Executive Summary

• Belgrade Metro is a decades-old project of rapid transit system in Belgrade. Its planning  changed with almost every change of government;
• The construction of the Belgrade Metro has been repeatedly delayed, mostly due to lack of funding caused by constant political and economic crisis;
• Prelude to this project was the development of the Belgrade Railway Junction, which was launched in 1971 and mostly completed by 1995;
• The current plan for the Belgrade Metro includes 2 lines with 43 stations and connection with the BG Voz system, as well as possible third line and link to the Belgrade Nikola Tesla Airport;
• Foreign parties interested in the project are the French Egis Group and the Chinese Power Construction Corporation of China (PowerChina).

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Executive Summary

• Belgrade Metro is a decades-old project of rapid transit system in Belgrade. Its planning  changed with almost every change of government;
• The construction of the Belgrade Metro has been repeatedly delayed, mostly due to lack of funding caused by constant political and economic crisis;
• Prelude to this project was the development of the Belgrade Railway Junction, which was launched in 1971 and mostly completed by 1995;
• The current plan for the Belgrade Metro includes 2 lines with 43 stations and connection with the BG Voz system, as well as possible third line and link to the Belgrade Nikola Tesla Airport;
• Foreign parties interested in the project are the French Egis Group and the Chinese Power Construction Corporation of China (PowerChina).

 

Project Key Facts

Sector	Transport infrastructure
Date of Start	April 25, 2019
Expected Date of Finish	N/A
Location	Belgrade, Serbia
CAPEX	~EUR 4,4 Billion
Stage	Contract notice
Investor/Contracting entity	Government of Serbia, represented by the Ministry of Construction, Transportation and Infrastructure, City of Belgrade, PUC Belgrade Metro and Train
Type of Financing	Loan
Contractor/Subcontractors	Egis Group, Power Construction Corporation of China (PowerChina)
Other Important Actors Involved	Opposition/Civil Society in Serbia

Regional and Local Context

Belgrade Metro project is a highly controversial, expected impact on Belgrade, the involved actors and interests. The project attracted a lot of attention and subsequent criticism. Summarizing bellow are the most important aspects connected to the project:

1. The first mentioning of the project was in 1923, while the proposal of the first three lines came in 1938. These lines were: Bulevar kralja Aleksandra-Zemun, Kalemegdan-Autokomanda and Topcider-Viline Vode. During the 1950s, the discussion regarding the development of rapid transit system in Belgrade was relaunched. Therefore, a line that runs along Kalemegdan, Terazije, Slavija, and Čubura was proposed in 1958.
2. The first specialized traffic surveys for the purpose of the future subway were conducted in 1965, while the first comprehensive plan was published in 1968. The plan envisioned three lines, totaling a length of 33 km, with 35 stations, which would connect Zemun, New Belgrade, Zvezdara, Dorcol, Cubura, Banjica, Cukarica, Palilula, Visnjica with later expansions to Brace Jerković and Dunavski Venac. The future central underground subway station would be located at Cvetni Trg, with tunnels stretching in the north-south direction. The railroad authorities opposed the project, so the plans were abandoned.
3. In 1971, the Belgrade Railway Junction was introduced by the famous mayor Branko Pesic, upon which completion the construction of a subway system was planned. This plan envisioned five different metro lines (Zemun-Vukov Spomenik, Kalemegdan-Autokomanda, Dorcol-Brace Jerkovic, Bezanija-Jajinci and Dorcol-Knezevac) and four additional regional lines (towards Zrenjanin, Ruma, Pozarevac and Pancevo). The plan was finished in 1981 and officially presented the following year, but it was rejected due to political and economic situation, and replaced with the plan for an expansion of existing Belgrade tram system.
4. The Belgrade Railway Junction was completed by 1995, except for the Belgrade Center Rail Station, also known as Prokop. In 2004, the BELAM project was presented, which included the construction of above-ground tracks or light rail transit (LRT) system. It was planned to have 3 lines (Zemun-Konjarnik, New Belgrade-Banovo Brdo and Tasmajdan-Banovo Brdo), with an estimated value of almost EUR 500 Million. Nevertheless, the project was dropped by 2009.
5. Afterwards, the conventional heavy metro was reintroduced. In 2011, it was announced that the French companies, Egis Group and Alstom would develop the Belgrade Metro. The proposed lines were similar to ones from the BELAM project, but completely underground instead. The estimated value was set at EUR 1 Billion, which would be provided by the French government as a loan.
6. The contemporary plan was announced in 2017, while Egis Group also expressed its interest for participation in the project. This plan includes the construction of two lines, Makis-Mirijevo and Zemun-Mirijevo, with a combined length of over 40 km and 43 stations in total. The connection with the BG Voz system is also planned, as well as a link to the Belgrade Nikola Tesla Airport. Despite previous arrangements with the French side, earlier this it was announced that the project will be done by Power Construction Corporation of China (PowerChina). While during the time, the number of lines with roughly the same length remained the same, the estimated cost started to grow from EUR 2.2 billion in 2017, then EUR 3 billion and EUR 3.6 billion in 2018, and finally EUR 4.4 billion in 2019. This is raising suspicions about possible corruption and money-laundering.

Actors and strategies

Actors	Goals	Strategy
French Republic, Egis Group and Alstom	Become the main contractor on at least the first two lines, and possibly on the third one as well; Secure and advantageous position as to conduct the major works and possibly secure similar contracts in the future. Grow its regional presence.	Provide financial support for the project and secure an appointment as the main contractor. Work quickly and efficiently to respect the agreement with the Government.
People’s Republic of China, Power Construction Corporation of China (PowerChina)	Become the main contractor on all the lines; Finalize the construction works and secure contractual payment from the Government;	Provide financial support for the project and secure an appointment as the main contractor. Work quickly and efficiently to respect the agreement with the Government.
Government of the Republic of Serbia, represented by the Ministry of Construction, Transportation and Infrastructure	Reduce traffic congestion in Belgrade; Strengthen the cooperation with the financiers and contractors to attract more financing into the needed projects. Get the best loan conditions (either from French or from Chinese)	Support the construction effort and make sure there are no delays due to bureaucratic processes.
City of Belgrade and PUC Belgrade Metro and Train	Reduce traffic congestion in Belgrade; Support efforts of the Government related to the Belgrade Metro project. As it is a long ongoing project, ensure that it moves beyond the planning phase by putting more pressure on the government.	Providing institutional assistance as to move quickly throughout the project.
Opposition/Civil Society in Serbia	Increase the level of transparency related to the spending of funds required for the project; Clarify what are the ways the project is influencing life and economy in Belgrade.	Put pressure on the government to provide full disclosure related to the project. Put pressure on the government through media and civil society to give a full insight into plans for further development.

Project insights

Belgrade Metro is a major infrastructure project which will be financed through loans, and because of that it will put additional pressure on Serbian economy and it will make a huge long-term economic burden for the country. Also because of its sheer size, the project will increase the number of challenges related to it.

Legal

• Choice of a contractor and a financier - Ever since the French company Egis Group, alongside the French government, expressed its interest for the development of project in 2011, the Government of Serbia and the City of Belgrade did everything they could in order to transform that interest in an official agreement by avoiding rules of a proper procedure. Namely, there was no call for tender, just signing of intergovernmental agreements. Government of Serbia even passed lex specialis, regarding the major infrastructure projects, including the Belgrade Metro, in order to avoid proper procedures and be able to negotiate directly with interested actors, basically overruling all other existing laws. Anyhow, there was no any concrete progress related to the French participation in the project. After the Chinese company PowerChina came into the picture with the BRI, the Serbian side shifted its focus to them as a political favor in return for all other Chinese investment in Serbia without even mentioning a tender. While memorandums of understanding were signed with both sides, the current assumption is that the Chinese will dig the tunnels, while the French will provide all the necessary equipment and trainsets.

Economic

• Indebtedness - The Belgrade Metro project will certainly be beneficial for both the local economy of Belgrade, as well as the national economy of Serbia. It will reduce traffic congestion in the city center. It can also have a clear economic impact by making the City more attractive place of residence, for citizens and companies. On the other hand, with a permanently increasing project price, most probably to attract possible contractors and financiers, the  EUR 4 Billion burden will lay again on the shoulders of the Serbian taxpayers. It is hard to discuss the project's financial and economic sustainability. Majority of negotiations are behind closed doors, thus there is no clear understanding what is the final price of the project and would be the price of the loan. Adding this to the already indebted Serbian economy is a serious problem.

Construction/Engineering

• Route of the lines - The latest plans are very different from all previous ones. The route of the first line, which will be stretching from Makis to Mirijevo, is under fire by experts. The main critique is related to the fact that it will connect huge construction projects supported by the Government. It will start in Makis, where the construction of Tesla City has been announced, it will pass by the Belgrade Waterfront, without going beneath the central square, Trg Republike. It will end in Mirijevo, after passing by the Belgrade Port, where one more mega-project, called City on Water, will be developed, and avoiding one of the city’s main traffic arteries, Bulevar kralja Aleksandar. The reason for all of this is that the main developers of all these projects have personal ties with the Government. In the case of Belgrade Waterfront, there is accusation that the regime itself is involved in possible money-laundering.

Forecast

We can expect the project to move further given that it has been going on for decades and it had political support from both the Government and the Opposition/Civil society, as well as the financial one form the French and the Chinese sides, but with higher price and many questions asked. On the other hand, as every ruling party had its own plans for it, there has never been a consensus on what type of rapid transit system should be built, as well as the actual routes of lines. Until such a consensus is achieved, the project itself will move ahead, but its shape will depend on the ruling regime. The construction works works according to the current plan will start only if the incumbent government stay in power after the next elections and for years to come. In the opposite case, the first line to be constructed will be the one proposed by all the previous plans, from Zemun to Konjarnik with a central station at Trg Republike, while the second one will most probably be rerouted.

Strategy and Operational options for EU actors

There are three distinct ways in which EU companies could engage in the development of Belgrade Metro project:

1. 1. Financing - development of such a large infrastructure project requires a significant amount of capital to be invested, which even French or Chinese side have not offered yet. This situation presents a clear opportunity for European banks to participate in the financing. During the negotiations, the French side has mentioned, the EUR 1 Billion governmental loan, but if they become the main contractors, they will definitely need additional funding. Therefore, an alliance between Egis, Alstom and some European banks will most probably be in order. On the other hand, the Chinese side simply doesn't have such a problem, because they have almost unlimited resources at their disposal;
   2. Construction - additionally, there is a clear opportunity for European construction companies to make more formidable offer than French or Chinese already did, or to collaborate with one of them on equal terms or as subcontractors. If any European construction companies which wants to participate in the project provide lower prices and interest rates, they can instantly become the best candidates for main contractor. The problem is that all major infrastructure projects in Serbia are most probably cover for money laundering, because the prices are just getting higher and higher without any relevant explanation and justification. Particularly to this project, there is an assumption that such a large increase of price has political dimension. Namely, it is linked with the regime’s wish to appease both interested parties, which are also two nuclear powers and permanent members of the UN Security Council, which can help Serbia in achieving its goals in international arena;
   3. Consultancy and further support - even so Egis Group has already made plans for the first two lines, intentions of the Government are constantly changing. In case that the incumbent Government changes its plans once again or if it comes to the change of government itself, this could be an opening for European companies to offer their services in remaking the existing plans or to make plans for new lines. Finally, the comprehensive transportation strategy, which would include all means of transportation and would integrate the Belgrade Metro in the existing public transport system, will definitely be needed in the future.

While searching for ways to engage in the construction of Belgrade Metro, all interested actors from the EU should take into account that the dominant player in its development are the French and the Chinese construction companies supported by their respective Governments, while the Government of Serbia is trying to make a competition between three or more potential contractors and financiers.

Sources

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