China Eximbank provides $297.6 million preferential buyer’s credit for the Belgrade-Stara Pazova Section of Hungarian-Serbian Railway Project (Linked to Record ID#67021 and #68443)

Project narrative

On November 24, 2015, the governments of China, Hungary, and Serbia signed two cooperation documents for the Project of Modernization and Reconstruction of Hungarian-Serbian Railway Line (also known as 匈塞铁路 project), including a general contract for the cooperation of the Serbian section of the Hungary-Serbia Railway, marking the official start of the Hungary-Serbia Railway project. The Hungary-Serbia Railway will run from Budapest, the capital of Hungary, to Belgrade, the capital of Serbia, for a total length of 350 kilometers, including 166 kilometers in Hungary and 184 kilometers in Serbia. The railway was an electrified passenger and freight mixed-line express railway. The total cost of the project of the project was estimated to be EUR 1-1.5 billion. The Serbian section was divided into three sections. The first section, Belgrade-Stara Pazova, was 34.5 kilometers long, the second section from Stara Pazova to Novi Sad was 40.5 kilometers long, and the third section from Novi Sad to Subotica was 108.1 kilometers long. The first section and second sections of the railway were constructed by the consortium formed by China Communications Construction and China Railway International, while the second section of the railway fell under the responsibility of Russia's subsidiary Russian Railways International. Then, on November 5, 2016, China Eximbank and the Government of the Republic of Serbia signed a Memorandum of Understanding on financing the Project of Modernization and Reconstruction of Hungarian-Serbian Railway Line on the Territory of the Republic of Serbia. Then, on May 16, 2017, China Eximbank and the Government of the Republic of Serbia’s Ministry of Finance signed a preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK NO. PBC (2017) 9 (435)] worth $297,638,159 for the Belgrade-Stara Pazova Section of the Hungarian-Serbian Railway Project. The loan (PBC) carried the following borrowing terms: a 2% interest rate, a 0% default (penalty) interest rate, a 20-year maturity, a 5-year grace period, a 0.25% commitment fee, and a 0.25% management fee. The proceeds of the loan (PBC) were used to be used by the borrower to finance 85% of the $350,162,540 value of the commercial contract [number 351-5684/2016-2] between the Government of the Republic of Serbia’s Ministry of Construction, Transport and Infrastructure, the Joint Stock Company for Public Railway Infrastructure Management “Infrastructure of Serbian Railways”, and a joint venture of China Railway International Co. Ltd & China Communications Construction Company Ltd, which was signed on November 5, 2016. The lender made disbursements worth $59,528,000 in 2018, $37,648,000 in 2019, $34,304,000 in 2020, and $96,724,000 in 2021. The loan’s (principal) amount outstanding was $59,528,000 as of December 31, 2018, $97,176,000 as of December 31, 2019, $131,480,000 as of December 31, 2020, $228,204,000 as of December 31, 2021, and $294,224,000 as of September 31, 2022. This project involves the reconstruction and modernization of a 34.5 km double-track section of the Hungarian-Serbian Railway that runs from the capital city of Belgrade to Stara Pazova. It was designed to accommodate speeds of up to 200 km per hour and to reduce the travel time between the Serbian and Hungarian capitals from eight hours to less than three hours. It was also designed in accordance with EU standards. The agreement for the Serbian section of the rail line stipulated that only 46% of the contract may go to local Serbian companies. Zorana Mihajlović, Deputy Prime Minister and Minister of Construction, Transport and Infrastructure of Serbia, said that the first section of the Hungarian-Serbian Railway in Serbia was expected to begin construction in November 2017. China Railway International Co. Ltd and China Communications Construction Company Ltd were the EPC contractors responsible for implementation. Project implementation commenced on November 28, 2017. The left line of the Belgrade-Zemun section of the Hungary-Serbia Railway was opened successfully on October 21, 2020. The Belgrade-Stara Pazova Section of the Belgrade-Budapest Railway was successfully put into operation on March 19, 2022. The Belgrade-Stara Pazova Section was originally scheduled to open to traffic by the end of 2021.