On 05 June 2020, the Commission for the State Aid Control illegally approved state aid to Shandong Linglong Tire Co. Ltd for the construction of a tire factory in Zrenjanin in the amount of € 83,490,605.00. Namely, the Investor and the Ministry of Economy did not report to the Commission the entire state aid approved to the company. Also, the commission failed to determine the indirect state aid that the company received in the form of development infrastructure dedicated to the project through public resources.
The mentioned aid, which the state granted to the company Linglong Tire, consists of two components: transfer of grants in the amount of € 75,823,900.00 (granted by the Ministry of Economy) and alienation of 95ha of land owned by the City of Zrenjanin without market compensation with value estimated at € 7,666.705.00 (granted by the Republic Property Directorate).
In March 2019, the Agreement on the alienation of real estate in public ownership was signed, by which more than 95 hectares of land were transferred by direct agreement, without any compensation to the ownership of the company “Linglong International Europe” ltd. The contract was signed by the directors of “Linglong International Europe” Ltd and the Republic Property Directorate of the Republic of Serbia.
The Law on State Aid Control stipulates that state aid may not be granted before the Commission has adopted a decision assessing that it is in compliance with the rules on state aid control. It remains unclear how this topic appeared on the agenda of the State Aid Control Commission just a little over a year after the signing of the contract?
In addition, neither Linglong nor the Ministry of Economy reported total amount of aid received from the state: aid granted through long-term exemption from income tax and duty-free imports, from land development contributions, and indirect state aid that Linglong received in the form of infrastructure construction financed from public funds, which is predominantly directed for the needs of company’s investments.
By signing the Stabilization and Association Agreement with the European Union, the Republic of Serbia undertook to ensure that the project holder complies with the regulations in the field of environmental protection before state aid is approved. From the very beginning of the project implementation, the recipient of state aid resorted to dividing the single project into several separate units, avoiding the project as a whole being evaluated (so-called salami slicing), which undoubtedly violates the regulations governing environmental impact assessment. In addition, the Investor does not have the conditions of the competent Institute for Nature Conservation, without which it is impossible to determine the impact on the environment, especially the impact of the project on flora and fauna, which is extremely important given that the special nature reserve Carska bara is located at a distance of only two kilometers from the location where the project is planned.
Finally, given the net present value of the investment estimated by Linglong at € 645 million including aid and the expected internal rate of return of 34% for the 8-year investment period, the total amount of aid Linglong received from the Republic of Serbia certainly exceeds the allowable aid threshold for large investment projects.
The Commission grounds the approval of this state aid on the argument that Linglong’s investment contributes to the achievement of a goal of common interest and has an incentive effect, whereby the Commission makes such conclusions based on investor statements, without assessing explicit material evidence.
RERI points out that by easily granting state aid, which actually increases the overall profitability of an already profitable project, the State irresponsibly disposes the state money, which leads to large losses for the citizens of the Republic of Serbia, all in favor of private interests of foreign investors.