Serbia’s government has taken to subsidising the construction of new hotels

Responding to growing tourist demand, Serbia’s government has taken to subsidising the construction of new hotels, but a BIRN analysis of the results suggests most of the money has gone to companies frequently favoured by the country’s ruling parties.

One project has been repeatedly delayed, another has cut staff numbers, and in general experts have questioned the allocation of state funds to luxury hotel ventures.

Serbia’s tourism sector is growing: the first 10 months of 2023 saw 15 per cent more arrivals than during the same period of 2019, pre-COVID, according to the UNWTO World Tourism Barometer, resulting in revenues of some 2.1 billion euros.

Russians account for 12.5 per cent of all overnight stays, followed by Turkish citizens [10 per cent], and visitors from neighbouring Bosnia and Herzegovina [6.6 per cent]. More than half of foreign tourists spend at least a night in the capital, Belgrade, while Serbs choose spa towns or mountain resorts.

Trying to keep up with demand, Serbia’s government signed 15 contracts between October 2018 and December 2023 to subsidise the construction of hotels; the total value of the projects is 271.8 million euros, of which the state provides 48 million, but more than half that sum - 26.5 million euros - will go to three companies already involved in a number of significant state ventures.

Millennium Resorts, a subsidiary of Millenium Team, stands to receive a subsidy of 10.1 million euros for the construction of a wellness resort featuring two hotels and a treatment clinic in the Serbian spa town of Vranjska Banja; Promont Group will get 7.4 million for a luxury resort on Fruska Gora; and Inobacka almost nine million via a subsidiary for a new hotel in Serbia’s second city of Novi Sad.

Both Millenium and Promont have already signed annexes to change the terms of their deals: Millennium extended the deadline for the completion of the project twice, from 2024 to 2026, while Promont cut the number of people employed on its project from 212 to 185.

Grand EXPO plans

Serbia’s hosting of EXPO 2027 – a specialised expo under the banner Play for Humanity – Sport and Music for All – has exposed a dearth of high-quality accommodation, prompting President Aleksandar Vucic to announce the construction of more than 100 new hotels in Belgrade alone to cater for what he said would be an influx of 2.6 million guests.

The city is already an up-and-coming city break destination.

“It’s obvious that Belgrade is becoming an increasingly interesting destination, primarily for extended weekend tourism,” said Milorad Filipovic, a professor at the economics faculty of the University of Belgrade.

“We have an increasing foreign exchange inflow and the number of overnight stays, and the length of stay is also increasing,” he said. “On the other hand, we do not have such a good development of accommodation capacities.”

Tijana Maljkovic, secretary of the Chamber of Commerce and Industry of the Serbia Tourism Association, PKS, told BIRN: “Given that the Sava Centre, the largest congress centre in the region from Vienna to Istanbul, has been renovated and that for the next three years its capacity of 46 halls and scheduled events are already filled, Belgrade definitely lacks more 4-star hotel-type capacity.”

“In addition to MICE [Meetings, Incentives, Conferences and Exhibitions] guests who most often fill 4-star hotels, Belgrade lacks quality 3-star hotels intended for city breaks.”

Experts say subsidising the construction of new hotels or renovation of existing hotels is legitimate, but they question how the government has picked the beneficiaries.

Millennium Team is a major player in Serbian construction with a long history of collaboration with the state under the ruling Progressive Party and its junior partner, the Socialists, from gas infrastructure to the controversial Belgrade Waterfront development that is bankrolled by Gulf Arabs and is Vucic’s signature project.

The company is owned by Ivan Bosnjak and Stojan Vujko, who appeared in a 2012 election campaign video for the Socialists, the party of former Serbian strongman Slobodan Milosevic. Millennium Team is one of a number of private companies that has won highly lucrative state contracts while also donating money to the Serbian police, as BIRN reported in late 2020.

Under a deal signed in March 2021, Millennium Resort was supposed to invest at least 65.6 million euros by the end of 2023 to build two hotels in Vranjska Banja.

Yet three times since then, Millennium Team has sought changes to the contract; each time, the economy ministry obliged.

Two of the changes pushed back the deadline for completion, from 2024 to 2026.

In March 2023, so two years after the deal was inked, investigative outlet Insajder reported that the Millennium investment in the project had fallen short and that the government had received evidence for only six million euros; Millennium denied this, saying it had invested 22.9 million by that point and that work was proceeding according to plan.

Luxury complex in national park

Promont Group signed a deal in November 2018 to invest 16.3 million euros and hire at least 70 new employees on permanent contracts in the Vrdnicka Kula hotel complex in the Fruska Gora national park. The government agreed to a subsidy of more than 2.6 million euros.

Promont Group owns the hotel complex, which comprises Hotel Premier Aqua, Fruske Terme, Vrdnicka Kula ethno village, and Fruske Residence condo complex.

Under the terms, Promont Group must not cut the number of permanent staff below 212 for three years after the end of the investment project.

But in a May 2021 annex, the economy ministry agreed to a request from Promont to cut the total of employees on permanent contracts from 212 to 185.

A new subsidy of 4.8 million euros was agreed in January 2022 for Promont Group to build a new family hotel.

Filipovic questioned the allocation of state funds to such high-end projects.

“I can understand that the state has given incentives, but there is no justification for it to continue to give incentives because this is primarily about a clientele that is more than able to pay,” he said.

“If you and your family go to Fruske Terme for the weekend, for one day, it will cost you at least 150 euros. For the conditions and standard in Serbia, it is too high. It makes no sense for the state to further subsidise those who anyway have more than the average.”

Like Millenium Team, Promont has also been involved in Serbia’s gas infrastructure, a sector that for years has been controlled by the Socialists. According to the Insajder investigation, state-owned natural gas provider Srbijagas – led for the past 15 years by Socialist Party senior member Dusan Bajatovic – hired Promont Group without a tender for the construction of Turkish Stream, together with the Millenium Team.

Promont Group says on its website that it has designed and installed over 10,000 kilometres of gas pipelines; it also owns cold storage facilities for 3,000 tons of raspberries, blackberries, plums and cherries and has its own distillery.

In 2022, the company reported income of 36.6 million euros, up from 22.7 million in 2019.

Over the same period, profits increased 22 per cent, from 4.9 million euros to six million.

The co-owner of Promont Group is Montenegrin-born businessman Milinko Cicmil, another donor to the Serbian police.

Subsidies for new Hyatt hotel in Novi Sad

In December 2023, Trinity Park, a subsidiary of Inobacka, signed a contract to receive a subsidy of almost nine million euros to build a new Hyatt Regency on the site of the famous Yugoslav-era Hotel Park in Serbia’s second city of Novi Sad. Hotel Park is owned by IBH, which is owned by Tatjana Zelenika, an employee of Inobacka.

The hotel should open in 2026.

The investor billed the project as promoting congress tourism in Novi Sad. But it is located in a part of the city centre once designed as a spa, and still classified as a spa, so it qualified for a subsidy otherwise reserved for hotels in Belgrade or in spa towns.

“Given that the Novi Sad Spa is within the Futoski Park, and we are in the middle of the Futoski Park, we met all the conditions according to their criteria, although we didn’t know it,” Inobacka director and co-owner Vukajlo Babic told BIRN. The subsidy, he said, “came in handy in the whole financing structure”.

Under the terms of the contract, Trinity Park must invest at least 58.4 million euros by 2027, although Novi Sad mayor Milan Djuric said last year that the hotel would be worth twice that amount. Babic says it will employ 250 staff, though the contract stipulates only 40 on permanent contracts.

Babic said he would also seek a subsidy for a new hotel in Belgrade.

Djuric’s predecessor as mayor was current Progressive Party leader Milos Vucevic. When Vucevic was mayor, Inobacka clinched the contract in June 2020 for the construction of public garages in Novi Sad in consortium with Vienna-based Best in Parking AG. At the time, the opposition said Inobacka had benefitted from Babic’s close relations with Vucevic. Babic denied being particularly close to Vucevic or that the former mayor helped him win the garage contract.

“We know each other,” he told BIRN. “I also knew the interim mayor and I should know every mayor; that’s my duty and that’s part of my job,” he said. “I don’t have a close relationship with him.”

In 2022, Inobacka reported revenues of 36.2 million euros, a 170 per cent increase on 2019. Profits quadrupled to 10.7 million euros.

“Two or three years of investment all poured into one year of income,” Babic said, citing as well a rise in real estate prices.

Inobacka worked on the construction of a major science centre in Kragujevac in central Serbia and was selected in 2024 to build four new kindergartens in Kragujevac, Cacak in central Serbia, Alibunar to the northeast of Belgrade and Pecinci, northwest of the capital. Inobacka was also the contractor for the construction of a building in Block 37 in New Belgrade, which was halted in 2021 following protests by local residents over the location and lack of parking.

Katarina Baletic