Narrative
Full Description
Project narrative
On January 27, 2022, Bank of China Limited (Hungarian Branch) and the Government of Serbia for the Construction signed an EUR 203,400,928 term facility (loan) agreement for the Municipal (Sewage) Infrastructure Project. The loan carries the following borrowing terms: a 15-year maturity, a 5.5-year grace period, an interest rate of 6-month EURIBOR plus a 1% margin, a 2% default interest rate, a 0.3% commitment (loan administration) fee, a 0.75% management (arrangement fee), and a Sinosure export credit insurance premium. The borrower is expected to use the proceeds of the loan to finance 85% of the cost of an EUR 239,295,216.00 commercial contract between the Government of the Republic of Serbia and China Road and Bridge Corporation (中国路桥工程有限责任公司), which was signed on February 5, 2021 and amended and supplemented via annexes on June 4, 2021, August 5, 2021, September 21, 2021 and January 21, 2022. The purpose of the project is to construct 26 waste water treatment facilities and close to 700 kilometers of new sewer systems in in 14 towns and municipalities, including Varvarin, Knic, Banja Vrujci, Krupanj, Lajkovac, Mionica, Kucevo, Svrljig, Kladovo, Lazarevac, Veliki Crljeni, Obrenovac, Vranje, Novi Becej, Kragujevac and Novi Sad. The project’s groundbreaking ceremony took place on November 19, 2021. However, the first loan disbursement did not take place until October 24, 2022. CRBC is the contractor responsible for project implementation. According to Radio Free Europe, there was no open and competitive bidding process for the project.
Staff comments
1. The Bank of China Limited (Hungarian Branch) loan agreement can be accessed in its entirety via https://www.dropbox.com/s/52bpwuxq16c9sz1/Bank%20of%20China%20loan%20agreement%20for%20Works%20on%20Construction%20of%20the%20Municipal%20%28Sewage%29%20Infrastructure.pdf?dl=0. 2. The Serbian project title is prve faze Projekta sakupljanja i prečišćavanja otpadnih voda centralnog kanalizacionog sistema grada Beograda. 3. AidData has estimated the all-in interest rate by adding 1% to average 6-month EURIBOR is January 2022 (-0.527%). 4. Under the loan agreement, each party acknowledged and agreed that Sinosure should be subrogated to the rights of the Agent and the Lenders to the extent of any payment made by or on behalf of Sinosure under the Sinosure export credit insurance policy. The Sinosure export credit insurance policy insures certain political and commercial risks in respect of the EUR 203,400,928 loan and provides coverage of at least ninety-five per cent of all of the principal and interest of the loan. 5. In Serbia, CRBC acts through a local subsidiary known as China Road and Bridge Corporation Serbia Ogranak Beograd-Savski Venac. 6. The project is part of a wider Serbian-Chinese venture called Clean Serbia that was launched in 2021 by the Serbian government in 65 cities and municipalities and is worth $3.6 billion. The aim of the initiative is to modernize, repair, and in some cases build brand-new water-management systems across the country in order to provide better drinking water, combat pollution, and expand access to modern sewage networks, which government statistics show more than one-third of Serbian households do not have access to. 7. The EUR 203,400,928 Bank of China loan for the municipal (sewage) infrastructure in Belgrad should not be confused with the EUR 203,775,000 syndicated loan from Unicredit Bank, BNP Paribas Fortis SA/NV, and BNP Paribas SA for a similar wastewater project in Belgrade (that is backed by a Sinosure credit insurance policy). The latter loan agreement can be accessed in its entirety via http://www.parlament.gov.rs/upload/archive/files/cir/pdf/predlozi_zakona/2022/011-84_22.pdf. 8. The Chinese project title is 塞尔维亚污水处理项目. 9. An open and competitive bidding process is a European regulation which the Serbian government ignored and instead chose to base the decision for a contractor on the 2009 intergovernmental Agreement on Economic and Technical Cooperation in the Field of Infrastructure between Serbia and China. Serbia is only a candidate for EU membership and therefore is not bound by European regulations; however, these actions are viewed by watchdog groups like Transparency Serbia as corruption and disrespect for both European regulations and Serbia's own Public Procurement Law. AidData considers a lack of open and competitive bidding process as a Governance challenge.