Chinese Name: 马其顿基切沃–奥赫里德高速公路项目
Location: Western North Macedonia
Type of Project: Transportation
Project Developer: Public Enterprise for State Roads of the Republic of North Macedonia
Main Contractor: Sinohydro Corporation Limited (Skopje Branch Office), a subsidiary of Power Construction Corporation of China.
Known Financier: Export–Import Bank of China
Cost: 598 million EUR (total), comprising 411.3 million EUR (initial) and 186.8 million EUR (additional).
Project Status: Under Construction
The 57 kilometres of highway connecting the cities of Kičevo and Ohrid in the western part of the country is the largest and most expensive infrastructure project in post-independence North Macedonia—and a highly controversial one. One of the flagship Belt and Road Initiative (BRI) projects in southeastern Europe, it is financed with a loan from the China Eximbank and contracted to Chinese companies. The principal contractor is Sinohydro Corporation Limited, a Chinese state-owned enterprise that has both extensive experience in winning overseas projects and a track record of being debarred by both the World Bank and the African Development Bank for fraudulent practices. The loan was secured by a sovereign guarantee. The highway has been regulated with a Special Law that was fast-tracked in the North Macedonian Parliament in 2013, which helped bypass standard public procurement procedures (that is, an open, competitive tender) on the grounds of it being a project of strategic importance. China Eximbank provided a loan under favourable conditions, with an interest rate of 2%, 20-year repayment period, and five-year grace period (that is, 15 years for actual repayment). The construction of the highway began in 2014 and, after a series of halts, delays, and renegotiations, is now expected to be completed in 2023.
Passing through mountainous terrain, the highway is a segment of the Pan-European Transport Corridor VIII, which is part of the European Core Transport Network that will connect the Adriatic coast to the Black Sea, improving North Macedonia’s connectivity with its neighbours, Albania in the west and Bulgaria in the east. The highway is expected to have a significant effect on North Macedonia’s internal connectivity. Once completed, it will significantly reduce travelling time between the capital, Skopje, and the Ohrid Lake region—the most significant tourist destination in the country and an important cultural centre. Given its strategic importance, the highway is expected to generate added value, which, according to successive North Macedonian governments, makes it a feasible investment. The highway passes through immensely challenging terrain, requiring the construction of tunnels and viaducts. The 2-kilometre double tunnel near the Preseka Pass, completed in 2018, is the longest in the country. The highway is also expected to improve traffic safety, as the current road to Ohrid is particularly challenging and sees frequent vehicle accidents and fatalities.
The highway was initiated as part of a broader endeavour by the North Macedonian Government led by Nikola Gruevski (in office 2006–17) to stimulate economic growth by engaging in massive construction projects. The Kičevo–Ohrid Highway has been developed jointly with the 47-kilometre Štip–Miladinovci Highway in the east of the country (which was completed in 2019) as part of the same deal with China Eximbank and Sinohydro, and with other transport infrastructure projects implemented in partnership with Western actors in other regions. However, the Kičevo–Ohrid Highway, as well as the Štip–Miladinovci Highway, quickly became a major controversy, as it was the subject of one of dozens of leaked wiretaps released by then opposition leader Zoran Zaev of the Social Democratic Union of Macedonia (SDSM), which allegedly implicated the Gruevski government in grand corruption. After Zaev became Prime Minister in 2017, the SDSM-led government halted construction work on the project and started to renegotiate the contract with Sinohydro, which took more than a year. In October 2018, the SDSM-led government announced a new agreement with Sinohydro had been reached, which expanded the scope of the project to include adjustments for the terrain, construction of new exits and regional roads, as well as provisions for additional research, dislocation of energy infrastructure, and other technical works. The cost of the highway was increased by 187 million EUR, elevating the total to 598 million EUR. The new deadline was set for 2021, but in the wake of the COVID-19 pandemic, it was moved to 2023.
- Macroeconomic Impact: The Kičevo–Ohrid Highway is an economically significant project. In 2018, Deputy Prime Minister Kocho Angjushev estimated it represented up to 20% of the total construction activity in the country in that year. It has significantly increased the country’s public debt, but so far there has not been any issue with servicing the loan from the China Eximbank.
- Employment and Labour Rights: The project has generated new jobs for local workers. Chinese workers have been involved as well.
- Governance and Corruption: The project is regulated by a Special Law, which raised questions about governance and transparency. It has been the subject of a major corruption scandal, which implicated former Prime Minister Gruevski and members of his Cabinet, but the case was dismissed before a verdict could be reached.
- Environment: The highway passes through the Ohrid region, which is a UNESCO-protected World Heritage Site. The region has been affected by various instances of malpractice, making it a candidate for UNESCO to redesignate as an endangered heritage site.
According to the government’s estimation, the Kičevo–Ohrid Highway represented up to 20% of the total value of construction work carried out in the country in 2018, making it a project of crucial economic importance. Minister of Transport Goran Sugareski argued that the temporary stoppage of the project during the renegotiations between the government and Sinohydro in 2017 and 2018 was a significant reason for the economic underperformance of the national economy in that period.
The agreement between Sinohydro and the North Macedonian Government stipulates that at least 51% of the value of the Kičevo–Ohrid Highway construction contract must be awarded to local companies. Three North Macedonian subcontractors (Granit, Ilinden, and Transmet) and one from Albania (Victoria Invest) have been working on the project under the coordination of Sinohydro (in 2018, Transmet was excluded after its CEO was implicated in a separate corruption scandal). During peak construction periods, Sinohydro and the local companies were said to employ around 1,000 local workers on the Kičevo–Ohrid and Miladinovci–Štip projects. A small number of Chinese workers hired by Sinohydro (no more than a few dozen) resided in a compound near Izvor village. There have been occasional reports of poor working conditions and accidents during construction, but no systematic research on the topic has been conducted.
The Kičevo–Ohrid Highway has been often discussed in the context of ‘debt trap’ narratives. The loan from China Eximbank, even though quite favourable, led to a substantial increase in public debt (as one recipient of the loan is the Public Enterprise for State Roads, the loan is not reported as part of the government’s external debt). For the time being, however, the loan is being serviced without any indication that the government will have difficulty meeting repayments. The only potential alternative sources for funding the highway were through issuing a Eurobond or taking a loan from an international commercial bank, which would have been more costly.
Before embarking on a highway construction spree in the 2010s (with the Kičevo–Ohrid the central project), there had been no highway construction activity in North Macedonia for almost two decades, so the local companies and institutions that participated in the preparation and construction stages had no relevant experience. These factors have been pointed to as crucial reasons for the complications, delays, and cost overruns that have plagued the project. At the same time, Sinohydro has expanded its operations in the country, winning tenders for the construction of expressway projects funded by the European Bank for Reconstruction and Development (EBRD) in 2019 and the Government of North Macedonia in 2021.
Aside from the flawed planning and lack of proper due diligence, the Kičevo–Ohrid Highway has been plagued by substantial governance and sustainability issues. These are not unique to this project, but rather reflect the status quo in the North Macedonian context. For example, the Demir Kapija–Smokvica section of the Pan-European Transport Corridor X in the southern part of the country, completed in 2018, financed by an EBRD loan, and with the Greek company Aktor as the main contractor, was also at the centre of major corruption scandals and environmental malpractice.
In terms of governance, the Kičevo–Ohrid Highway is considered problematic due to its regulation by a Special Law linked to the Agreement on Economic and Technical Cooperation in the Field of Infrastructure between China and North Macedonia. Circumvention of public procurement rules and procedures and opaque spending of public finances have long been considered major weaknesses of North Macedonia’s governance system, and now that the country is a candidate for EU membership these issues stand in the way of the accession process. The Special Law on the Kičevo–Ohrid and Štip–Miladinovci highways embodied all these concerns, as it enabled non-competitive deals behind closed doors and shielded the process from greater institutional oversight and public scrutiny.
The Special Law specified that for the two projects (Kičevo–Ohrid and Štip–Miladinovci), the government had received offers from two potential Chinese contractors, China International Water & Electric Corporation (CWE, which built the Kozjak Dam and Hydro Power Plant in North Macedonia in 2000) and Sinohydro. Even though CWE provided a cheaper offer, the North Macedonian Government dismissed it without a clear explanation—a fact that the wiretaps leaked in 2015 suggested was due to backdoor dealings. The former opposition leader and current Prime Minister, Zoran Zaev, who publicly presented and curated the wiretaps, alleged that former Prime Minister Gruevski and his cronies had received a substantial commission for their decision to select Sinohydro (5% of the total cost of the two highways).
After the change of government in 2017, Gruevski and members of his Cabinet were prosecuted in a case called ‘Trajectory’ on several charges, including one related to the two highway projects implemented in cooperation with Chinese actors. Gruevski and the other officials were suspected of taking a bribe that influenced their decision to choose the more expensive offer, which effectively harmed the public interest and the state budget. During the process, it was revealed that Sinohydro had subcontracted a significant part of its work to local companies for a substantially lower price than it had budgeted in the offer to the North Macedonian Government, gaining approximately 155 million EUR as a result of the price difference. Furthermore, it was disclosed that, when successfully competing via public tenders (such as the EBRD one for the Krupište–Kočani Expressway), Sinohydro budgeted for item costs up to four times lower than the cost of the same items in the non-competitive offer it provided to the North Macedonian Government for the highways.
Gruevski had previously been sentenced in a separate case for unlawfully influencing the procurement procedure for an armoured limousine, and fled the country in 2018 (currently he is in exile in Budapest). However, he was never found guilty of corruption regarding the Kičevo–Ohrid Highway. The Special Prosecutor’s Office that pursued cases linked to the 2015 wiretaps was disbanded by late 2019 due to the Chief Special Prosecutor’s involvement in corruption herself. Before a new prosecutor could take over proceedings, the statute of limitations on the case expired, and the state even had to reimburse Gruevski’s court expenses.
Finally, there are concerns about the environmental impact of the highway. While the Ministry of Environmental Protection has prepared a study of the potential environmental risks (as well as potential adjustments and responses), it is feared that complications from the construction work, including landslides and additional unforeseen excavations, will have a negative environmental impact. Part of the Kičevo–Ohrid Highway passes through the Ohrid Lake region, which is protected as a natural and historical World Heritage Site by UNESCO. However, UNESCO has repeatedly warned the North Macedonian Government that, due to rampant malpractice in urban planning and development, it will reclassify Ohrid as an ‘endangered site’. The construction of transport infrastructure is one of the factors that places the area at risk. Moreover, the highway passes through the natural habitat of the endangered Balkan lynx. It was reported that one lynx was fatally run over by a motor vehicle on the existing Kičevo–Ohrid road in 2018, and eco-activists have lobbied for the highway project to include green overpasses that would reduce the danger for lynx in the future.
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Krstinovska, Ana. 2019. ‘Exporting Corruption? The Case of a Chinese Highway Project in North Macedonia.’ CHOICE, 6 November. Link.
‘Law on the Realization of Infrastructure Projects for the Construction of Highway Section Miladinovci–Štip and Highway Section Kičevo–Ohrid.’ Official Gazette of the Republic of Macedonia, No. 149, 29 October 2013. Link [in Macedonian].
Miljovski, Božidar. 2020. ‘Mistakes on the Kičevo–Ohrid Highway.’ Okno.mk, 7 August. Link [in Macedonian].
Nechev, Zoran and Ivan Nikolovski. 2020. Hustled into a Dead End: The Delusional Belief in Chinese Corrosive Capital for the Construction of North Macedonia’s Highways. Report No. 39/2020. Skopje & Washington, DC: Institute for Democracy Societas Civilis Skopje & Center for International Private Enterprise. Link.
‘Presentation on the Annex of the Contract with Sinohydro (Government of the Republic of North Macedonia).’ Link [in Macedonian].
Tsimonis, Konstantinos, Igor Rogelja, Ioana Ciută, Anastasia Frantzeskaki, Elena Nikolovska, and Besjan Pesha. 2020. ‘A Synergy of Failures: Environmental Protection and Chinese Capital in Southeast Europe.’ Journal of Current Chinese Affairs 48(2): 171–200.Updated on 7 October 2021.
Updates & Corrections
16 January 2022: China Africa Research Initiative’s briefing paper added to key sources.