BOSNIA-BOSNIAK PARTIES VIE FOR CONTROL OF PUBLIC

C O N F I D E N T I A L SARAJEVO 002253

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E.O. 12958: DECL: 10/18/2017
TAGS: PREL PGOV ECON BK
SUBJECT: BOSNIA-BOSNIAK PARTIES VIE FOR CONTROL OF PUBLIC
COMPANIES

REF: SARAJEVO 2247

Classified By: DCM Judith Cefkin. Reasons 1.4 (b) and (d)


1. (C) Summary. Since taking office in April in the
Federation, the leadership of the Party of Democratic Action
(SDA) and Party for BiH (SBiH),the two largest Bosniak
affiliated parties, have jockeyed for control of two large
Federation-run enterprises, BiH Telecom and Elektropriveda
BiH. Both parties have made very little attempt to hide
their intention to use the firms as sources of operating
revenue and, less openly, means to enrich their leadership.
The spoils may soon become even more significant as the
Federation's new privatization plan could potentially
generate roughly four billion KM. The fight over controlling
interests in the firms has led to an increasingly open
confrontation between SDA and SBiH and has also exacerbated
tensions within the SDA party hierarchy. OHR previously
ensured the independence of state-run industries from
political control, but the decision to end this work has made
it easier for politicians to engage in corruption.
Unfortunately recently established state-level law
enforcement and judicial institutions are not yet mature
enough to tackle these problems effectively. Plans to
reconstitute the OHR anti-corruption unit, and other reforms
targeting organized crime, would buttress locally managed
efforts to tackle corruption and, more importantly, provide
the High Representative with a useful tool for taking on
political leaders blocking reforms and radicalizing Bosnian
politics. End summary.

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Two parties divide the spoils
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2. (C) As part of the coalition agreement forming the
Federation government, SDA and SBiH also reached a parallel
agreement on the controlling interests of two large
Federation-run industries, BiH Telecom and JP Elektropriveda
BiH. The parties decided that SDA would be given control
over BiH Telecom, with Elektropriveda going to SBiH. In
keeping with this agreement, Federation Prime Minister Nedzad
Brankovic (SDA) shortly after assuming office announced his
intention to restructure the leadership of select Federation
firms and industries, including BiH Telecom and
Elektropriveda. The restructuring plan would create new
positions on the managing boards of both firms to be filled
by SDA and SBiH appointees. Brankovic even floated a plan to
move the Federation government offices to the Elektroprivreda
building. BiH Telecom accepted to the restructuring plan,
and SDA moved quickly to replace its general manager.


3. (C) Elektropriveda General Manager Enver Kreso, however,
opposed the SBiH takeover process. The SBiH effort was led
by Minister of Energy, Mining and Industry, Vahid Heco who
publicly admitted that he reported directly to SBiH party
leader Haris Silajdzic on the matter. Kreso secured a
Sarajevo Cantonal Court injunction against the proposed board
changes. Elektropriveda and Kreso also solicited SDA
President Sulejman Tihic's support in their efforts to block
the SBiH restructuring. Having already consolidated SDA
control over BiH Telecom, Tihic and other SDA leaders reneged
on their coalition agreement by publicly voicing their
support for Elektropriveda's challenge to the SBiH takeover.
The Cantonal Court injunction has, for the moment, blocked
SBiH plans to assert control over the company. The party
will likely wait until the March, 2008 expiration of the
sitting board's mandate to revisit attempts to control the
company. SDA's backing of Kreso constituted a significant
challenge to SBiH interests by blocking the party's access to
640 million KM (USD 463 million) in 2006 Elektroprivreda
revenues.


4. (C) The fight over control of the two firms has also had
an impact on internal SDA dynamics. Bakir Izetbegovic, the
primary rival of SDA president Sulejman Tihic, worked with
his ally PM Brankovic to appoint Nedzad Residbegovic as the
new general manger of BiH Telecom. Residbegovic is a
longtime friend of Izetbegovic's brother in-law Jasminko
Aksamija. Party insiders tell us that Tihic was not
consulted on Residbegovic's appointment, and viewed the move
by Izetbegovic and Brankovic as a challenge to his control of

SDA. Residbegovic's control of BiH Telecom as it moves
towards privatization also seemingly deprives Tihic of
resources he could use to solidify his position within SDA.
(Note: Federation TV publicly challenged Brankovic to explain
why BiH Telecom management included so many of his and
Izetbegovic's relatives. Brankovic feebly replied that
Bosnia was a small country and many people were related. End
Note.)

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Privatization plans raise the potential for serious money
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5. (C) At an October 16 OHR economic reform conference
(reftel),and privately during the Ambassador's introductory
call on October 17, PM Brankovic referred to the Federation's
new privatization policy as a source for funds to meet the
Federation's huge infrastructure construction needs. The
draft policy which was recently submitted to the Federation
Parliament anticipates the sale of nine companies in which
the Federation has an interest for a total in excess of four
billion KM. The biggest privatizations would be BH Telecom
of which the Federation owns 90% and its 51% of the
Mostar-based telecom company, HT Mostar. The expected
proceeds from those deals alone, depending on how they are
structured, could be as high as 3.9 billion KM. The proposed
telecom deals are especially interesting in that the two
alternative BH Telekom deals are structured to include
between 13% and 23% in sales of shares in the company on
either or both foreign markets or the Sarajevo Stock Exchange
- a possible easy method for well connected individuals to
cash in on the expected high interest in BH Telecom. Also
interesting is the policy's explicit rejection of
privatization of even a minority share of Elektroprivreda
until "restructuring" is completed.

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No Adult Supervision
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6. (C) OHR, through its anti-corruption unit, previously
exercised oversight in this area to prevent privatization
fraud and mismanagement of public funds. In 2003, OHR
imposed the Law on Ministerial and Government Appointments
and the Law on Donations, intended to limit the influence of
political parties over publicly owned enterprises. This was
in addition to the high profile dismissals of such top party
officials as former SDA vice president and former
Elektroprivreda BiH general manager, Edhem Bicakcic.
However, the closure of OHR investigative capabilities has
significantly degraded its capacity to effectively highlight
examples of public corruption for prosecution under the
legislation. Bosnian prosecutors and courts still lack the
capacity and political will to challenge the corrupt
practices by the parties.

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Comment
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7. (C) SDA and SBiH are surprisingly open about their use of
Federation-owned enterprises as prime sources of revenue. If
the Brankovic privatization plan is implemented and the
proceeds are earmarked for infrastructure construction, the
parties will also have bites at the apple from the
privatizations as well as construction contracts. OHR staff
tell us that SDA and SBiH actions are one reason why they
want to reconstitute the former corruption investigation
unit. Another is the role the material the unit develops
could play in developing cases against the most prominent
Bosnian politicians responsible for radicalization of Bosnian
politics. This would be a welcome development as the
international community currently has few tools with which to
expose rampant corruption being perpetrated by many Bosnian
leaders. The OHR anti-corruption unit, in combination with
plans to reorganize and reenergize the State Court Special
Department for Organized Crime (SDOC),would constitute
valuable contributions to our ability challenge
obstructionist politicians on their corrupt practices.
ENGLISH