Belgrade,
21:53,
Thursday, 17 July 2008
Beta
The debate whether or not Serbia needs a concession for the Horgos-Pozega highway, and whether the suggested deal with Austrian concessionaires is economically justified, remains open, especially since it is known that the government on March 31 gave the Austrians until the end of the year to finalize all the financial details of the agreement, and promised to do its part by making the necessary changes to the concession contract by June 30.
The exact value of the concession involving the 200-kilometer road is still unknown, although the Prime Minister has estimated it to be EUR1.5 billion. According to Mahmud Busatlija, an investment adviser and associate of Belgrade’s Economics Institute, if this figure proves accurate it would mean that the cost of constructing one kilometer is 2.5 times above usual.
Busatlija claims that the construction of one highway kilometer on level terrain, as is the route to Pozega, costs up to three million euros.
“On the 100 km stretch from Horgos to Belgrade the left side of the highway needs to be built, which is a 150-million-euro investment. An additional 50 million euros are necessary to construct a bridge over the Danube at Beska, meaning that the completion of that section of the road, belonging to pan-European Corridor 10, requires a total of 200 million euros,” says Busatlija.
The economist adds that no more than 500 million euros should be allocated to the construction of the section between Belgrade and Pozega.
No one has questioned the necessity of completing the highway through Vojvodina to Belgrade, but what has caused serious controversy was the inclusion of the already nearly-completed Horgos-Belgrade section in the concession – considering that the annual revenue from the road is 3.4 billion dinars.
The 150 km route from Belgrade to Pozega is below highway construction standards in view of both population density and industrial development, which is why the lucrative international section through Vojvodina was added to the deal.
Possible profit could be found in connecting the highway to the future Ionian Highway, which would link Bosnia-Herzegovina, Croatia, Montenegro, and Albania.
Busatlija claims that in the past 25 years concessions have rarely been used for the development of highway networks abroad, and that of the few such deals which have been made none were successfully implemented. He says that the best example is Croatia, which began with a concession eight years ago, and then moved to successfully developing its own roadways.
The average time for a highway in EU countries to pay off is five to seven years, meaning that over 15% of the investment is reimbursed yearly, Busatlija explains, and adds that Serbia – which is a developing country according to World Bank standards – would need seven to eight years for such a project to pay off.
“The only good reason to cede the construction of a highway to a concessionaire is if you can’t finance it alone. Serbia could have done it: the 1.5 billion euros received from the sale of [the state telecommunications company] Mobtel, for example, would have been enough to cover the construction costs,” says Busatlija.
In its official report from September 2007, the Anti-Corruption Council concluded that the granting of the Horgos-Pozega concession was an example of how politicians and the executive branch of government used public property to serve their personal, i.e. party interests. In that particular case this meant constructing a public road to the election stronghold of the minister in charge, thus improving his political position.
The final destination of the planned highway has no economic, financial, social, or even strategic value for Serbia, whereas the completion of Corridor 10 is a true strategic priority for the state.
Most goods and passengers transiting the country use Corridor 10, which is the shortest route between Romania, Bulgaria and the EU.
Mahmud Busatlija believes that Serbia has practically lost this important economic advantage by failing to complete the highway for so long.
After several years of arguing, having joined the European Union Romania and Bulgaria have received orders to quickly find a suitable location to build a bridge across the Danube. The bridge, which will be constructed in two years, was the only obstacle on the road network bypassing Serbia. The cost of the bridge will be less than 100 million euros, despite the Danube’s 2 km width on site.
Judging by the statements of politicians – who claim that developing the country’s roadways will be one of the new government’s priorities – work on the Horgos-Pozega highway will continue, despite a two-month delay: the concessionaires Alpina Mayreder and Por have failed to provide both a completed project and its financial backing on time.
In a telephone conference on March 31, the government gave the Austrian concessionaires until the end of the year to tie up loose financial ends, and promised to do its part by making the necessary changes to the concession contract by June 30.
Such a move on part of the authorities begs the answer what guarantees they received that the concessionaires would manage to finalize the project’s finances at all, considering a year has already proven insufficient.
Mahmud Busatlija says that banks find deals with high return rates on investments, such as the construction of highways, interesting, but only if the building price is within reasonable limits.
“Both the price and the concessionaires’ obligations in Serbia are dubious, considering they are unable to put together a financial framework. It also is unclear who’s is going into debt, i.e. if it is the company from Austria, or some local branch lacking credibility,” says Busatlija.
“The Horgos-Pozega concession case is rife with elements that at least warrant being audited by the state. State auditors should inspect the entire case and write a report on it,” stresses Busatlija.
Prior to the May 11 parliamentary elections, Democratic Party of Serbia official and two-time Minister Predrag Bubalo said that, in case his party regains power, it will immediately fulfill all halted projects, including the Horgos-Pozega highway. He claimed that much could be done on the latter undertaking by the end of this year, because the “funds have been provided.”
The concessionaires Alpina and Por intended to finance this year’s portion of the road with 30 million of their own money, and acquire the remainder of the funds later. The 220-million-euro guarantee for the project was supposed to be provided by Deutsche Bank, which has postponed its final decision until the end of the year.
Alpina’s Serbian branch was unable to comment on the current phase of the Horgos-Pozega concession, claiming it was “not authorized to release any information on the deal as everything has been raised to a higher level.”
On the other hand, the Vienna newspaper Virtsaftsblat claims that the highway project has again been set in motion, since Por and Alpina received financial backing from the Bank of Austria.
The economic daily recalls that the Austrian companies Por and Alpina were anxious about realizing the EUR1.1 billion project since they were unable to provide a bank guarantee on time. Initially, Deutsche Bank was supposed to support them, but the bank halted all deals in Serbia due to the political turbulence in the country and the early parliamentary elections, says the paper.
The Austrian companies have now received support for the project from Unicredit Bank, i.e. from its sister company, Bank of Austria, and, according to Virstsaftsblat, EUR10 million have already arrived at the Por and Alpina joint venture, which is to carry out the Serbian highway project.
Negotiations with Deutsche Bank continue, the Vienna daily adds, pointing out that Por and Alpina have until the end of December to present the necessary bank guarantee.
The concession contract which was signed with the previous concessionaires – Spanish company FCC and Alpina, in which FCC holds a controlling interest – envisaged that the highway be constructed by 2012, and that the concession be exploited for 25 years, with a possible 5-year extension.
FCC later surrendered its portion of the deal to Austria’s Por. The concessionaires intend to begin collecting toll revenue as soon as the financial framework for the deal is finished.
The object of the concession, offered in October 2005, is the construction of the left side of the Horgos-Novi Sad highway, 106 km in length, the maintenance of the 68 km highway section from Novi Sad to Belgrade, and the design and construction of the Belgrade-Pozega highway, 148 km long.
The Horgos-Pozega highway is supposed to be part of the new land route to the Montenegrin coast, worth some EUR3.5 billion. Whether or not this is how things will turn out, remains to be seen.
“Serbia is becoming an interesting society which was best described by Professor Vladimir Goati when he said that our country is being tyrannized by political parties. They are forming alliances not to improve the way they govern, but to strengthen their deadly grip over the state and the people,” Miljenko Dereta, the executive director of the non-government Civic Initiative organization tell Argus. (0)
So far, the European Human Rights Court in Strasbourg has passed 17 verdicts against the Serbian state, resulting in somewhat over EUR71,000 being paid out to citizens from the state budget. (0)
In theory, non-government organizations and the media are supposed to be a major driving force in the fight against corruption by directing attention to crooked officials, among other things. In reality, however, Serbian media outlets mostly do nothing more than carry reports on corruption that has already been discovered, while doing nothing in the way of analysis and investigative journalism. (0)
