China Eximbank provides $505 million preferential buyer's credit for Kicevo-Ohrid Motorway Construction Project (Linked to Record ID#66438, #43001, #85195)

Project narrative

On November 27, 2012, the Chinese Government and the Government of the Republic of Macedonia signed an economic and technical cooperation agreement regarding a preferential credit line for infrastructure and technology projects. Then, on October 25, 2013, China Eximbank and the Public Enterprise for State Roads of the Republic of Macedonia signed a $505,044,966.98 preferential buyer’s credit (PBC) agreement for the Kicevo-Ohrid Motorway Construction Project (captured via Record ID#66444). 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 $555,549,463.68 cost of a commercial contract [ID#29-01-135] that it signed with Sinohydro Corporation Limited on June 5, 2012. The remaining 10% was provided by the Public Enterprise for State Roads. As of December 31, 2019, the outstanding (principal) amount on the 2013 PBC was $324,442,683. The purpose of this project was to construct a 57-km long and 25.2-meter wide highway — with 6 overpasses, 13 underpasses, and a 2 km long tunnel named 'Preseka' — between the city of Kicevo and the city of Ohrid. The highway will pass through Kicevo, Podvis, Preseka, Pesocani, Trebenista, Podmolje, and Ohrid. 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 groundbreaking ceremony took place on February 22, 2014 and the project was originally expected to reach completion on June 30, 2021. However, the project has encountered various delays and cost overruns. Some of these were due to poor geological surveys. The project faced environmental and social implementation challenges as construction disregarded environmental impacts, endangered species preservation, and cultural heritage sites. Additionally, no intersections were part of the original road plan, which made it impossible to access the highway from villages along its route. A draft strategic environmental assessment (SEA) for the region was released in 2019, but lacked specificity to project implementation actions. By 2023, the expected project completion date had been pushed back from 2021 to 2026, due in part to delays in expropriation procedures around the Gostivar–Kičevo section and unanticipated geological and engineering challenges. Approximately 60 hectares of land required alienation in Banjica e Poshtme and e Eperme villages. To speed up the timeline, asphalting began in winter months using cold-weather additives. As of late 2023, only the first 30 km of the 57-km motorway were expected to be operational by mid-2024. To address these cost overruns, China Eximbank and the Public Enterprise for State Roads of the Republic of Macedonia signed an additional PBC agreement worth $179,694,572.51 for the Kicevo-Ohrid Motorway Construction Project in 2019 (captured via Record ID#85195). It carried the same borrowing terms as the PBC that was signed on October 25, 2013: 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 Government of the Republic of Macedonia issued a sovereign guarantee in support of this PBC on November 21, 2019. On March 26, 2015, Macedonian opposition leader Zoran Zaev released audio recordings related to the construction of the highways. The recordings provided evidence that the tender process had not been transparent, and only two companies had been approved by the Chinese Embassy in Skopje: CWE and Sinohydro Corporation Limited. Prime Minister Nikola Gruevski was accused of disregarding CWE's lower bid and taking a bribe from Sinohydro Corporation Limited that amounted to 5% of the commercial contract’s value (approximately EUR 20,000,000). The EU intervened and made a deal in which a special prosecutor was appointed, and the Prime Minister stepped down. The Special Prosecutor charged the former Prime Minister in Charge of Economic Affairs, the former Minister of Transport, and the former Head of the Public Enterprise for National Roads with ‘Abuse of Official Position and Authorization’ on June 29, 2017. Former Prime Minister Nikola Gruevski was charged with ‘Accepting a Reward for Unlawful Influence’; he fled and received political asylum in Hungary. By 2019, the Special Prosecutor was also charged with corruption, though the statute of limitations had expired, and no one was found guilty. In May of 2019, evidence was presented by newly appointed Director of Public Enterprise for State Roads that Sinohydro had only built 2.7 km of the highways, and had instead relied on subcontractors. Sinohydro Corporation Limited then marked up the subcontractor's invoices by 54% when it presented its invoices to the Public Enterprise for State Roads. Some of the items in the original bid had been marked up by as much as 300%. In 2019, Sinohydro Corporation Limited went through a more transparent tender process to build the Krupishte-Kocani highway, and the price per cubic meter was four times lower.