China In Eurasia

BANJA LUKA, Bosnia-Herzegovina -- Despite lacking the necessary legal permits and facing growing pushback from local activists, a Chinese company is moving forward with plans to build a hydroelectric plant in southeastern Bosnia-Herzegovina.

The entire project is worth some $107 million and is the result of an agreement signed in Beijing in 2019 between Republika Srpska Prime Minister Radovan Viskovic and the state-owned China National Aero-technology International Engineering Corporation (AVIC).

The proposed plant is located close to the town of Foca within the Bosnian Serb entity of Republika Srpska, some 25 kilometers from the Bosnian-Montenegrin border.

But activists have sounded the alarm over the project, noting that it still does not have the necessary environmental permits to begin construction and is lacking an environmental-impact study on how the plant will affect the Bistrica River. Despite these lingering concerns, ground was broken on the hydroelectric complex in December 2021 at a ceremony attended by Republika Srpska officials and representatives from the Chinese Embassy in Sarajevo.

"We have seen the draft [environmental] impact study that was submitted [and] it is very controversial [and] very poorly done," Jelena Ivanic, vice president of the Center for the Environment, a Banja Luka-based watchdog group, told RFE/RL. "[They] do not have specific data, so it is impossible for them to take the necessary measures to protect [against damage]."

Ivanic says the version of the draft impact study she saw does not mention a nearby hydroelectric plant located along the source of the Bistrica River and, according to her organization, the project only has permits for preparatory work, not full-scale construction.

Ivanic says that for these reasons the hydroelectric project is controversial, and it faced strong pushback during an April meeting between residents and officials, with many locals saying they opposed the project.

A Complicated Path Forward

Dejan Pavlovic, the acting director for the proposed hydroelectric complex, told RFE/RL that permits held by the project were valid and sufficient for the work under way, noting that currently only preparatory work such as building access roads, clearing vegetation, and flattening terrain was being done.

Pavlovic added that he had applied for permits to begin full-scale construction and expected them to be approved by August.

However, questions remain over the environmental-impact study for the project, which was put together by the Institute for the Protection and Ecology of the Republika Srpska, a public institution under the authority of the entity's Science and Technology Ministry.

Predrag Ilic, the institute's acting director, admitted to RFE/RL that errors occurred when the study was being put together and said that they would be rectified in the final version of the report. "We will make an updated study on all those comments [raised by the Center for the Environment]," he said.

Further complications exist around the financing for the project.

AVIC, which was placed under sanctions by the U.S. Treasury in 2021 for its close ties to the Chinese military, originally made promises to provide financing for the hydroelectric plants that it would also be the contractor for, but those talks have not progressed.

AVIC did not respond to RFE/RL's request for comment on its involvement in the project.

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Talks involving financing from the state-owned Industrial and Commercial Bank of China (ICBC) have also been floated, but currently only $15.7 million has been raised for the project as a loan by the state hydropower company Elektroprivreda Republika Srpska from a Bosnian bank.

Elektroprivreda Republika Srpska owns the subsidiary company, Hidroelektrane Bistrica, that is the holder of the concession for the project near Foca. The deadline for the hydroelectric power plant complex near Foca is the end of 2026.

China's Balkan Push

China has become a growing investor in the Balkans in recent years, with countries in the region -- including Bosnia -- signing on to its globe-spanning infrastructure project, the Belt and Road Initiative (BRI).

According to a 2021 study by Bulgarian-based Center for the Study of Democracy, Bosnia, Hungary, Montenegro, and Serbia -- the regional leaders in terms of Chinese investment -- experienced a drop in their business environments and rule of law as Chinese capital flowed in.

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The report notes the loopholes for Beijing-backed companies, such as receiving tax exemptions, the ability to bypass local labor laws, and other forms of preferential treatment are likely not the result of Chinese investment, but a contributing factor in attracting it.

Boris Mrkela from the investment-monitoring group Just Finance International says that similar factors are likely at play for AVIC at the power plant project near Foca. "According to our research, the constant among all Chinese investors in the Western Balkans is the readiness to start work on projects that lack significant permits," he told RFE/RL.

Chinese companies have faced similar controversy over projects in Serbia, such as a mining project in Bor and a tire factory in Zrenjanin, which also moved forward despite lacking the legal permits to do so.

Mrkela says that is a worrying trend for the Balkans, especially when it comes to the potential environmental impact the projects approved through loopholes could bring.

Written by Reid Standish in Prague based on reporting by Goran Katic in Bosnia

China’s growing appetite for discounted Russian oil has made it the leading financier of the Kremlin’s war in Ukraine by giving Moscow a reliable revenue source that blunts the impact of tough Western sanctions against its economy.

Four months after Moscow’s invasion of Ukraine, China has overtaken Germany as the biggest single buyer of Russian energy, with oil sales to China -- and India, another energy-hungry Asian nation -- helping to fill a gap left by Europe, Russia’s biggest export market.

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China and India have together bought an estimated 2.4 million barrels of Russian crude oil a day in May, half of Russia's total exports.

Despite being sold at a steep discount, the purchases -- along with climbing oil prices -- have allowed Russian revenues to grow in the face of Western pressure and given Moscow a crucial financial lifeline to keep funding its war effort.

Buying cheap Russian oil has allowed China to diversify its own reserves and given India a lucrative revenue stream by reexporting refined products like gasoline and diesel from the Russian crude. For the moment, the purchases don’t risk triggering secondary sanctions while the European Union’s current oil ban remains partial, but Beijing and New Delhi’s willingness to buy Russian oil will be put to the test later this year once stricter measures come into effect.

Meanwhile, Chinese President Xi Jinping hosted a virtual summit on June 22-23 for leaders of Brazil, Russia, India, China, and South Africa, known collectively as BRICS, where he decried Western sanctions as “weaponizing” the global economy and called for the grouping to work closer together.

During his remarks at the summit, Russian President Vladimir Putin said that BRICS countries were “developing reliable alternative mechanisms for international settlements” and “exploring the possibility of creating an international reserve currency based on the basket of BRICS currencies.”

But how much can Moscow count on non-Western markets and partners, like China and India, to help it deal with the fallout of sanctions?

To find out more, RFE/RL spoke with Maria Shagina, a fellow at Britain's International Institute for Strategic Studies (IISS).

RFE/RL: Over the course of the war in Ukraine, China has now become the largest buyer of Russian oil. What does this mean for China and Russia’s relationship moving forward and is this a sign of their deepening partnership or Beijing simply making an opportunistic move to buy discounted energy?

Maria Shagina: We’ve heard on multiple occasions that Russia and China have established a “no-limits” partnership, and recently [on June 15], Xi reiterated support for mutual cooperation with Russia.

But we know that China’s rhetoric and deeds diverge quite a lot and that has been clear since 2014 [when Beijing and Moscow deepened their ties at a faster pace]. China is eager to capitalize on Russia's isolation, including purchasing Russian cheap crude oil. But when it comes to violating Western sanctions, the Chinese private sector is usually quite cautious.

In this case, we still don't have [Western] sanctions on Russian oil and the oil embargo from the European Union will start on December 5. So there is still this phase-out period before sanctions are triggered, and this is the time for China -- and also India -- to capitalize on very cheap oil that they can purchase from Russia.

RFE/RL: Apart from buying oil, China has shown itself to be very cautious when it comes to avoiding triggering secondary sanctions imposed on Russia by the West. Should we expect Beijing to give more overt support to Russia in the future, especially when it comes to advanced technology like semiconductors?

Shagina: China's balancing act is very delicate and, as the war progresses, it will be more difficult for Beijing to keep this position of so-called "pro-Russian neutrality," where they’re officially neutral but lean toward Russia.

Since 2014, Russia has had rather high expectations of Beijing to step in to help out [with] this very difficult [financial] situation for Moscow. The Kremlin has since had a more sober assessment in terms of how much help can realistically be expected from China, but even now Russia is rather disappointed by the lack of support from China.

We know that there was some discontent from the Russian side when it came to the lack of Chinese support in terms of financial assistance and technology transfers after sanctions hit [following the February 24 invasion]. Those are the two areas that Russia is now highly dependent on China and other nonaligned countries for their support, and China will be one of the main countries to watch when it comes to helping alleviate the impact of sanctions. That’s not only whether Beijing will provide any financial assistance, but also whether it will provide any technology that is now under sanctions, like chips and semiconductors.

Lessons from 2014 tell us that the Chinese private sector is very risk-averse because it's so dependent on the U.S. dollar for transactions and tends to stay away from sanctioned Russian entities and even does overcompliance with sanctions to be extra careful. So in the current situation where we have an unprecedented number of sanctions in terms of their scope and their severity, I would say that there will be even more risk-averse behavior from the Chinese private sector.

But we should know that government-backed institutions behave differently. In 2014, Chinese banks like the Export-Import Bank of China and the China Development Bank worked with [Russian] companies like Novatek, which is Russia’s second-largest natural gas producer, to finance projects. So there is room to support sanctioned entities and people, but we should be cautious of the limited scope of this support.

RFE/RL: Xi Jinping hosted a BRICS summit and spoke about the grouping being important for the global economy, while Russian commentators have said repeatedly that the grouping is crucial for blunting Western sanctions. Does the war in Ukraine give an opportunity for it to finally deliver on its potential and play a more prominent role?

Shagina: I think that rhetorically there is a very strong narrative to push back against the West, in particular the United States and EU, over their use of unilateral sanctions that haven't been supported by the UN.

India is another example [within BRICS] where Russia is also keen to expand collaboration, but we haven't seen a lot of progress beyond buying oil. For example, Russia floated the idea to use different mechanisms for payment systems and alternatives to SWIFT, which it has been blocked from using under sanctions. But none of those initiatives has taken off and they remain largely dormant.

I think rhetorically the summit [was] an opportunity to resist U.S. hegemony, but whether that will materialize into something bigger remains to be seen.

RFE/RL: Is there anything that you're expecting to happen in regard to Chinese economic involvement with Russia that perhaps you think is coming or is worth watching out for?

Shagina: One area is semiconductors and technology transfers more broadly. This is something worth watching to see whether China will help. So far, as U.S. officials have said, there has been no systematic support on the side of China, but whether China will be willing to supply them to alleviate this pressure from technology sanctions on Russia is not implausible given the level of partnership both countries have.

The other area that is worth watching is whether Chinese companies will help provide energy equipment that the EU ban on liquefied natural gas (LNG) and on LNG equipment has cut off and that Russia can’t substitute for on its own. Since 2014, Chinese engineering companies supplied up to 80 percent of this equipment, so there is room for China to step in to solidify its positions and potentially to provide additional financing for Chinese-backed [energy] projects in the Arctic.

This interview has been edited and condensed for clarity.