World Report

With half of the electricity supply still imported and demand rising, it is vital to boost output for industrial development

rivatisation and foreign investment are seen as the key solutions to energy shortages in Bosnia and Herzegovina, although industry officials recognise that this is likely to be a lengthy process.
First, the industry must be restructured to make it more attractive to potential bidders, an issue that is currently being addressed by a feasibility study due for completion in February.
The question is whether a majority interest in the electricity industry could be sold off as one business, or whether it should be split up prior to any sale into three businesses covering power generation, transmission and local distribution.

Under the first option, a 67 per cent interest in the industry would go up for international tender, with a further 15 per cent offered as shares to the public. The remainder, consisting of the transmission network, would be retained by the state, giving it strategic control over the sector.
Increasing the supply of energy and, above all, electricity is considered vital for the reconstruction of the economy in the wake of the civil war. Much of the electricity generation and distribution capacity was damaged or destroyed, and it has taken years to rebuild the industry.

Reconstruction was carried out under a $234 million project called Power III, which was led and partly financed by
the World Bank with support from the European Bank for Reconstruction and Development (EBRD), the EU and other donors. The plan was also partly intended to integrate the power grid of Bosnia and Herzegovina with the EU.
At present, installed power-generation capacity is 3,867MW, more than half of which is produced by hydroelectricity plants. Bosnia and Herzegovina lacks reserves of oil and natural gas, and its only fossil-fuel resources are coal and lignite or ‘brown coal’.

However, the coal-mining industry was also severely damaged during the conflict, and output has not fully recovered to its pre-war level. Production is running at an estimated four million tonnes a year, compared with 12 million tonnes in 1990 and a peak of 18 million tonnes following modernisation in the 1970s.
Efforts to restore output have also been hampered by workers’ unrest and strikes in response to proposals that the industry be restructured and privatised.
Although the process of repairing the sector is almost complete, Bosnia and Herzegovina is unable to meet its needs. The balance of payments is burdened with the cost of importing oil for refining and natural gas from Russia, and the electricity industry is not self-sufficient.
Elektroprivreda, one of the three state-owned power-supply companies, is based in Mostar and has five hydropower plants with combined capacity of 762MW, but it is unable to produce enough electricity to cater for all its customers.

Zaric
‘They need to undo the monopolies so that it is a product like any other’

“We have to import 50 per cent of our electricity,” says general manager Matan Zaric. “What we produce is sufficient for general consumption, but not for industrial consumption as well.”
He draws a direct connection between the need for reform and the industry’s inability to keep up with demand. “At the moment we are importing because the liberalisation of the market hasn’t been implemented in Bosnia and Herzegovina as yet,” he says.
While waiting for the reforms to be introduced, power companies like Elektroprivreda are operating as though the market has already been liberalised. The company has issued international bid tenders for power supplies and new plants in an attempt to anticipate sharply rising demand in the residential sector.

“Our estimate is that during the next three or four years we will have to build an additional three or four hydropower plants so that we can keep up with rising household consumption, so we have directed all our strengths towards meeting this goal,” says Mr Zaric.
A new 30MW plant is being built at Pec-Mlini and there are plans for another 30MW facility at Mostarsko Blato, which is awaiting planning permission.
Electricity prices remain high in Bosnia and Herzegovina, but Mr Zaric expects these to fall as the market opens up and small electricity-producing firms are set up.

He forecasts that electricity distribution companies will be established at the level of local government. “These companies will maintain the infrastructure and sell electricity to the customers,” he says. “I hope that our customers will soon be able to make their own decisions concerning which electricity distributor they want to have.”
As for the utilities – the big companies dominating the market – Mr Zaric says they are also facing a period of change. “They need to undo the monopolies, so that electricity becomes a product like any other,” he explains.
Like others in the industry, he has some misgivings about how far the sector should be reformed, even as the industry prepares for privatisation in February.

“There has been strong resistance to this because of some of the experiences seen in neighbouring countries like Poland and Slovakia, where the privatisation process was carried out badly,” he says.
Whereas the government appears to be heading in the direction of a wholesale transfer of the sector into private hands, Mr Zaric believes the state should retain control over production facilities such as power plants. “After all,” he adds, “these are strategic facilities.”