China Eximbank provides $278.3 million preferential buyer's credit for Miladinovci-Štip Motorway Construction Project (Linked to Record ID#66444 and ID#43001)

Project narrative

On November 27, 2012, the Chinese Government and the Government of the Republic of Macedonia signed an economic and technical cooperation agreement (ETCA) regarding a preferential credit line for infrastructure and technology projects. Then, on October 24, 2013, China Eximbank and the Public Enterprise for State Roads of the Republic of Macedonia signed a $278,374,071.98 preferential buyer’s credit (PBC) agreement for the Miladinovci-Štip Motorway Construction Project. The borrowing terms of the PBC were as follows: a 20-year maturity, a 2% interest rate, a 5-year grace period, a 0.25% commitment fee, and a 0.25% management fee. The PBC was to be repaid in thirty semi-annual installments. On January 9, 2014, the Government of the Republic of Macedonia issued a sovereign guarantee in support of the PBC. The proceeds of the PBC were to be used by the borrower to finance 90% of the $306,211,479.18 cost of a commercial (EPC) contract [ID#29-01-135] that it signed with Sinohydro Corporation Limited on June 5, 2012. The PBC’s outstanding (principal) amount as of December 31, 2019 was $206,576,311. The purpose of this project was to construct a 47-km long and 29-meter wide highway — with two lanes in both directions — between the city of Miladinovci and the city of Štip (which is Macedonia's largest eastern city). Upon completion, it was envisaged that this project — one part of Pan-European Corridor No. 8 — would reduce the distance between Skopje and Štip by more than 15 km. Sinohydro Bureau 7. Co. Ltd (中国水电七局有限公司) — a subsidiary of Sinohydro Corporation Limited — was the EPC contractor responsible for implementation. A formal groundbreaking ceremony took place in February 2014. However, construction did not begin until May 2, 2014. The project was completed and the road was opened to traffic on July 6, 2019. The implementation of this project was not smooth, however. The project encountered environmental and social implementation issues as construction disregarded environmental impacts, endangered species preservation, and cultural heritage sites. A draft strategic environmental assessment (SEA) for the region was released in 2019, but lacked specificity to project implementation actions. The EPC contractor (Sinohydro Bureau 7. Co. Ltd) was accused of bribing then Prime Minister in order to be awarded the contract. The investigation eventually resulted in the prosecution of several high level government officials. In 2019, Sinohydro went through a more transparent tender process to build the Krupishte-Kocani highway, and the price per cubic meter was four times lower.