Serbia has become a hotspot for large scale Chinese investments and lending in highly polluting industries. Some of the activities will leave a deep footprint in the environment and the rule of law. Just Finance presents an overview of the most problematic takeovers in the country and explain how they were approved without required transparency and procurement procedures.
Severe air pollution from the Smederevo plant
A torn down steel factory creating massive pollution and noise in the city of Smederevo.
The Smederevo steel factory, founded in 1913, was bankrupt in 1990s due to the sanctions during the Yugoslav wars. Since 2016 it is operated by HBIS GROUP Serbia and owned the state-owned Chinese iron and steel company Hesteel Group Company Limited1 – one of the world’s biggest steel producers.
The Smederevo steel mill and a trade port on Danube River cause significant air pollutions and loud disturbing noise. Readings of the air quality near the steel factory showed particle pollution, above the limits in national legislation2.
According to the local population in Smederevo air pollution has a negative impact on the quality of food, water and the health. Residents have complained to the Ombudsman of the Republic of Serbia, stating that due to the work of this factory, they have not been able to live a normal life. The company has not installed proper air filters and other necessary devices in order to decrease level of pollutants to acceptable and legally determined levels. As a visible result, facades of houses, fences and gates are covered with dust in Smederevo.
The Ombudsman of Serbia warned in its 2019 report that the Serbian Ministry of Environmental Protection failed to use all available means to sanction the polluter nor did it review if HBIS Group Serbia implemented all protection measures in accordance with the environmental regulation.
The Renewable and Environmental Regulatory Institute (RERI) undertook numerous activities (12 motions) directed to support in the procedure of the inspection surveillance initiated by local groups in Smederevo. According RERI the environmental inspector of the City was misleading the citizens by providing contradictory information, which was confirmed by the recent decision of the Ministry of Environmental Protection3.
According to the Air Quality Plan of the City of Smederevo the steel factory is the largest air polluter in the region. Monitoring of air pollution and the disclosure of monitoring results to this date are however extremely scant, with very questionable improvements for the surrounding and affected village communities.
These exceedances were very high, and on certain days the concentration was recorded up to 4 times higher than allowed. The highest concentration of PM10 particles was recorded on January 10, 2020 – 224.7 µg / m³, which is more than 4 times higher than the daily limit value. The average value of PM10 particle concentrations in a given measurement period is 124.106 µg/m³, which is a multiple exceeding of the daily limit value, as well as the annual limit value (40 µg/m³).
On RERI’s lawyers request Ministry annulled the decision of the inspector and ordered new inspection surveillance procedure to be initiated.
Due to silence of administration RERI’s lawyer filed a claim against Ministry of Environmental Protection requesting to act on the appeal. RERI also filed a claim against Government of Republic of Serbia requiring acting upon the appeal against the work of environmental inspection.
Arsenic from copper mine contaminating the city of Bor
Massive drain of Sulphur dioxide from Chinese owned copper mining and smelting complex is neglected by Serbian authorities.
In August 2018, Chinese mining company Zijin Mining became the largest shareholder in Bor copper mining and smelting complex, a squalid and unprofitable state-owned production facility in the city of Bor in eastern Serbia.
Zijin’s business operations were found to breach maximum emissions limit values and legally binding limits by 13 times for Sulphur dioxide and 100 times for arsenic, endangering public health and the well-being of local communities, who have protested the pollution en masse. In July 2020, a local court fined the company and one of its managers for exacerbated air pollution to the amount of €3,800.
In addition, the city of Bor filed a criminal complaint over air pollution against the Chinese operator. This made the Chinese company temporarily halt operations of its copper smelter.
According to the privatization contract, the Chinese investor was obliged to undertake an environmental impact assessment (EIA). But despite the severe pollution from the production this was neglected by the new owner.
The environmental inspector and a public prosecutor have charged the company for exceeding the limits of heavy metals and Sulphur dioxide. However, despite the fact that the company is responsible for air pollution exceeding legally binding limits, the public prosecutor only charges the Investor for commercial offences (which can result in small fines (approx. 12.000 -25.000 EUR), instead of initiating criminal charges as a more appropriate legal remedy.
The Renewable and Environmental Regulatory Institute (RERI) is currently monitoring and analyzing these actions taken by the officials, in order to initiating of eventual legal actions in order to improve law enforcement.
On 14 September 2020, the Ministry of Environmental Protection claimed that Serbia Zijin Copper is not obligated to develop EIA study. RERI has raised an objection and submitted the appeal to the Government of the Republic of Serbia against this decision.
RERI claimed that the Investor used a so-called salami slicing principle and excluded the main environmental issue (tailings disposal) and that a serious procedural omission was made as the entire request for the need on EIA study with accompanying documentation was not published on the Ministry’s website, and thus, the public could not be informed about the project and submit comments4.
Serbian government has declared some areas around Bor of public interest which opens the door for exploitation. Private land will be transferred into the ownership of the company “Serbia Zijin Mining” upon agreement with the owners.
The Chinese company Zijin usurped the land belonging to communities that were, up to the point of expropriation, used for agricultural production, thus impacting the communities and their abilities to sustain adequate living standards.
As a consequence, the expansion of the copper mining fields has resulted in land acquisition and involuntary displacement of the local population, affecting community members’ right to property and living, while resettlement problems for the local community in Krivelj village persist.
According to Coalition for Sustainable Mining (KORS) in Serbia, citizens of Krivelj, Cerovo, and Slatina villages who were directly affected by the Bor project lost properties through involuntary expropriation and without receiving adequate compensation.
Salami slicing- in practice and theory, the phenomenon that the investor tries to avoid EIA by dividing the project into phases and different parts
Information on Linglong tire factory and its impacts hidden from public
Essential information of environmental impact was hidden from affected citizens.
In September 2018 the Chinese tire maker Linglong Tire signed an agreement on a large-scale investment framework in Serbia. The minister of finance, Siniša Mali, and President Aleksandar Vučić, attended the signing ceremony.
One year later the Serbian Government declared the construction of the Tire’s factory a project of national importance. This decision and the legal basis for it was not explained or made public. It is unclear whether the legal framework of the Republic of Serbia has been suspended thereby.
The lack of transparency and information on the environmental implications of the project imped the citizens of Zrenjanin to be informed whether the construction of the factory can have a negative impact on the environment, human health and the safety of workers.
Following the signing of the Memorandum of Understanding between the Government of RS and Chinese company Shandong Linglong Tire Co. Ltd., more than 96 hectares of the construction land were transferred directly and free of charge to the ownership of the company Linglong International Europe. The market price of the land is around € 7.6 million according to the Commission for the State Aid Oversight.
The Renewable and Environmental Regulatory Institute (RERI) have submitted two appeals to the Provincial Secretariat for Energy, Construction and Transportation on the construction permits for auxiliary objects and seven appeals on the construction permits for factory itself.
The legal ground for the complaints is that the non-competent authority issued the permits (due to salami-slicing), that the permit is granted contrary to the Law on the environmental impact assessment procedure (investor did not obtain the decision on the approval of the EIA study before issuing construction permits) and that the authorities does not have all the conditions and opinions necessary for issuing the permit (particularly Conditions for Nature Conservation).
Each of these appeals were rejected on the ground that RERI has no legal standing in the procedure. However, as a representative of public interests on a healthy environment, RERI is entitled to initiate and participate in the procedures of issuing construction permits and have so far submitted six claims to the Administrative Court.
In November 2020 RERI’s lawyers filed a criminal charge against the responsible persons in Linglong International Europe Ltd. Zrenjanin, China Energy Engineering Group Tianjin Electric Power Construction Co., Ltd. and CRE International Ltd. Belgrade due to suspicion that they performed construction works of the tire factory without proper construction permit.
The Serbian government often declares international contracts as confidential. This lack of transparency is not in line with the European standards on transparency. Every international contractUAL needs to be ratified by the Serbian parliament, but often the procedure is rushed closed doors. Also, some contract provisions may not be in line with the EU policies, as the Kostolac B contract show according to some experts, because a court in China will hold jurisdiction in case of arbitration.
Loan did not reduce emissions from Kostolac B coal power plant
Loans from China did not cut emissions from Serbia’s notorious coal power station.
The coal power plant Kostolac B is operated by the state-owned electric utility Elektroprivreda Srbije (EPS). The complex, located in the country’s north-east, has four units, grouped in Kostolacfron A and Kostolac B. The first unit has been operational since 1967.
Kostolac B is one of Europe’s top contributors of Sulphur dioxide, SO2. For 2019, KostolacB alone emitted more tons SO2 (79,113 tons) than the overall emission ceiling for all the twelve existing combustion plants in Serbia.
Due to extremely high emissions EPS planned to install a desulfurization system to decrease SO2 emissions from existing B1 and B2 units of the plant. To finance this, Serbia took a loan from the The Export-Import Bank of China (China Eximbank) bank in 2011. The total amount, of more than €224 million, was guaranteed by the Serbian Ministry of Finance.
The construction work was put through China Machinery Engineering Corporation. The work was going to been finalized in summer 2017 but the desulfurization system has not yet been put into operation. It is still unclear why the system has not been used considering repeated complaints from the public in Kostolac and Pozarevac. Many citizens are suffering from allergies, tiredness and bronchitis due to the heavy pollution.
According to Belgian Health and Environment Alliance, HEAL, the emissions from Serbia’s 16 outdated coal powerplants produce as much pollution as the 250 coal power plants in the entire European Union. Kostolac, together with the plant Nikola Tesla, are causing 1,940 premature deaths in the EU every year. In the Western Balkans the pollution is estimated to cause 1,500 hospital admissions due to respiratory or cardiovascular symptoms of a total annual costs of 4.4 billion EUR.
Creation of coal plant delayed despite loan
A contract to build a new coal power plant in Kostolac was signed with a Chinese developer in 2013 but the construction did not start.
Serbia’s state-owned electricity utility, Elektroprivreda Srbije, is planning to build a new 350 MW lignite coal power plant at Kostolac, called Kostolac B3. And while preparation work including levelling off the ground began in 2020, the project has been surrounded of controversies and is not yet realized.
The plans for Kostolac B3 is non-compliant with current EU pollution limits, known as the 2017 LCP BREF. The irregularities of the project have led to compliance reviews by international convention bodies including the Espoo Convention and Århus Convention, and still currently subject to Energy Community’s compliance review.
The implementation of the power plant was going to be done by China Machinery Engineering Corporation (CMEC), with which the Government of the Republic of Serbia signed a contract in November 2013. Instead of a public tender for the Kostolac B3 coal project, the Chinese and Serbian governments signed an intergovernmental agreement in 2009 that released several projects including Kostolac B1 and B2 desulfurization and B3 from tender obligations5.
A first environment impact assessment for Kostolac B was approved in 2013. However, it did not consider any transboundary impacts and suffered from several other deficiencies and was therefore challenged in court by the environment organization CEKOR. Moreover, there was no environment impact assessment conducted for the expansion of the opencast Drmno mine as required by law.
The budget for the implementation of the project is estimated to 608 million dollars and was provided by signing a bank loan from China Eximbank in December 2014. Ratification of this loan was approved by the Serbian Parliament in early 2015.
The lending to Serbia was sanctioned by the highest political level in China. In 2017 the chairman of the Standing Committee of China’s National People’s Congress (NPC), Zhang Dejiang, paid a visit to Kostolac power station during his so called “official friendly trip” to Serbia.
On August 20, 2009, the Serbian government signed a Memorandum of Understanding with the Chinese government on economic and technical co-operation in the field of infrastructure. Annex 2 to the 2009 agreement was signed on August 26, 2013. This annex includes a clause in Article 5 that (our translation): Agreements, contracts, programs and projects carried out in accordance with Article 4 of the Agreement on the territory of the Republic of Serbia do not carry an obligation to publish a public tender for carrying out investment works and delivery of goods and services, except if it is otherwise specified in the commercial contract from paragraph 4 of this Article.
Construction plan for Kolubara B power plant kept secret
The completion of Kolobura B coal powerplant was delayed due to war and corruption. When Chinese investors recently took over the plans were made confidential.
The completion of coal power plant Kolubara B, situated 60 km south-west of Belgrade, has been paved with difficulties. The construction of a new plant, near the City of Belgrade, was announced more than two decades ago but has still not started.
In March 2020, Electricity Company of Serbia (EPS) signed a preliminary agreement with Power Construction Corp. of China Ltd to begin construction of a 350 MW unit worth EUR 385 million. The project was planned to be operational by the end of 2024.
Related to Kolubara B project the low quality of Strategic Environmental Assessment (SEA) for a spatial plan of special purpose is identified. The spatial plan did not analyze economic effects of construction of the coal power plant related to introduction of the carbon border taxes and CO2 emissions.
The Ministry of Construction, Transport and Infrastructure, tried to hold a public session of the Commission for Plans on several occasions. However, the minutes from the session has not been published nor if any representative of the public participated in the “public” session. RERI is monitoring the procedure and waiting for the approval decision to be issued in order to file a claim before Administrative Court.
The Electricity Company of Serbia denied all FOI requests submitted by Renewable and Envirormental Regulatory Institute (RERI) proclaiming that everything related to construction of Kolubara B is considered secret information.
Public perception of the project
 Also known as HBIS Group Co Ltd.
 These exceedances were very high, and on certain days the concentration was recorded up to 4 times higher than allowed. The highest concentration of PM10 particles was recorded on January 10, 2020 – 224.7 µg / m³, which is more than 4 times higher than the daily limit value. The average value of PM10 particle concentrations in a given measurement period is 124.106 µg/m³, which is a multiple exceeding of the daily limit value, as well as the annual limit value (40 µg/m³).
 On RERI’s lawyers request Ministry annulled the decision of the inspector and ordered new inspection surveillance procedure to be initiated. Due to silence of administration RERI’s lawyer filed a claim against Ministry of Environmental Protection requesting to act on the appeal. RERI also filed a claim against Government of Republic of Serbia requiring acting upon the appeal against the work of environmental inspection.
 Salami slicing- in practice and theory, the phenomenon that the investor tries to avoid EIA by dividing the project into phases and different parts
 On August 20, 2009, the Serbian government signed a Memorandum of Understanding with the Chinese government on economic and technical co-operation in the field of infrastructure. Annex 2 to the 2009 agreement was signed on August 26, 2013. This annex includes a clause in Article 5 that (our translation): Agreements, contracts, programs and projects carried out in accordance with Article 4 of the Agreement on the territory of the Republic of Serbia do not carry an obligation to publish a public tender for carrying out investment works and delivery of goods and services, except if it is otherwise specified in the commercial contract from paragraph 4 of this Article.