China Eximbank provides loan for First Section of Banja Luka-Prijedor-Novi Grad Motorway Project (Linked to Record ID#66452)

Project narrative

In December 2018, SDHS-CSI BH d.o.o.Banja Luka (SDHS-CSI BH) — a special purpose vehicle and wholly owned subsidiary of China Shandong International Economic and Technical Cooperation Group (CSI) — signed a concession agreement with the Government of the Republic of Srpska for the First Section of the Banja Luka-Prijedor-Novi Grad Motorway Project. Under the terms of this agreement, SDHS-CSI BH is responsible for designing, financing, building, managing and maintaining a 42 km motorway section that runs from Banja Luka to Prijedor. The motorway will have two lanes in both directions, a traffic island, and an emergency lane. According to the project design, the highway section will consist of seven tunnels and 35 bridges, three interchanges and the infrastructure for a closed system of the toll payment as well as the system for traffic safety management and control. This project represents the first highway concession project ever undertaken in the Republic of Srpska. The concession agreement lasts for 33 years, including a 3 year construction period. The EUR 297 million project is being implemented on a public-private partnership (PPP) basis and financed according to an unknown debt-to-equity ratio. During the period in which it operates the motorway, the concessionaire (SDHS-CSI BH) will pay an annual fee of EUR 32.5 million to the Government of the Republic of Srpska. China Eximbank signaled its willingness to finance the project in 2018, and the project was originally expected to reach financial close (FC) during the summer of 2020. However, FC was not achieved according to the original timetable due to unexpected delays. In February 2019, the Government of the Republika Srpska announced that the project would be postponed in favor of prioritizing the Doboj-Bjeljina Highway that runs to the Serbian bordern. The project’s groundbreaking ceremony ultimately took place on November 6, 2021. The project eventually became a source of local controversy and scrutiny. In October 2022, Transparency International Bosnia and Herzegovina (TI BIH) won a court case against the Ministry of Transport and Communications of the Republic of Srpska, which chose not to publish its concession agreement with SDHS-CSI BH for the construction of the Banja Luka-Prijedor-Novi Grad Motorway. The District Court in Banja Luka issued a verdict ordering the Ministry of Transport and Communications of the Republic of Srpska (Republika Srpska) to deliver to TI BIH the concession agreement that it signed with SDHS-CSI BH in December 2018. TI BIH initiated the legal proceedings due to suspicions that the deal was made under conditions that were adverse to the Republic of Srpska. According to the concession agreement, SDHS-CSI BH expects to earn around 975 million euros in toll revenue during the 30-year concession period, after making an investment of nearly 300 million euros. Any 'missing funds' were supposed to be compensated from the budget of Republika Srpska, which TI BIH claimed would be ‘very detrimental’ to public finances. In a second lawsuit between the same parties, the court issued a verdict in which it stated that ‘the action of the defendant [the Ministry of Transport and Communications of the Republic of Srpska] is surprising, stating that the publication of that information would which the concessionaire also agreed to be published, the damage that would occur to the defendant would be greater than the fact that the public has access to the information.’ Then, in November 2023, TI BIH filed a third lawsuit against the Ministry of Transport and Communications of the Republic of Srpska, which, even after losing the court case twice, refused to publish the concession agreement with SDHS-CSI BH. Prior to the third lawsuit, the parent company of SDHS-CSI BH (SDHS) reportedly proposed that the concession agreement be separated into parts, so that the project’s financial model could be exempted as confidential commercial information and the rest of the agreement could published in accordance with the judgment of the District Court in Banja Luka. the reason behind the controversy and lawsuits for the Banja Luka-Priedor-Novi Grad Motorway Project was that the road was going to run through villages, businesses and cemitaries. Additionally, if the highway doesn't make enough revenue upon completion, the Chinese-owned enterprises are entitled to compensation from BiH tax payers, meaning that the full cost of the highway could increase to EUR 500 million.