CROATIA-SLOVENIA BILATERAL ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 ZAGREB 000295

SIPDIS

STATE FOR EUR, EUR/RPM, EUR/SCE

E.O. 12958: DECL: 03/03/2016
TAGS: PREL PGOV ECON HR SI
SUBJECT: CROATIA-SLOVENIA BILATERAL ISSUES


Classified By: DCM Greg Delawie for reasons 1.4 b/d.


1. (C) Summary and Comment: Croatia and Slovenia enjoy
generally good bilateral relations. Nevertheless, unresolved
issues concerning maritime boundaries and the land border,
the jointly-owned Krsko nuclear power plant and Croatian
deposits in the former Ljubljanska Banka are persistent
irritants, all of which are periodically exploited by
politicians in both countries. However, despite the
occasional contretemps, trade and investment continue to
grow, with bilateral trade approaching $2 billion annually.
The European Union has consistently resisted attempts to link
these bilateral issues to Croatia,s EU accession, as was
equally the case at the time of Slovenia,s EU and NATO
accession two years ago. End Summary.

Maritime Boundary


2. (SBU) The dispute over the maritime boundary between
Croatia and Slovenia is a legacy of the break-up of
Yugoslavia (as are all these issues) and centers on the
Slovene claim to a right of access to the open sea in the
northern Adriatic south of the Piran Bay. Maritime
boundaries were never delimited at the republic level in the
former Yugoslavia. In 1968, Yugoslavia and Italy reached an
agreement on the delimitation of their maritime boundary and
the underlying epicontinental shelf, which extended from the
point of their land border south of Trieste to a point in the
Adriatic known as T-5 (45,27 N ) 13,12 E),south of which
was open sea. T5 lies to the south of the Croatian-Slovenian
land border in the Piran Bay. Following the break up of
Yugoslavia, Slovenia assumed the portion of the maritime
boundary with Italy adjacent to its coast, but this did not
extend to T5, which Croatia claims as the northern-most point
where its territorial waters meet the open sea.


3. (SBU) Slovenia claims, that as a successor state to the
former Yugoslavia, it should have territorial water adjacent
to the open sea based on the agreement between Italy and
Yugoslavia and the fact that Slovenes policed this part of
the Adriatic when it was part of Yugoslavia. (Note: Slovenia
does have the right of passage through Croatian territorial
waters to the open sea.) Croatia does not recognize this
claim, citing the UN Convention on the Law of the Sea.
Although the dispute has simmered for years and is commonly
seized upon by politicians on both sides of the border in
each election cycle, it flared up again in 2005 after Croatia
and Italy began negotiations on the proclamation of an
&ecological zone8 in the Adriatic without Slovene
participation. In reaction, Slovenia adopted a proclamation
on a &protected ecological zone8 extending to T5, which the
Croatians viewed as illegitimate and an attempt to lay claims
to Croatian territorial waters. The center-left coalition of
former Croatian PM Racan in 2001 attempted to reach an
agreement that offered Slovenia a corridor to open seas (but
not the underlying seabed). Racan and then Prime Minister
Drnovsek (now President of Slovenia) initialed the agreement,
but it ran into fierce resistance in the Croatian parliament
and was never ratified. Croatia insists that it is willing
to take the issue to international arbitration, while
Slovenia has pressed to resolve this bilaterally. Croatia
believes this to be an indication of Slovenia,s recognition
of the weakness of its claim. The EU thus far has rejected
calls by some Slovene politicians to link this dispute to
Croatia,s accession negotiations, urging the two sides to
resolve the issue bilaterally.

Krsko Nuclear Power Plant


4. (SBU) The Krsko nuclear power plant in the Slovenian town
of Krsko was built jointly by Slovenia and Croatia in the
early 1980s. It is now co-owned by the Slovenian power
company ELES GEN and the Croatian utility HEP. In 1998,
Slovenia cut power deliveries to Croatia following HEP,s
failure to make what the Slovene side considered sufficient
payments for the maintenance and operation of the plant. The
Croatian utility at that time claimed that it had to make
other substantial investments to repair infrastructure
damaged during the war. Bilateral negotiations on the issue
that concluded in December 2001 resulted in an agreement on
the settlement of debts and set a date of June 30, 2002 for
the resumption of power deliveries to Croatia. The Slovenian
parliament, however, did not immediately ratify the agreement
and power deliveries did not resume until April 19, 2003. As
a result, HEP is seeking 31.7 million euros in compensation
for the nine month gap in power delivery.


5. (SBU) Disagreements surrounding the provision of
electricity are not the only bilateral issue related to
Krsko. The plant is designed to operate until 2023, after
which time it will have to be decommissioned, at a cost of
several hundred million euros. Slovenia has demanded that
Croatia agree to a specific plan both to finance the plant,s
decommissioning and for disposal of the waste, which is
currently stored on-site. HEP has said that it will set
aside money annually for this purpose and that Croatia will
participate in the decommissioning of the plant at the
appropriate time. However, Croatia has said that it will
never take any of the Krsko waste.

Ljubljanska Banka


6. (SBU) The dispute over Ljubljanska Banka also lingers
from the breakup of Yugoslavia when the bank blocked all
deposits outside Slovenia before declaring bankruptcy. Some
140,000 Croatian clients had deposits that the Croatian
government says total approximately 150 million euros which
were lost. As a result of the dispute, the Croatian National
Bank has refused to license any Slovenian bank to enter the
lucrative Croatian banking market (now over 90 percent
foreign-owned). In some cases, this has extended even beyond
Slovenian banks. Belgium,s KBC, which owns a 34 percent
stake in Ljubljanska,s successor Nova Ljubljanska Banka has
been prevented from acquiring Croatia,s Splitska Banka,
which is being sold by the current owner, Italian Unicredito.


7. (SBU) The Slovene side disputes the amount of the claims
and has pointed out that defaults on commercial loans made by
Ljubljanska to Croatian companies exceed the deposits.
Slovenia has argued that the issue should go to international
arbitration, which Croatia has resisted, although there have
been some recent signals that the government may be prepared
to take this step. Press reports have also speculated that
KBC could be prepared to settle the claims in order to be
able to acquire Splitska Banka. In another development, 33
Croatian Ljubljanska clients were paid in December 2005,
after several won a case brought before the European Court
for Human Rights in Strasbourg.


8. (C) In the final analysis, these remain fundamentally
bilateral issues between Croatia and Slovenia, irritants in
what is, overall, a good relationship between the two
countries. Both sides should be encouraged to find solutions
to these problems, but attempts to inject them into
multilateral fora should be strongly resisted, as they have
been so far.


9. (U) Embassy Ljubljana has commented on this cable.
FRANK