PORT OF BAR: MONTENGERO
CHINESE FLAG OVER BAR? The port of Bar, Montenegro may just avoid being the second port to fall into a Chinese debt trap – but its not certain yet. Eugene Gerden reports The Port of Bar, Montenegro, faces an uncertain future. Underpinning this uncertainty is a one-billion-dollar loan agreed by Montenegro with China in 2014 for the purpose of building the initial 41km section of the country’s first motorway linking the port of Bar in the south to Serbia in the north. It is, however, no ordinary motorway, because the construction plan incorporates 40 bridges and 90 tunnels across frequently very difficult terrain. Yet as it stands out of the total 170km length only 40km have been built with the project dogged by corruption allegations, construction delays and environmental issues. The first section of the motorway was originally scheduled for completion in 2019, but construction delays and the COVID-19 pandemic are cited as responsible for pushing the deadline back to November 30 this year. More importantly, however, Montenegro is facing serious financial difficulties (primarily associated with the fall in tourist traffic due to the COVID-19 pandemic). This, in turn, raises the key question of, how does the country re-pay the Chinese loan? – leaving aside the issue of how it completes what has become known as the ‘motorway to nowhere’. The take-up of the Chinese loan took place against a background of Montenegro previously looking elsewhere for funding. In this context both French and American feasibility studies highlighted the risks of such an oversized project. The European Investment Bank and the IMF also declared that it was a bad idea. Hence this has made attempts to refinance the debt very difficult.
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… it has raised the prospect of the port of Bar effectively falling into a Chinese debt trap It has also raised the prospect of the port of Bar effectively falling into a Chinese debt trap, whereby a failure to repay the loan provides China with a gateway to taking over the port of Bar in a similar fashion to what previously occurred with the port of Hambantota in Sri Lanka. Here, the Government of Sri Lanka was unable to repay a US$1.2 billion loan and was compelled to hand over the lion’s share of equity in the port and 15,000 acres surrounding it as part of a 99-year lease. This scenario has been a serious prospect for the port of Bar which is understood to have signed a loan agreement with China with some strange characteristics, including giving up sovereignty over certain areas of land and agreeing to an arbitration process governed by Chinese law. So far, Beijing has agreed to defer repayment of Montenegro’s first tranche of the loan, which was originally due in July, but has now been pushed back to late 2022. Apart from straight refinancing, another idea that has been floated as part of the problem is the takeover of Montenegro’s debt by Serbia, whose landlocked status causes big problems for its economy and for which gaining control over the port of Bar could provide serious benefits. At the eleventh hour, however, it seems that a helping hand will come to Montenegro’s aid in the shape of assistance
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from the EU. Essentially, Montenegro’s saving grace is that the motorway project represents what amounts to a test case of the EU’s willingness to counter China’s growing influence on the periphery of its territory.
8 The road to a debt trap that has raised concerns over the port of Bar’s position
HELPING HAND After several episodes of the EU turning down the idea of helping Montenegro climb out of this deep financial hole, it seems there is an EU deal in the process of being worked out. This, informed sources emphasise, is strongly premised on countering Chinese influence. China’s presence in the Balkans has grown strongly in recent times, with the country investing billions into the region and raising concerns about financial dependence on Beijing that could serve to muddy the waters regarding the EU’s eastward expansion and Montenegro’s hopes of joining the Community. Hence a strong strategic motivation to remove Montenegro’s potential Chinese debt trap and move away from a scenario such as the Hambantota one. It is also foreseeable that when an EU-backed financing deal is agreed that the use of the funds will be much more closely controlled than has been the case with the Chinese loan. Montenegro is a country with a reputation for corruption as seems to be evidenced by the fact that US$400 million of the Chinese loan was paid out to sub-contractors with a number linked to a senior politician and with the appointment of these parties made without a public procurement process. Similarly, tax breaks, removal of import duties etc. enjoyed by the main Chinese contractor were extended to contractors without any real rationale for doing so but simply providing the opportunity for ‘legitimised corruption.’
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