Suspended investigation into the failed Chinese project in Zenica

ZENICA – We investigated the background of the introduction of Chinese investors in the construction of the thermal power plant, which was supposed to cost 500 million KM. The main investor, Branka Montenegro, was liquidated in mid-2020, and the ZDK Prosecutor's Office suspended the investigation after six years in September 2022.

Although the famous project for the construction of the Thermal Power Plant “Zenica” weighing 500 million KM, which was supposed to bring Chinese investors into this business according to the 2013 contract, was already declared a failure, the determination of criminal responsibility, in this case, was only recently completed. And that after passing the ball between individual police agencies and prosecutor’s offices. By the way, this was supposed to be one of the first Chinese investments in Bosnia and Herzegovina.

According to the information of the portal Fokus.ba, the criminal case, in this case, was formed in 2016, and for more than six years it “travelled” between the MIAZDK – ZDK Prosecutor’s Office – SIPA – BiH Prosecutor’s Office. Possible irregularities in the work of KTG “Zenica”, otherwise a company that was formed for this purpose back in 2009, majority owned (75 per cent) by KazTransGas (KTG) “Lugano” Switzerland, controversial businessman Branko Montenegro, and the Municipality of Zenica owned about 25 per cent.

In a statement to Fokus.ba, the ZDK Prosecutor’s Office stated that initially, after analyzing the report received, they assessed that the entire case should be taken over by SIPA with the obligation to inform the Prosecutor’s Office of Bosnia and Herzegovina, and this is because “it follows from the report that it is a matter of possible execution of criminal works with an international element”.

However, as stated by the Cantonal Prosecutor’s Office, the Prosecutor’s Office of Bosnia and Herzegovina, after taking certain measures and actions, and collecting evidence, determined that there is no reason to suspect that any criminal offence prescribed by the provisions of the Criminal Code of Bosnia and Herzegovina had been committed, and resubmitted the case to the Prosecutor’s Office of the ZDK for further investigation and analysis. The Prosecutor’s Office of the ZDK “dealt with it” again, so in the second round, it found something different compared to the original.

– This prosecutor’s office gathered additional evidence, all with the aim of making a final prosecutorial decision, and on September 15, 2022, issued an order not to conduct an investigation regarding the report in question, because there are no grounds for suspecting that a criminal offence was committed – say the ZDK Prosecutor’s Office in answer for our portal.

In short, there is no criminal responsibility for the construction project of the Thermal Power Plant “Zenica” under the direction of KTG “Lugano” Branko Montenegro, which was signed with the Chinese state company SEPCO III in 2013. It failed a long time ago. For now, no one is openly talking about the damage suffered by the local community.

In the meantime, the new Zenica city government (led by Fuad Kasumović) brought in new investors (ArcelorMittal and Finnish companies) and in March of last year the “Zenica” Heating Plant was officially opened with a value of around 106 million KM.

However, the journalists of the Fokus.ba portal investigated this entire case and came across a number of, relatively speaking, illogicalities.

The responsible entities in this case tried to introduce the Chinese into this lucrative business while bypassing the state. A legitimate question arises – For whose interests?

Let’s first go back to the year 2013, when the Municipality of Zenica, then with its mayor Husejin Smajlović, who has since passed away, pompously informed the public that a contract had been signed on the construction and procurement of equipment for the Thermal Power Plant – Heating Plant “Zenica”. They called the construction of this thermal power plant one of the most important energy projects in this part of Europe?!

According to the contract, it was planned that the thermal power plant would produce 390 MW of electricity and up to 170 MW of thermal energy for heating the city of Zenica. During the negotiation activities that took place at the time, the Chinese, it was reported, defeated the competition, that is, two German, one Spanish, and one Italian firm. As the Municipality of Zenica assessed at the time, the Chinese “showed the greatest strength and offered the best price”.

By the way, the Chinese company SEPCO III has built several types of energy facilities in the world with a total capacity of 294,000 MW and is currently implementing 16 projects. At that time, the Chinese approached the project in Zenica with special attention, considering that this was the first time they tried to enter the European market in which they were not present. But it was already known then that, when it comes to the portfolio of the company SEPCO III, it is not exactly without serious blemishes. Thus, the aforementioned Chinese company participated in the construction of the Fukushima nuclear reactor in Japan, which after the earthquake and tsunami caused an environmental disaster in March 2011 in that country.

Also, in 2002, Nigeria entrusted the construction of the “Olorunsogo” Thermal Power Plant to the Chinese company SEPCO III. After five years, the 300 MW thermal power plant was put into operation, but already in the first two years of operation, six of the eight installed turbines failed due to a lack of spare parts and documentation. SEPCO III was also the contractor for the construction of the thermal power plant in the Indian city of Korba, where 41 workers died in 2009 when a chimney collapsed during construction.

Anyway, everything had to be finished in Zenica in a relatively short time. The Chinese company SEPCO III has committed to finish the project within 29 months, that is, in 2015, according to the turnkey system and hand it over to the City of Zenica! According to the agreement between SEPCA III and the German company Steag, after the completion of the project, Steag was supposed to continue to run and maintain the plants for the next 15 years.

Originally, it was planned that the thermal power plant – heating plant in Zenica would start operating even in 2012, but the deadlines were postponed, as were the investors. Namely, the first investor was supposed to be the German consortium “Ferrostaal – Christof”, with which a year after signing the contract, it was cancelled due to a 30 million euro increase in the price of the contract. In the end, SEPCO III, a Chinese state-owned company, won the new tender.

In March 2015, two years after nothing had been built since the thermal power plant in Zenica, it obviously slowly became clear that without federal and even state institutions, such a capital facility cannot just spring up.

Namely, KTG “Zenica” initially entered the whole project of realization of the thermal power plant with the opinion that it would be supported by the authorities of Bosnia and Herzegovina, and in the years after that, they remained without any participation of the state in this project. This is particularly interesting due to the fact that Montenegro once declared that the thermal power plant construction project received the support of the SDA Presidency. This, it seems, happened without the competent institutions giving their word about it.

– We found ourselves under attack from politics that such a model cannot pass and it turned out that if we want to finish the project, the state must be involved in everything. Since August 2014, everything has been standing still and the formation and support of the FBiH Government and the BiH Council of Ministers are awaited because it is clear that the capital energy project cannot be done without the state – KTG “Zenica” announced in 2014.

Namely, on August 20, 2014, KTG “Zenica” received an agreement from the Government of FBiH ordering them to conduct negotiations with Elektroprivreda BiH in order to find mutually acceptable elements of the joint venture agreement.

However, Elektroprivreda BiH never started these negotiations. On the other hand, Branko Montenegro’s Swiss KTG “Lugano” never invested the promised 250 million euros, but earned money by selling 10 per cent of its ownership to the Chinese group – SEPCO III.

Troubles for investors, but also contractors, became even greater in December 2014 when, at the Summit of China and the countries of Central and Eastern Europe in Belgrade, the then Prime Minister of China Li Keqiang publicly spoke about the Thermal Power Plant “Zenica” as a project important for China, while the BiH delegation, which was then led by the chairman of the Council of Ministers of BiH Vjekoslav Bevanda, stated that he knew nothing about that project?!

A meeting between Bevanda and the Prime Minister of China in 2014

By the way, in that period, the Chinese obviously wanted to dominate the energy sector of BiH with a kind of “blitzkrieg”, so they then entered into two more procedures for obtaining jobs, namely for the construction of the “Stanari” Thermal Power Plant, as well as Block 7 of the “Tuzla” Thermal Power Plant.

Why is the Block 7 project still alive, when in November 2020 it was known to have failed?

In the official register maintained by Dun & Bradstreet, it is stated that the owners of KTG “Zenica”, that is, the company that was purpose-built for the purpose of building a thermal power plant (which they have not yet implemented): KTG AG “Lugano”, HTG Energy Investment Limited, Hong Kong, Tsim Sha Tsui, Hong Kong, as well as the Municipality of Zenica.

According to data from the court register, the decision for the company KTG “Zenica”, which is practically no longer active, was last renewed on December 27, 2016.

Furthermore, according to data from the Official Gazette of Switzerland obtained by Fokus.ba, the company KTG AG “Lugano” was officially liquidated in the middle of 2020! Otherwise, all contact information from both KTG “Zenica” and KTG AG “Lugano” is invalid, so no one could even answer our questions.

In March 2016, the Regulatory Commission for Energy in the FBiH (FERK) revoked the previously approved work permit and license for the supply of electricity to the KTG “Zenica” company after they had previously sent them a warning, according to which the deficiencies should have been eliminated within the given deadline. By the way, FERK issued a permit for work and a license for electricity supply to the company KTG “Zenica” with a five-year validity period, from March 12, 2014, to March 11, 2019.

In May 2016, the Federal Minister of Energy, Mining and Industry, Nermin Đindić, speaking about the mandate of the still current FBiH Government, Fadil Novalić, spoke with a delegation of the company SEPCO III, headed by director Wu Qingli, but this time not only about construction thermal, but also hydroelectric power plants, even wind and gas power plants. It was, therefore, an attempt to provide the Chinese with access to other natural resources of Bosnia and Herzegovina through the “back door”. But in the end, nothing came of that either.

In 2019, the State Regulatory Agency for Electricity (SERK) also announced information about everything that further casts a shadow over the entire KTG project for the construction of the “Zenica” Thermal Power Plant.

Namely, the SERC stated at the time that they did not encounter any cooperation with the company KTG “Zenica” regarding the fulfilment of the obligation to pay the regulatory fee and that after undertaking all the litigation actions in which the existence of the debt was proven and based on the judgment rendered in this procedure, SERC initiated enforcement proceedings before the competent court. Since, as stated, the executor, that is, KTG “Zenica”, currently has no funds in their account, SERC, as the requester for enforcement, is placed on the waiting list according to the legal priorities for the execution of the forced collection order.

The president of the Association “Eco Forum” Zenica, Samir Lemeš, tells Fokus.ba that the biggest damage to the city of Zenica, when it comes to the failed thermal power plant construction project, is reflected in the lost time, “because due to speculation with the unrealistic project of KTG, the opportunity to build a heat pipe Kakanj – Zenica to supply Zenica central heating with heat from the Kakanj Thermal Power Plant”.

– We also have a delay in the construction of the heating plant for ArcelorMittal, which from November 2021 is used by ArcelorMittal for technological needs (more than 80%) and JP “Grijanje” Zenica (less than 20%) for heating the city during the winter season. All this prolonged the use of the old coal-fired thermal power plant and contributed to air pollution with dust and sulfur dioxide”, said Lemeš.

He stated that they are aware that the City of Zenica invested land in KTG, but managed to return it due to non-fulfilment of the contractual obligations of the partner, that is, Branko Montenegro, and that plot has already been sold to new owners.