Due to its strategic position in the heart of Southeast Europe and it being part of three important European corridors, Serbia can boast excellent connections to both Western Europe and the Middle East, and has a huge potential for public and private investments alike.
Aware that investments in infrastructure can provide tangible impacts on economic growth, quality of life, and productivity, the Government of the Republic of Serbia has focused its strategic choices in the past years on infrastructure projects ownership and delivery modes. Addressing the longstanding problem of underfunding, it turned to various forms of grants, loans, donations, and state subsidies. As a result, construction activity in all fields, including infrastructure, maintained a dynamic and continued growth in 2020 and 2021 even though the COVID-19 pandemic indisputably slowed down the economy and increased the costs of construction materials, imported goods, workforce, and logistics.
This has been confirmed by a number of major ongoing infrastructure projects at a national level, including road, rail, air, and water developments, which continue to provide opportunities for investment-oriented firms from all over the world. With several countries, most notably, the USA, China, Turkey, Russia, France, Hungary, and Azerbaijan, Serbia has signed memorandums of understanding on cooperation in infrastructure development. At this point, such international agreements are the most frequently used modality in this field.
Some of the global leaders in the construction industry are thereby, by means of commercial contracts, engaged in implementing infrastructure projects of national significance. Key projects in the area of road transport include around 250 kilometers of new highways being built within the Belgrade Bypass, the Preljina-Pozega segment, and the Morava Corridor. The Sremska Raca-Kuzmin section, with a bridge over the Sava River, is part of the E-761 highway Belgrade-Sarajevo construction project. In addition, the construction of the Pozega-Kotroman section (approximately 60 kilometers long) is also planned. For these projects, the Republic of Serbia signed two Commercial Agreements with Turkish construction giant Tasyapi.
These are accompanied by several projects of exceptional strategic relevance in the area of railways and intermodal transport, such as the reconstruction and modernization of the railway section between Subotica-Horgos and the state border with Hungary (Szeged). The construction of the Belgrade-Budapest railway is in process, too, with the project’s worth at about EUR 2 billion in total, and works being partly performed by China Railways International and China Communications Construction Company.
The relevant legal framework has been amended and upgraded a few times in recent years to simplify the regulatory procedures concerning the implementation of infrastructure (re)construction projects, speed up their performance and finalization, and foster the usage of other delivery modalities, first and foremost, Public-Private Partnerships (PPPs). In addition to the Law on PPP and Concessions, adopted back in 2011 and amended in 2016, the 2018 amendments to the Law on Utility Services are also expected to draw private investment in this sector and facilitate PPP projects in Serbia. Namely, it prescribes that the procedure of performing communal activities whose financing is provided from the budget of the local self-government unit or by collecting fees from the users of communal services can be carried out exclusively through public-private partnerships.
Since the formation of a regulatory body in the form of the PPP Commission, over the past nine years, there have been almost 200 approved projects across all local municipalities in Serbia. Most of these projects have been in the previously underdeveloped wastewater processing, sewerage, water supply, and waste management sectors.
In addition, one of the most notable concessions that should tightly connect Serbia with the world is the concession of the Belgrade airport. In March 2018, Vinci Airports signed a 25-year concession contract with the Serbian government for the Nikola Tesla Airport. The concession agreement covers financing, development through construction and reconstruction, maintenance, and management of infrastructure.
Regardless of the form and structure of infrastructural projects, however, there are numerous legal aspects for all stakeholders to consider in the context of construction and projects-related regulations in Serbia. After the main parties choose the adequate procurement arrangement, transaction structures, and corporate vehicles, and comply with the FIDIC contract forms (which are required if the main parties are international contractors), they also need to take into consideration the risk allocation, appointment, and payment of contractors, subcontractors, licensing and consents, as well as projects insurance, health and safety, environmental issues, and, finally, tax liabilities.
By Vladimir Milosevic, Partner, Milosevic Law Firm
This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
