Serbia to Charge Fees for State Guarantees From 2027 Under Public Debt Law Reform

Serbia is preparing to introduce mandatory fees for sovereign guarantees provided to public companies, with amendments to the Public Debt Law scheduled to make guarantee commissions compulsory from 1 January 2027. The proposed changes would replace the existing framework, under which the state may charge a fee, with a mandatory system. The reform is part of Serbia’s broader alignment with EU state-aid rules and would put an explicit cost on state-backed borrowing by public companies.

Entities including EPS, Srbijagas, Transnafta and state-controlled transport operators have used sovereign guarantees to obtain financing on more favourable terms. By backing repayment, the government strengthens borrowers’ credit standing and can reduce their borrowing costs, while assuming the associated fiscal risk. The proposed system would make that support an identifiable financing expense for the companies receiving it.

Public companies rely on sovereign-backed financing

State guarantees have become an important element of Serbia’s infrastructure investment model because some public companies do not have balance sheets strong enough to independently finance large capital programmes. EPS is simultaneously investing in electricity generation, grids, environmental compliance, renewable energy and storage. Srbijagas requires funding for pipelines, storage, network expansion and supply diversification, while Transnafta is preparing strategic oil infrastructure.

Railway companies are also undertaking modernisation programmes involving rolling stock and infrastructure. Many of these projects require financing worth hundreds of millions of euros. International financial institutions and commercial banks may provide the loans, but sovereign backing can be required where borrowers are state-owned or financially constrained. Under a guarantee, lenders ultimately rely on the Republic of Serbia if the borrowing company cannot meet its obligations. That can reduce financing margins, while transferring part of the risk to the state. Until now, the economic value of that support has not necessarily been systematically priced.

Called guarantees have already affected public finances

The proposed reform follows evidence that sovereign guarantees can become direct fiscal liabilities. Serbia paid approximately RSD 25.6 billion in 2025 after guarantees were called because borrowers failed to meet their obligations. At the end of March 2026, guaranteed debt amounted to approximately RSD 199.3 billion, including around RSD 122.6 billion associated with EPS and Srbijagas.

Guarantees generally remain contingent liabilities rather than conventional central-government debt service as long as borrowers continue making payments. If a borrower defaults, however, the contingent obligation can become an actual budgetary payment. Guarantee commissions would therefore compensate the state for assuming that risk while creating a financial signal for the borrowing company.

Fee methodology will determine the financing impact

The effect of the reform will depend heavily on how guarantee commissions are calculated. A risk-based system would charge financially stronger companies less and impose higher costs on borrowers with weaker financial positions or persistent losses. Such a structure would introduce a market-based assessment of state support into public-sector financing.

For example, the financing cost of a project backed by EPS could differ according to the company’s operating cash flow and ability to service debt, while commercially viable infrastructure could receive different treatment from projects requiring continuing state support. The explicit cost could also influence project selection. Investments that appear financially viable when sovereign backing is effectively free could become less attractive once the guarantee is incorporated into the financing model.

Borrowers could face higher all-in financing costs

A sovereign guarantee would continue to provide credit enhancement to lenders, but public companies would have an additional expense alongside interest payments. For a €500 million loan, a 0.5% annual guarantee fee would amount to €2.5 million per year. At a 1% rate, the annual cost would rise to €5 million. Over long-tenor infrastructure loans, such charges can affect project economics materially.

The impact could be particularly relevant for regulated infrastructure because energy networks, gas systems and transport projects cannot always immediately pass higher financing expenses through to customers. Additional costs could consequently affect public-company profitability, regulated tariffs or future government support. The reform would not eliminate sovereign guarantees. It would make their financial cost more transparent.

EPS faces a large future investment requirement

Elektroprivreda Srbije (EPS) is among the public companies most directly affected by the change because of the scale and breadth of its investment programme. The utility needs to modernise a power system that remains heavily dependent on lignite while increasing renewable generation and flexibility. Its investment requirements also include battery storage, mining modernisation, environmental compliance and grid-related infrastructure.

Much of that programme will require debt financing, including borrowing from development institutions where sovereign guarantees can help secure lower financing costs. From 2027, however, the state is expected to receive compensation for providing that credit support.

EPS’s financial performance would therefore become increasingly relevant to the cost of its future borrowing. A stronger balance sheet could reduce the company’s dependence on state-backed financing, consistent with the broader EU approach of moving public utilities toward greater reliance on their own financial capacity. The strategic importance of EPS means that government support is unlikely to disappear, but the cost of that support would become more explicit.

Srbijagas faces infrastructure and financing pressures

Srbijagas represents a different financing profile because of its strategic role and more complex financial history. Gas-price regulation, historical liabilities and commercial arrangements have contributed to balance-sheet pressures, while Serbia is simultaneously pursuing additional infrastructure for supply diversification and security.

Planned investments include new transmission sections, regional interconnections and potentially additional storage capacity. World Bank-backed proposals involving the Trupale–Pojate corridor illustrate the scale of infrastructure requirements ahead.

Mandatory guarantee fees could therefore prompt a clearer allocation of the cost of gas-security investments. If Srbijagas cannot cover the additional expense from operating cash flow, the impact could ultimately be reflected in network tariffs or further state support.

Transnafta highlights the policy trade-off

The proposed changes also have implications for Transnafta and the planned oil connection toward Hungary. The project has entered a financing structure involving a sovereign guarantee and domestic-bank lending. Strategic energy infrastructure can be difficult to assess purely through commercial returns because its principal purpose may include supply resilience A second crude-supply route can have strategic value even if utilisation remains relatively low under normal market conditions.

This raises a policy issue for the new guarantee regime: whether strategically important projects should pay the same commercial-style guarantee cost as investments undertaken primarily for corporate returns. The framework will need to distinguish between ordinary commercial state support and infrastructure justified by broader public-policy objectives.

EU state-aid rules are driving the change

The guarantee reform forms part of Serbia’s wider process of aligning its economic framework with the EU. European competition rules seek to prevent state-owned companies from receiving advantages unavailable to private competitors. A sovereign guarantee supplied without compensation can reduce a state-owned company’s financing costs and therefore represent a potential competitive advantage.

A market-consistent guarantee commission provides one mechanism for addressing that concern. The measure is part of a broader reassessment of Serbia’s investment-support system, alongside changes involving corporate tax holidays, payroll-tax incentives and free-zone customs benefits. Together, these measures point toward a model in which state support is increasingly identified, valued and assessed for compatibility with EU rules.

Domestic lenders remain relevant to infrastructure financing

Serbian commercial banks have become increasingly involved in infrastructure lending, including transactions where sovereign guarantees strengthen the borrower’s credit position. The introduction of a guarantee fee would not remove the value of that backing for lenders. It would, however, require borrowers to account for the additional expense when comparing financing alternatives.

Public companies could increasingly assess guaranteed loans against funding from the EBRD or World Bank, commercial borrowing, bonds and project-finance structures that rely more heavily on project cash flows. Companies with financially viable projects could also have greater incentives to explore corporate bond issuance or blended financing arrangements. The reform could consequently influence the diversification of funding sources for Serbia’s public infrastructure companies.

Guarantee fees would improve risk visibility

For the Serbian government, the proposed system would have two immediate effects: generating revenue from guarantee commissions and creating a more systematic measure of the risk attached to state-backed borrowing. A guarantee would become more than an administrative approval attached to an infrastructure project. The state would need to assess the borrower’s financial condition, repayment capacity and potential fiscal exposure.

That could strengthen public debt management and provide greater visibility for parliament and investors into the costs and risks associated with public-company investment. A project financed through a state-owned enterprise may not appear directly as central-government expenditure, even though taxpayers ultimately bear the risk of a default. Charging for guarantees would not eliminate that contingent liability but would make the transfer of risk more visible.

Higher financing costs could reach regulated tariffs

The eventual economic effect could extend beyond public-company accounts. If EPS, Srbijagas or transport companies incur higher financing expenses, they will need sufficient revenue to service those costs. Depending on the sector and regulatory framework, that could affect electricity-network charges, gas tariffs, transport fees or other regulated revenues. Infrastructure costs therefore could become more visible to end users rather than being absorbed indirectly through state support.

The reform could also change incentives for public-company management. Companies with stronger balance sheets may have greater reasons to finance projects without sovereign guarantees, while guarantees could increasingly be reserved for strategic investments or transitional circumstances. A guarantee fee alone would not resolve weaknesses in corporate governance, tariff policy, procurement or operational efficiency, but it would remove one element of implicit financing support.

Fee design will need to distinguish risk from revenue raising

The effectiveness of the new system will depend on the methodology used to determine guarantee charges. If fees are too low, they may fail to reflect the fiscal risk assumed by the state. If they are excessively high, they could increase financing costs for economically sound infrastructure projects.

Transparency will therefore be important in determining how charges are calculated, how borrowers are classified and how strategically important projects are treated. The framework will need to establish clear risk categories and limit discretionary treatment if it is to replace an implicit subsidy with a transparent financing mechanism.

New rules take effect from 2027

The planned 1 January 2027 implementation date gives public companies, lenders and government institutions time to incorporate the new cost into financing structures. Projects already under development will need revised financial assumptions, while future borrowing programmes will have to account for guarantee commissions. The state will also need to incorporate expected fee income into its planning, while regulators may need to assess the implications for infrastructure tariffs.

The change will be particularly relevant to the major energy and transport investment programmes planned for the remainder of the decade. For Serbia’s public companies, sovereign backing will remain available under the proposed framework, but from 2027 that support is expected to carry an explicit price. The resulting financing models will make the cost of state guarantees more visible across the country’s infrastructure investment programme.