BOSNIA: STEPS TOWARD FIXING THE BROKEN POWER

UNCLAS SECTION 01 OF 02 SARAJEVO 001280 SENSITIVE SIPDIS STATE FOR EUR/SCE AND EEB/IEC/ENR STATE PLEASE PASS TO DEPARTMENT OF ENERGY E.O. 12958: N/A TAGS: ENRG ECON PGOV BK SUBJECT: BOSNIA: STEPS TOWARD FIXING THE BROKEN POWER TRANSMISSION COMPANY REF: SARAJEVO 1183 SARAJEVO 00001280 001.2 OF 002 Summary -------------- ¶1. (SBU) The Government of Republika Srpska (RS) issued a statement on November 12 that offers some hope for resolving the political standoff that has blocked investment in the state-level electric transmission company Elektroprenos, or Transco, for nearly two years. The decision in effect directs RS members of the Transco governing board and other bodies of the company to resume their participation in Transco activities. However, we have seen many failed promises to end the Transco impasse, and have yet to see whether the reconstituted Transco board will reach any productive agreement on necessary actions. End summary. Transco Shareholders Dodik and Mujezinovic Meet and Act -------------- -------------- ¶2. (SBU) An 18-month boycott of board meetings by the three RS governing board members, along with the inaction of former Transco Managing Director Dusan Mijatovic -- a close associate of RS Prime Minister Milorad Dodik -- has been the direct cause of the blockage in Transco. The November 12 RS government resolution follows an agreement reached on November 6 between PM Dodik and Federation PM Mustafa Mujezinovic, in which the two, acting as the sole shareholders of Transco, agreed to call for a meeting of the Transco board no later than November 16 and to take measures to prevent further breakdown of the transmission system. Unlike several past commitments to resolve the impasse, the November 6 agreement laid out specific measures to resolve management issues and carry out previously agreed-upon investment plans, allowing Transco to begin work on limited spare parts procurement and upgrades to the grid. The conclusions also contained a directive that the managing board meet and appoint interim management officers, including the critical vacant positions of general manager and executive director for maintenance. The board meeting has in fact been scheduled for today, November 16. Reassignment of Transco Assets Now Negotiable -------------- ¶3. (SBU) Significantly, the November 6 agreement signals that the two sides are now ready to negotiate on a key issue: it calls for assembly of an expert team to review the possibility of returning some of Transco's 110-kilovolt power lines, transformers, and other assets to the three ethnically-based electricity generation and distribution companies, the "Elektroprivredas," headquartered in Sarajevo, Mostar, and Trebinje (RS). Transco's creation in 2006 removed the transmission function from these entity-owned companies and lodged it in a single state-level transmission company. At the time, the 110-KV assets were a major source of contention, since they could be classified as part of either the transmission network or the distribution network. Maintenance of the assets requires a large portion of Transco's current personnel -- as much as 65 percent -- meaning that any agreement to transfer the physical assets back to the Elektroprivredas necessitates a parallel shift in human resources. Such a transfer had been one of Dodik,s demands in his original February 2008 proposal to restructure Transco, which the Federation had firmly rejected. Comment: A Possible Path to Resolution -------------- ¶4. (SBU) High Representative Inzko's September 18 amendments to the Transco Law (reftel) established a mechanism for Transco to operate on a limited basis without the cooperation of the Republika Srpska. PM Dodik defiantly rejected the HighRep's actions, giving the widespread impression that the OHR measures had failed. However, the amendments -- along with the hard reality of a series of nation-wide blackouts directly caused by transmission-grid breakdowns, quiet pressure from the U.S. Embassy and OHR, and the likely realization that a breakup of the company would be self-defeating -- compelled Dodik to act, while still allowing him to say that he had withstood international pressure and worked things out directly with his Federation counterpart. It is too early to tell whether the reconstitution of the board will lead to long-term results, including significant investment in the transmission grid. The November 6 agreement did not address some key ongoing controversies, notably the role of Transco and the State SARAJEVO 00001280 002.2 OF 002 Energy Regulatory Commission in Brcko District. A meeting of the board does, however, at least offer the hope of some emergency repairs and an interim solution as winter approaches. Meanwhile, the fact that the contentious issue of 110-KV assets is now on the table suggests that a path toward longer term resolution is open. ENGLISH