Identifier
Created
Classification
Origin
08SARAJEVO1722
2008-11-07 16:16:00
CONFIDENTIAL
Embassy Sarajevo
Cable title:  

ENERGY AGREEMENT MAY MEAN SOMETHING GOOD

Tags:  ECIN PGOV PREL EU BK 
pdf how-to read a cable
VZCZCXRO5978
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHVJ #1722/01 3121616
ZNY CCCCC ZZH
R 071616Z NOV 08
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC 9240
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 03 SARAJEVO 001722 

SIPDIS

DEPARTMENT FOR EUR/SCE
TREASURY FOR LINDQUIST

E.O. 12958: DECL: 11/07/2018
TAGS: ECIN PGOV PREL EU BK
SUBJECT: ENERGY AGREEMENT MAY MEAN SOMETHING GOOD

REF: A. SARAJEVO 1685

B. SARAJEVO 1649

C. SARAJEVO 1707

D. SARAJEVO 1661

Classified By: DCM JUDITH CEFKIN. REASON 1.4(d)


C O N F I D E N T I A L SECTION 01 OF 03 SARAJEVO 001722

SIPDIS

DEPARTMENT FOR EUR/SCE
TREASURY FOR LINDQUIST

E.O. 12958: DECL: 11/07/2018
TAGS: ECIN PGOV PREL EU BK
SUBJECT: ENERGY AGREEMENT MAY MEAN SOMETHING GOOD

REF: A. SARAJEVO 1685

B. SARAJEVO 1649

C. SARAJEVO 1707

D. SARAJEVO 1661

Classified By: DCM JUDITH CEFKIN. REASON 1.4(d)



1. (C). Summary: In a surprise move, on November 6,
Republika Srpska (RS) Premier Milorad Dodik, Federation
Premier Nedzad Brankovic and Bosnia Council of Ministers
Chairman Nikola Spiric signed a comprehensive agreement on
energy policy. If the agreement is implemented in good
faith, it will resolve many significant outstanding energy
disputes that have been festering in some cases for years.
The agreement covers trade and distribution of oil and oil
derivatives (to include a 10 pfennig tax on gasoline needed
to qualify for EBRD funding of four new segments of the
Corridor 5C highway),creates a tax on natural gas needed to
pay a long-outstanding debt to Russia for pre-war and wartime
natural gas, starts coordination on additional natural gas
pipelines, calls for taking measures to fix the operational
problems in the state electricity transmission company,
Elektroprenos (TRANSCO),agrees to prepare a country-wide
electrical energy policy, and even covers bio-fuels and
implementing the Kyoto Protocol. While the devil will remain
in the details, and implementation of especially the promised
tax provisions will require legislation, if the three parties
do what they have promised, Bosnia's leaders will have made
significant progress on some difficult issues that have
divided them for a long time. The question also remains why
now and what motivated the three signatories - especially
Dodik. End Summary.

--------------
A surprise agreement
--------------


2. (SBU) The three parties agreed to establish a
"government" role of regulatory pricing of oil derivatives,
as well as introduction of an excise tax in the amount of 10
pfennig/liter of petrol to comply with the EBRD condition for
a 180 Euro loan for Corrdior 5C highway development (Ref A).
Although the agreement addresses a role for the government in
pricing derivatives, it is unclear which government, entity

or state, would take this role. Although both of these
conditions were approved by the three Prime Ministers, both
will also demand legislative action in entity parliaments.
In the realm of issues in the agreement that the Prime
Ministers will "agree to consider the possibility" falls the
pending issue of settling the pre- and war-time natural gas
debt of Bosnia to Russia, including consideration of a USD
5/1000m3 tax for present gas consumption. The PMs also
agreed to "consider" coordination of development of the
currently-dueling gas pipelines (Ref B),with one proposed
for the RS only and the national pipeline thus blocked by RS
officials.


3. (SBU) In the field of electricity, the PMs agreed to
"adopt urgent measures" to unblock the now-dysfunctional
state electricity transmission company and to reconcile the
ongoing legal issues about the ownership of 110 KV lines
between TRANSCO and the ethnically-based Elektroprivredas
(ref C). Although TRANSCO was given control over all of the
110 KV lines, some energy experts believe that the
distribution 110 KV lines should have stayed with the
Electroprivredas, a policy that RS Prime Minister Dodik
strongly espouses. The final section of the agreement covers
biofuels, and the PMs agree to adopt the necessary
legislation in the biofuel arena in accordance with EU
legislation, in addition to creating a new institution to
monitor and implement the Kyoto protocol.


4. (SBU) Translated text is as follows:


AGREEMENT ON THE ENERGY POLICY PRINCIPLES


I

Under this Agreement the Parties signatories express their
intent to accept the energy policy principles aimed at energy
independence and harmonized energy reliability of the
Federation of Bosnia and Herzegovina and the Republika Srpska
entities, i.e. Bosnia and Herzegovina.



SARAJEVO 00001722 002 OF 003


II

This Agreement shall define the energy policy principles in
the following areas:

trade and distribution of crude oil and crude oil
derivatives;
trade and distribution of gas;
production, transmission and distribution of electric power;
and
ecologically clean energy sources and biodiesel.


III

In the areas of trade and distribution of crude oil and crude
oil derivatives, the parties have agreed to:

the introduction of regulation of prices of derivatives on
the principle of maximization of unit prices by type of
derivatives;
the introduction of an excise tax of 10 pfennings for
purposes of development and functioning of the network of
highways and express ways and assignment of collected
payments to the accounts of the entities';
the creation of conditions for activation of production of
crude oil and crude oil derivatives in the domestic
refinery facilities, with the aim of reducing the foreign
trade deficit; and
the introduction of also other rules and standards for this
area in accordance with the EU regulations.


IV

In the areas of trade and distribution of natural gas, the
parties have agreed that the following possibilities should
be considered:

the introduction of a fee of US$ 5/1000 cubic meters of gas
for purposes of settlement of Bosnia and Herzegovina's
debt to Gazprom for the delivered natural gas, for the period
of 1991-1995, which shall be regulated by a
separate agreement;
the allocation of liabilities according to the war debt,
within the period of no later than three (3) months;
the examination of the possibility that one part of monthly
invoices for the procured gas are paid by virtue of barter
arrangements made with the Russian supplier;
the coordination of development of a gas network and liquid
gas terminals; and
the Federation and the Republika Srpska governments, i.e. the
Council of Ministers of Bosnia and Herzegovina, shall
harmonize and enact the Law on Gas of Bosnia and Herzegovina,
as part of the BiH European Partnership requirements.


V

In the area of generation and transmission of electricity,
the parties have agreed to:

the urgent measures and activities for the smooth operation
of the Elektroprenos BiH;
the raising of an initiative for harmonization of the laws
and statutes of companies as well as the further
treatment at the 110 kV voltage level;
the continuation of talks on the preparation for construction
of shared structures for generation of electric
energy and the defining of the principles for drafting the
BiH Energy Strategy following the drafting of the
entities, strategies; and
the adoption of new standards pursuant to the EU rules and
directives.


VI

In the area of creating the conditions for trade and
distribution of the ecologically clean energy sources and
biodiesel, the parties agree to:

the enactment of necessary legislation, pursuant to EU
legislation, for use of the biodiesel;
the establishment of the necessary institutions for
monitoring and implementation of the Kyoto Protocol
provisions, in accordance with law, and the adoption of
new standards pursuant to the EU rules and directives; and

SARAJEVO 00001722 003 OF 003


the adoption of new standards pursuant to the EU rules and
directives.



VII

The parties agree on the full acceptance and implementation
of these principles, both in the entities, legislation and
in the necessary legislation of the State Institutions.




5. (C) Comment: This agreement may be a meaningful step
forward for Bosnia and a remarkable coming together of three
senior Bosnian leaders or it may not. It is clearly an
outline and in many respects an agreement to agree and to
work together. Regarding the thorny TRANSCO dispute (Ref C),
for example, the agreement language that "the parties have
agreed to the urgent measures and activities for the smooth
operation of the (TRANSCO)" could mean many things if and
when implemented. The outcome could be a continuation of the
ongoing dispute with Dodik demanding his conditions that
would revert TRANSCO into an entity-based operation, which
would be highly problematic for our (and EU) interests, or it
could result in a good faith joint effort to actually resolve
TRANSCO,s management problems and maintain the state
structure. Also possible is that Brankovic may have
surrendered the TRANSCO issue in return for gains in another
area such as resolving the natural gas pipeline standoff (Ref
B) or the EBRD required gasoline tax. Time will tell as (and
if) the agreement is implemented. Also still in question is
what motivated the three parties - especially Dodik. The
agreement could settle several disputes in which Dodik has
been the blocking party. It is possible that he wanted to
make a gesture in advance of the Peace Implementation Council
on November 19 in support of his vocal position that the
International Community is not needed any longer in Bosnia
and that Bosnians can make progress without the Office of the
High Representative, etc. Nonetheless, the energy agreement
is remarkable just for the fact that it happened at all. End
Comment.
ENGLISH