In the recent period, we are witnessing the ”blockage“ of construction of the large number of renewable energy projects in the Republic of Serbia, due to the fact that the local self-governments fail to adopt or amend Detailed Regulation Plans (hereinafter jointly referred to as “DRPs“).
The initiatives for adoption/amendments of DRPs have been submitted, but the institutions are yet to act upon them.
Specifically, many local self-governments did not issue or allowed the issue of DRPs to enable the investors further construction of renewables projects. Such inertia of the government institutions halted many renewables projects that have been started under the recently amended Law on Energy, the Law on Use of Renewable Energy Sources and the corresponding regulations (especially by-laws).
Therefore, only the newly commenced projects are under impact, whilst the ones commenced before the latest amendments of the law took place should not be under any negative impact. However, the situation is alarming, as it creates uncertainty about all future or planned projects that are yet to be developed.
To put the matter into perspective, DRPs are essential documents in the earliest stages of constructing renewable energy projects. They present an operational plan that includes, among other things, regulatory and leveling elements, routes, corridors, and capacities for traffic, utility, energy, and other infrastructure. DRP also contains rules for organization and construction across the entire area it covers.
Without them, the construction cannot be further performed because no investor would know what is needed to adequately and legally continue with the construction of facilities. According to the DRPs, the location conditions are issued, which then serve as the basis for obtaining energy and, ultimately, construction permit.
The same problems exist in later stages of construction of renewable energy projects in the Real Estate and Construction area, such as pause in issuance of location conditions and construction permits, but not of scale as the DRPs.
It is worth noting that the whole problematic is multi-layered because the renewable energy facility has multiple constituent parts, i.e. elements, such as the power plant, connection electricity line and facility connection point, transformer station etc. For most of those parts, especially for transformer stations which are entirely built from scratch or repurposed if already existing, the same type of permits and plans must be obtained. By not acting within their prescribed deadlines, the governmental institutions hinder progress significantly.
The key question that arises is – Why is this the case? Unfortunately, the institutions remain silent, leaving investors in the dark.
Due to the inactivity of governmental institutions, investors face the risk of severe damages. These damages include actually incurred losses and costs, which are measured based on the investor’s expenses (costs of construction material, manpower, official fees for obtaining the connection study, costs of land acquisition etc.). Additionally, the investor faces the loss of potential profits, as the investor’s facilities cannot become operational and generate income, based on detailed calculation and projections.
There is also a risk of a call on the bank guarantee and its subsequent collection for the full amount by the transmission system operator Elektromreža Srbije (“EMS”) because the adequate planning document for the facility has not been adopted. Namely, upon obtaining the connection study, the investor must obtain and deliver to EMS the bank guarantee, within 60 days deadline, amounting to EUR 25,000.00 per MW of facility’s power.
Such a guarantee represents the means of securing the execution of the investor’s obligation to conduct all the steps necessary for the construction of the facility.
By not being able to acquire the DRP due to the (in)action of the institutions, the investor faces a realistic threat of the amount secured by his bank guarantee being collected by EMS. If the DRP is acquired, but the institutions are silent in issuing the documents relevant for later stages of facility construction, then the amount secured by the investor’s bank guarantee to be collected varies from 10-80%.
The described situation is a serious signal to investors wishing to enter Serbian market, as it gives them the impression that the country is not safe and stable for these kinds of investments. This was certainly not the intention of lawmakers and all the key stakeholders who wish to make Serbia a competitive market and one of the most desirable countries for investment in renewables.
What is the solution? Since the issue of DRP is a classic administrative procedure without special provisions on how to act if the DRP is not adopted, the usual legal remedies are at investor’s disposal, prescribed by the Law on General Administrative Procedure and the Law on Administrative Disputes.
In this specific case, the investor may submit the Lawsuit to the Administrative Court due to the silence of the administration, requesting the dispute to be solved before the court. This means that the Administrative Court would alone solve the dispute and adopt the decision, which would then replace the act that the local self-government should have adopted.
Although posing significant pressure on the institutions to act can be quite effective, there are downsides to this method. Namely, the investor would have to, prior to the Lawsuit, submit a request for urgent solution of the case to the local self-government. Then, if the competent body fails to act on such a request within an additional 7 days from the date of its receipt, the investor will be entitled to file the Lawsuit with the Administrative Court.
Usually, as a common practice, before filing the Lawsuit, the investor submits the Warning Notice to the competent body as a last resort before going to court, to reach a solution out of court. If this step fails as well, then a Lawsuit is submitted.
The problem is that all these actions, as well as the procedure before the court, take time, create additional costs for the investor and, since there is no court practice in this area, establish huge uncertainty. It might be challenged whether the Administrative Court has all the competences to adopt an act that could replace the act of the competent body, so creating court practice and enough materials in the form of court decisions appears extremely lengthy. Not to mention that there is no guarantee that the investor might not succeed in the dispute.
Finally, there is a risk of local self-government taking a negaitve stance towards such investors. A path of veiled retaliation looms where such authorities could exploit legal frameworks to sideline or ‘blacklist’ investors who dare to challenge them.
Altogether, this may divert investors from taking action or coming to Serbia.
Another legeal remedy available to the investor is to file a lawsuit seeking compensation for damages before the competent court. The risks are the same as with the previous legal remedy, yet the potential pressure on the institutions may be far greater.
If unsuccessful in the dispute, the Serbian Government is facing multimillion-euro claims that could total billions of euros in obligations to investors, thus posing a serious stress on the state's budget. The burden may be even greater if the dispute can be brought before the International Centre for Settlement of Investment Disputes (“ICSID”) Tribunal, because the ICSID is well-known for its high service fees and the attorney fees in that regard may rise exponentially.
Another fact is that Serbia is known for not being too successful in arbitral proceedings. In general, the states, acting as the respondents against the investors in such cases, have a lower chance of winning.
Being aware of this, and the number of projects on hold, it becomes even more perplexing why local self-governments would take such risks on themselves and, ultimately, the state, potentially leading the country towards bankruptcy. Is this a calculated strategy, or simply a result of government institutions' neglect, indifference, and inertia?
It remains to be seen how local self-governments will address this inertia and what underlying reasons have led to this pause, if ever provided. However, proactive action to streamline regulatory processes and foster transparency is essential to attract investors and unlock the full potential of renewables.
Authors: Miloš Vučković Partner, Aleksandar Čermelj, Senior Associate
31/03/2025
