BOSNIA: NATURAL GAS PIPELINE PROJECTS RUNNING ON

C O N F I D E N T I A L SECTION 01 OF 02 SARAJEVO 001649

SIPDIS

STATE PASS TO EUR/SCE HYLAND, FOOKS, STINCHCOMB

E.O. 12958: DECL: 10/09/2023
TAGS: ECON EINV ENRG PREL BK
SUBJECT: BOSNIA: NATURAL GAS PIPELINE PROJECTS RUNNING ON
FUMES

REF: A. 06 SARAJEVO 2312

B. 06 SARAJEVO 2043

SARAJEVO 00001649 001.2 OF 002


Classified By: DCM Judith Cefkin for reason 1.4 d


1. (C) Summary: After years of discussions (Ref A),there
is still no new natural gas pipeline in BiH to provide
consumers an alternative to "mazut," a heavy, polluting fuel
oil, or coal or wood, which are all used for heating in the
winter. The only existing pipeline in the country services
Sarajevo customers, the Zenica steel mill and the Birac
Zvornik aluminum plant. The EBRD-supported pipeline, which
would run north-south from Bosanski Brod through Banja Luka
into Zenica, has been blocked by RS officials who want to
develop a pipeline that would run through the RS only roughly
along the Sava river. Slavija International won a RS
Government concession in 2002 to build the (RS-only) &Sava8
pipeline. Despite winning this concession, pipeline
construction still has not begun as Slavija has been unable
to find a guaranteed supply of natural gas. Slavija
President Njezic, however, told us in September that he has
signed an agreement with a Hungarian company that would
supply the necessary natural gas to begin construction. Both
natural gas pipelines have fallen prey to the constant
squabbles between the RS and the Federation, to the detriment
of all BiH consumers who could benefit from a cleaner heating
fuel. Based on current information, it appears that the Sava
pipeline could get built over the north-south pipeline,
leaving Federation consumers in the cold. End Summary

EBRD &BIH8 PIPELINE GOES NOWHERE WITHOUT DODIK,S SUPPORT
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2. (SBU) The European Bank for Reconstruction and Development
(EBRD) supported a north-south pipeline that would carry
natural gas from Italy and Croatia to Banja Luka and the
petroleum derivatives facilities at Modrica, on its way to
Zenica (Ref A). This project, according to EBRD Country
Director Giulio Moreno, would double the market share of
natural gas in the consumer market, reducing the need for
significant volumes of mazut, a heavy, low quality fuel oil,
as well as coal and wood, which contribute to the severe
pollution in most of BiH,s city centers during the winter
months. INA, the Croatian majority state-owned oil and gas
company, is very interested in the plan to build the pipeline
as it would also have the potential to connect coastal towns
of Split and Dubrovnik to natural gas supplies. (Note: There
is currently one natural gas pipeline from Serbia that
services only Sarajevo consumers, the Zenica steel mill and
the Birac Zvornik aluminum plant in the RS. End Note)(Ref B)


RS SAVA PIPELINE ) COULD EDGE OUT BiH OPTION
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3. (C) Radomir Njezic, President of Slavija International,
provided us with an update on the east-west &Sava8
pipeline, a 500 km pipeline through the RS following roughly
along the Sava river, for which Slavija won a concession from
the RS Government in 2002. The pipeline route runs through
the RS from Zvornik, at the Serbian border, to Novi Grad, at
the Croatian border. Njezic explained why the pipeline has
not yet been built, saying that Russia,s first condition for
supplying natural gas was assistance in clearing BiH,s $100
mln wartime debt for natural gas. (Ref A) Gazprom then
announced that it still cannot guarantee natural gas for the
Sava pipeline. &I,m being blackmailed by the Russians,8
Njezic declared. Gazprom,s explanation was that there was a
higher demand in neighboring countries with existing
pipelines, where the risk is lower and the return higher.
Njezic explained that he needs a guaranteed supply of 450
million cubic meters of natural gas to be able to fund
pipeline construction. To solve his problems with the
Russians, Njezic recently signed an agreement with a
Hungarian company to supply the necessary gas for the
pipeline and feels confident this will be the guaranteed gas
supply he needs to move forward with construction.


4. (SBU) Despite receiving initial EBRD approvals, the route
of the north-south pipeline coincides with the Sava pipeline
concession in the RS between Banja Luka to Bijelina, leading
RS Government officials to withhold their support of the EBRD
pipeline. RS officials believe the pipeline &cherry-picks8
the major population centers in the RS (Banja Luka),but
bypasses the rest of the entity. Therefore, they are only
supporting the Sava pipeline, over the larger north-south
(BiH) option.

SARAJEVO 00001649 002.2 OF 002




COMMENT
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5. (C) Although not surprising, natural gas development seems
to be another victim of the ethnic competition in BiH. Once
again, Bosnian politicians prefer to simply fight over
potential, future spoils then try to come to an agreement.
Although the EBRD supports the north-south pipeline project
it is not clear that the project has strong enough backing
from other key players who could wrestle with the RS and PM
Dodik to obtain their necessary approval. If Njezic truly
has found his guaranteed gas supply and construction can
begin on the Sava pipeline project, this would mean natural
gas supplies for most of the RS, with a significant part of
the Federation left out in the cold.
ENGLISH