sinohydro, a subsidiary of the Power China group, regarding the construction of a tunnel that would connect the municipalities within Istočno Sarajevo.

The tunnel construction through Trebević is envisioned as a multi-year project aimed at enhancing transportation connectivity between Istočno Sarajevo and Pale.

The length of the tunnel would average around 8 km and would follow a section of the old railway track. It would pass through Trebević and reduce the travel time between the two municipalities from the current 40 minutes to only 12-13 minutes. According to the Mayor of Istočno Sarajevo, the implementation of the project would cost approximately 200 million euros. Just a year before, that amount ranged from 150 million to 200 million KM.

According to Ćosić’s statement to Inforadar, he emphasized that this idea is not new and that his administration merely reactivated it.

“During 2022, there were some minor difficulties regarding the tender process, but we managed to announce it and selected a contractor who conducted a preliminary study. The company Radis provided us with preliminary information about possible routes. After that, we agreed with our Chinese partner on conducting a more comprehensive feasibility study, which is currently ongoing. A company from Sarajevo is working on it by order of ‘Sinohydro’. According to the Memorandum, our City Administration is not directly involved in the study”.

Ćosić stated that this preliminary study will determine which of the three proposed solutions will lead to a conceptual solution, based on which a tender will be announced to select a strategic partner.

“This is a very serious investment. Along the three proposed routes, the tunnel’s length would range from 5.5 km to 9 km, with an additional suggested tunnel of 500 m to 1.5 km, including certain bridges and connecting access roads. The entrance and exit points would be different. One of the entrance points would be in the Miljevići settlement here in Istočno Sarajevo, near the entity border. The second would be in the Toplik-Tilava settlement in Istočno Sarajevo, and the exit points would either be in the vicinity of Pale or above Pale on the way to Jahorina. The feasibility preliminary study should determine the best option for creating a conceptual solution”, emphasized Ljubiša Ćosić for our portal.

So, everything is nicely envisioned; however, from the outset, there is suspicion indicating possible irregularities and corruption. It is known that “Sinohydro” is a company with a bad reputation worldwide. As we reported, the African Development Bank (AfDB) blacklisted this company and banned them from participating in all projects funded by the bank. The company has been involved in several suspicious projects in Zambia, Kenya, Zimbabwe, and other African countries, where “Sinohydro” secured contracts worth 533 million dollars. It was later revealed that the tender value was artificially inflated twice in Uganda, where “Sinohydro” disregarded project requirements for road construction. The African Development Bank’s Office of Corruption and Fraud Investigation reported illegal contracts and evidence of corrupt collusion between the company and local political figures. For years, several governments and organizations have accused this company of corruption, fraud, misappropriation of funds, poor construction work, unfair partnerships, and other misconduct, as stated in the corruption reports.

The mayor of Istočno Sarajevo, Ljubiša Ćosić, considers this to be a “truly powerful Chinese conglomerate operating in various economic sectors and employing around 300 thousand people at the group level”. He cited their engagement in the construction of the Ulog Hydroelectric Power Plant in the Kalinovik municipality, with an installed capacity of 39 MW, which he estimated should be completed by the end of this year, as an example for Inforadar.

The company “Sinohydro” has attempted to exert its influence in several projects throughout Bosnia and Herzegovina, being more present in the Republika Srpska (RS) region. As a reminder, the deadline given by the RS Government to the consortium, which was supposed to build the Ulog hydroelectric power plant on the upper course of the Neretva River, expired just over a year ago. The consortium was led by Vuk Hamović’s EFT Group and the Chinese “Sinohydro” joined the consortium. The construction contract with the concessionaire Hamović was signed in 2012. However, the works never started, leaving Ljubiša Ćosić’s claim that the construction could be completed by the end of the year unclear.

Eight years ago, “Sinohydro” offered to build the Banja Luka – Mliništa highway. They even provided a Feasibility Study, which was necessary to initiate loan negotiations, but their proposal was rejected by the Council of Ministers of Bosnia and Herzegovina. They also had no luck in the construction of the new hospital in Doboj, where they lost in the tender.

They also appeared in the competition for the construction of the “Dabar” hydropower plant. This project was estimated to be worth 430 million KM. However, the realization was not finalized due to legal processes involving potential contractors, but according to our information, the outcome of this case will be resolved soon. “Sinohydro” is also involved in the construction of the Počitelj Bridge, a project worth over 28 million euros.

“Our ultimate goal is, if the project is deemed profitable and feasible, to form a joint venture with the Government of Republika Srpska. This venture would transparently issue a public call for the selection of a strategic partner capable of providing funding sources and offering guarantees to these funding sources. On the other hand, the Government of Republika Srpska, as I have managed to negotiate as the Mayor, would provide a guarantee to compensate a part of the investment to the strategic partner if the revenues alone were not sufficient”, emphasised Ćosić for Inforadar.

On our question about whether the Chinese partner is still in consideration, Ćosić replied: “With the signed memorandum, we have an obligation to obtain the documentation. However, the memorandum is not binding for the selection of a strategic partner. There are clear rules in the FIDIC Yellow Book and the Law on Public Procurement of Bosnia and Herzegovina that precisely describe the selection process for a potential contractor, a strategic partner. Meaning, nothing is predetermined in advance. I must say that so far, the Chinese partners, “Sinohydro” and “Power China”, have complied with all their commitments. They have demonstrated their seriousness and involvement in other projects in which they are engaged, both in Republika Srpska and in the Federation of Bosnia and Herzegovina. However, it does not mean that they will remain as strategic partners. I had the opportunity to meet with the head of the European Investment Bank, and we discussed this project and why it is not possible to connect contractors with potential financiers. We are aware that in Bosnia and Herzegovina, the Chinese are already working on some projects financed by European banks”.

Let’s also mention that the address of the company “Sinohydro” is registered in the building of the Tax Administration of Republika Srpska at Trg Republike Srpske Street, number 8/XII. Entry into this building is not possible without prior notice, and the only publicly available contact for “Sinohydro” is the one shown in the above photograph, without an email address or contact phone number. The previous address was located in the Nova Varoš neighbourhood in Banja Luka, at Svetozar Markovića Street, number 5. At that address, starting in 2020, the Chinese company “Sinohydro Corporation Limited”, represented by Liu Zhidong from Beijing, was registered, and he virtually holds absolute power in contract negotiations.

All of this suggests that the main partner in this particular deal is the political leadership of Republika Srpska, where there are suspicions that some individuals have already been involved in corrupt practices, given that it involves a company that is blacklisted by the World Bank and the African Development Bank due to corruption, fraud, and bribery of politicians worldwide. “Sinohydro” is favoured by the local partner, and the project has already begun without transparency regarding the use of funds and the details of the public procurement tender during the initial study phase. The President of Republika Srpska and the President of the SNSD (Alliance of Independent Social Democrats), Milorad Dodik, has also become involved, stating last year that it is “one of the largest investments in the city that will begin as early as next year”. Milorad Dodik added, “The construction of the tunnel, which will connect Lukavica to Pale in less than ten minutes, through Trebević, would shorten the journey from the south of Republika Srpska to Serbia”.

This statement vanished with last year’s snow as there has been no progress on the project. This spring, Dodik and Ćosić took pictures again and announced this project despite the mentioned analysis by the Office for the Fight against Corruption, which stated in its report that “Sinohydro” had engaged in illegal contracts and that there was evidence of corrupt collusion between the company and local political figures.

“What is important to me as the Mayor is to obtain the project documentation, have the feasibility study determine the cost and whether this project is viable. Once we complete that, we will present the project to the public and the Government of Republika Srpska and move to the decision-making phase regarding the formation or non-formation of a joint venture. This is how things are done in the region. We had an agreement with the Sarajevo-based IPSA, and I regret that we were a bit late on that. However, the company from Sarajevo that we engaged for the feasibility study is reputable and has all the necessary references, so I believe everything will be fine”, said Ćosić.

Certainly, at a time when this entity is facing a serious financial crisis, there is nothing imminent about the tunnel construction. From time to time, this story becomes a political mantra, but the Chinese company remains constant. We spoke with the Mayor of Istočno Sarajevo on the day when the entity of Republika Srpska held two bond auctions, securing 75 million KM to patch up the budget for this year. In the meantime, the Chinese company “works”.