You are here
China-Austria deal threatens to kill off Tito's Adriatic dream
MORE than 60 years ago, Yugoslav leader Josip Broz Tito dreamed up a plan to end centuries of Italian supremacy over Adriatic trade. Now, Chinese money is threatening to shuffle the deck again and undercut the communist strongman's maritime legacy.
Mr Tito once saw Luka Koper, built in 1957 with the express goal of wresting business from Italy's Trieste, as a key pillar of Yugoslavia's naval ambition, a port that one day would rival Hamburg. Slovenia's lone maritime outlet since Yugoslavia's breakup, it remains the busiest container terminal on the Adriatic, providing shipping for landlocked countries such as Austria, Hungary and Slovakia.
But a rival project now threatens to siphon away central European traffic. A planned high-speed line to be built by China Communications Construction Co and Austria's state railroad company is designed to funnel business to Trieste, just 25 km from Koper. It's another element of President Xi Jinping's efforts to increase China's political clout and revive ancient trading routes under his Belt and Road Initiative.
The forces of global trade are squeezing Luka Koper between rivals in Trieste to the north and Croatia's Rijeka to the south. The three ports are racing to increase ship traffic, but transportation links to the inland are needed to ensure growth. Luka Koper's Achilles heel is an ageing rail line. Upgrades have been held up by red tape and political bickering.
"Now you've opened the Pandora's Box," said Luka Koper chairman Dimitrij Zadel, when asked about the planned Trieste line. "We are very publicly saying we need the new rail link, we need it. Ports are just one link in the chain. It's not just about the port, it's about the connectivity to the mainland." Luka Koper's fate goes beyond Adriatic supremacy. The port that dominates the 47-km coastline of the euro-area nation is an outsize contributor to Slovenia's economy. The maritime industry generates about 1.5 per cent of annual output. Shipping is the largest employer in the seaside city, providing 12 per cent of jobs and the port operator is one of only 11 companies traded on the Ljubljana Stock Exchange.
Since the end of communism, the company - the only publicly traded enterprise of the three competing ports - has profited from the opening of free markets in central and eastern Europe. It drew commercial shipping orders from across the region, including Hungary and Slovakia and beyond.
The competition, though, is fierce. In the first nine months of 2019, Luka Koper's traffic declined one per cent from a year earlier, while Trieste's rose almost 10 per cent. Rijeka, once Yugoslavia's main port that's now the smallest of the three, is also on the upswing with an 18 per cent annual increase. Luka Koper's first-half profit dropped 28 per cent because of higher labour costs and rising transportation fees.
In the long term, the transportation system will make or break Luka Koper, said Joze P Damijan, a professor of macroeconomics at the Ljubljana School of Economics and Business, who wrote studies on the need for the rail line.
"The only real problem of Luka Koper is an outdated railway connection, which doesn't offer enough capacity," said Prof Damijan.
As Trieste prepares for better linkups to the inland, Croatia's state-operated Rijeka wants to expand terminal capacity by 2021 to as much as 1.6 million TEU - twenty-foot equivalent unit, the industry's standard measurement - and is seeking Chinese help for a long-term plan to add 3 million TEU of capacity on the nearby island of Krk.
"The integration of China and Chinese companies with the ports of Trieste and Rijeka could start to undermine the role of the Port of Koper as the leading and most important port in the northern Adriatic," said Lojze Kozole, an analyst at the brokerage Ilirika in the Slovenian capital, Ljubljana.
But Luka Koper is fighting back. The company has ranked above competing ports in the Adriatic by the United Nations Conference on Trade and Development since 2006 and for now attracts three times as much train traffic as Trieste.
Mr Zadel, the port chief, said the company is building a new terminal to add to the 3,300 metres of quay wall already used and modernising equipment.
Even in Mr Tito's day, government help wasn't always forthcoming. The Croatian-born Yugoslav leader initially favoured Rijeka over Koper, where the locals donated to build the original port, which then itself financed the first rail link. It was then that he saw the port's potential.
The government again is getting on board. Bidding is expected to start soon for the first contracts in a 1.2 billion-euro (S$1.8 billion) plan to build a new rail link, to be financed by Slovenia, European Union grants and bank loans. The cabinet last month also drafted a bill to provide more than 400 million euros in guarantees for the line.
Still, building a modern line could take years, if not a decade, making locals worried. With such a large portion of Koper's residents directly or indirectly dependent on the success of the port, locals hope the authorities recognise that the "lifeblood of the city" is worth protecting. BLOOMBERG