BOSNIA: EU REBUFFED BY RS AGAIN ON TRANSCO

C O N F I D E N T I A L SECTION 01 OF 02 SARAJEVO 000251 NOFORN SIPDIS STATE FOR EUR JONES, EUR/SCE HYLAND, FOOKS E.O. 12958: DECL: 02/25/2024 TAGS: ECON EINV ENRG PINR PREL BK SUBJECT: BOSNIA: EU REBUFFED BY RS AGAIN ON TRANSCO REF: SARAJEVO 147 AND PREVIOUS Classified By: DCM Judith B. Cefkin for reasons 1.4 (b) and (d) ¶1. (C) RS Minister of Energy Puhalac submitted a strongly-worded reply to EU officials on February 17 regarding the EU,s offer to conduct a management review of the moribund state-run electricity transmission company Electroprijenos (TRANSCO). Instead of a reply from the RS Government, Puhalac instead chose to submit comments from TRANSCO General Director Mijatovic ) comments that were likely intended for internal consumption. Mijatovic noted that the creation of TRANSCO, the company he manages, was &imposed8 on the RS, claiming that the EU offer of assistance is &against the RS and nobody should or can accept it.8 EU officials were not surprised by the RS rejection of its renewed offer for assistance, but were taken aback by Mijatovic,s strong comments. The offer to conduct a management audit was originally submitted jointly to both the RS and Federation Prime Ministers as joint shareholders in TRANSCO as a total package of international assistance from Ambassador English and EU Ambassador Kourkoulas in October 2008 - an offer that was rejected by RS Prime Minister Dodik. Although we have suspected for some time that Mijatovic was the technical expertise behind the RS moves to dissolve TRANSCO, this document proves it. The strong attack on the EU,s move to reform the company is disheartening, as it casts doubt on whether the EU has the credibility with the RS necessary to make the needed energy reforms in advance of EU accession. Mijatovic went so far as to claim that the EU was misrepresenting the language in the Athens Energy Treaty, a treaty managed by the EU Energy Commission. TELL US HOW YOU REALLY FEEL -------------- ¶2. (C) The following are direct quotes from the RS reply drafted by Mijatovic: --"in other words, in the system that is established (TRANSCO),the RS, as a large stockholder (41% of the company stocks belong to the RS),cannot influence decision making in the company,s managing bodies." --Mijatovic also claims that the decision to create TRANSCO, the company he manages, was "a plan imposed on them by the international community. Creators of bad solutions of the imposed organization and management system in BiH obviously have not taken the responsibility for consequences, so they want to continue with experimental and ungrounded activities claiming they will fix these systems." --"Consultants and representatives of the international community led the BiH energy sector restructuring process on their own, made decisions and imposed them. This is a well-known approach when the EU pays and then engages experts...all in order to justify their already known attitude toward the Company (TRANSCO) and electricity transmission in BiH. (In bold and all caps) Unfortunately, this assistance is against the RS and nobody should or can accept it." --"(The EU proposal) is beginning to sound like propaganda. New strategies and experiments in the power sector cannot be based on lies, even if they come from the EU." --In an effort to make the case to divide his own company, Mijatovic comments, "if the bigger stockholder does not want to accept principles and rules which can protect smaller stockholder,s interest,the only way to create conditions necessary for continuous energy transmission is to divide the company. The representatives of the European Commission, as well as all local and international factors, should accept it as a fact and not impose and fabricate various ideas to deny it." --"The Company (TRANSCO) as a model is unique, bad, incomplete, unsustainable and practically cannot be fixed, but has to be abandoned and replaced." --"The statement that MOFTER is the connection with international (energy) and regional bodies is false and unacceptable. Contrary to other countries, BiH as a state does not have any authorities over the power sector." COMMENT SARAJEVO 00000251 002 OF 002 -------------- ¶3. (C) The refusal of the RS to consider a management review and the staunch position of TRANSCO's General Director to accept assistance from the international community is certainly a great setback in the efforts to reform TRANSCO. This incident highlights the lack of EU's credibility with key players in the RS to push forward necessary reforms in the energy sector in advance of EU succession and will also fuel EU tendencies to retreat further into a "wait and see" mode, transferring complete responsibility to local officials to try to find a compromise. We will continue to stay engaged with both RS and Federation Prime Ministers on TRANSCO in order to communicate the international community's ongoing concerns with the company's sustainability. ENGLISH