BOSNIA: CORRIDOR 5C: THE ROAD NOT TRAVELED

UNCLAS SECTION 01 OF 03 SARAJEVO 000075

SENSITIVE
SIPDIS

DEPT FOR EUR/SCE

E.O. 12958: N/A
TAGS: ECON ELTN EINV BK
SUBJECT: BOSNIA: CORRIDOR 5C: THE ROAD NOT TRAVELED

REF: A. 09 SARAJEVO 1040

B. 08 SARAJEVO 1685

C. 09 SARAJEVO 1300

D. 10 SARAJEVO 0061

SARAJEVO 00000075 001.2 OF 003


SUMMARY
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1. (SBU) If it is ever completed, corridor 5C, a
multi-country strategic highway planned for south-central
Europe would run from Budapest, Hungary, to the Adriatic port
of Ploce in Croatia. Obstacles facing this project mirror
the difficulty securing an agreement on other, equally
important initiatives in Bosnia, from constitutional reform
to VAT collection. Since its inception more than 12 years
ago, the 5C project has been plagued by inter-ethnic and
inter-entity rifts, allegations of corruption and graft, lack
of responsibility at the central level, government officials
at all levels misbehaving, and a failure of political leaders
to make respectable progress despite serious international
community support. End summary.

OPPORTUNITY TO IMPROVE SAFETY AND BIH GDP SQUANDERED
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2. (SBU) GOBH officials currently estimate that the Bosnian
portion of the project should be completed by 2018, more than
20 years after the initial proposal. The most recent
feasibility study from 2008 estimated the cost at 7.3 billion
KM (USD 5.37 billion). The total length of the 5C corridor
in Bosnia is 335 KM, with 245 KM in the Federation and 90 KM
in the Republika Srpska. Regional experts note that corridor
sections which have been completed in Hungary realized a 15
percent increase in traffic in 2008 and expect similar
increases for 2009. Although recent studies have not
estimated the 5C's potential effect on Bosnia's GDP, we
understand that expanding the 5c corridor into Bosnia would
dramatically increase heavy vehicle and commercial traffic
from Hungary to the port of Ploce - traffic that currently
circumvents Bosnia and travels west to Zagreb and then south.
Every year that Bosnia waits to move forward with the
project is another year the country loses that potential
revenue. Additionally, while the 5C project stagnates in the
hands of local politicians, traffic accidents and
traffic-related deaths are rising on Bosnia's aging two-lane
roads, according to transportation officials. Throughout the
region, highway improvements have reduced traffic fatalities.
Croatia, for example, has upgraded highways and suffered
approximately the same number of traffic-related fatalities
as Bosnia in 2008 but with three times the volume of vehicles.

MY WAY OR THE HIGHWAY
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3. (SBU) Although 5C preparatory work has been underway
since 2004, all nine Bosniak Federation Government members
voted in August 2009 to change the previously-agreed-upon
route, precipitating four of the five Croat members to walk
out (ref A). Croat Federation politicians claimed this was
"another example of Bosniak officials bullying Croats in
Federation Government proceedings" by outvoting them. In
fact, the Federation Parliament had approved the State's
original route in 2007. Media speculated that State Minister
of Finance and Treasury (and member of the Croatian
Democratic Union, or HDZ-BiH) Dragan Vrankic, who leads the
5c project team, purchased land on the original route, and
consequently prompted the strong Croat pushback to the route
change.


4. (SBU) Jasmin Buco, an advisor to the Federation's former
Minister of Spatial Planning, defended the Federation
Government's (i.e Bosniaks') move. Buco told us that the
State Ministry of Transport and Communication overstepped its
authority by moving ahead with the 5C's final design and
master plan, a competency Buco contends, that belongs to the
entities and, therefore, within the Federation Ministry of
Spatial Planning. State Assistant Minister for
Transportation and Communication Izet Bajrambasic echoed
Buco's comments that "certain elements" in his Ministry
failed to respect entity authority when moving ahead with 5C.
When asked why the Ministry did not protest the State's lead
role in 5C and the routing over the last several years, Buco
claimed that their respective party leaders (i.e. the Bosniak
Party of Democratic Action, or SDA) instructed Federation
officials to accept the State's actions as part of a larger
group of political compromises between SDA and Croat
politicians. The Bosniak-Croat tussle over the 5C corridor
reflects deterioration in the previously positive
relationship between the leaders of the leading Bosniak and
Croat parties, SDA and HDZ-BiH.

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POINTS OF CONTENTION: BLAGAJ AND POCITELJ
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5. (SBU) Despite the media's scathing corruption allegations
and the Croat walk-out, there are only two points of
contention between the State's and the Federation's route
plan, in Blagaj and Pocitelj, two towns between Mostar and
the Croatian coastal border. Pocitelj is a protected
cultural heritage site, and Blagaj is home to approximately
5,000 people, mostly of Bosniak descent. According to Buco,
the State's route would run directly through the center of
Blagaj, a plan that infuriated Blagaj citizens. The
Federation, under Buco's guidance, revised the plan to move
the highway via public land, north of Blagaj. Buco contends
this routing would be faster and, although slightly more
expensive than the State,s route, a preferred option that
would avoid land expropriation. Advisor to the State
Minister of Transport and Communications Drago Bilandzija
countered that Buco's northern solution would disrupt water
resources and is 30 km longer. Regarding the Pocitelj piece,
Bilandzija explained that the State route travels 600 meters
outside of Pocitelj's protected area while Buco contended
that the route travels through the protected area. Buco
noted that certain circles were pushing hard to keep this
piece of the original route, repeating the media speculation
that State Minister of Finance Vrankic owned this land.
Bilandzija claims that, in fact, the Croat side has been
working for several years to achieve 5C progress, but it is
Federation Bosniak obstruction that jeopardizes that progress.

EBRD: GREAT INTERNATIONAL EFFORT AGAIN FOR NAUGHT
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6. (SBU) The European Bank for Reconstruction and
Development (EBRD) worked with relevant Bosnian counterparts
-- the State Ministry of Transport and Communications and the
two entities to secure nearly 500 million Euros (USD 368
million -- 180 million from EBRD and 300 million from EIB) in
financing for four 5c corridor portions (ref B). However,
the political dispute in the Federation is jeopardizing the
loan. Assistant Minister Bajrambasic believed that the EBRD
was duped from the beginning by then-State Minister of
Transportation Ljubic (also a Croat and member of the HDZ-BiH
rival party HDZ-1990) into packaging the 5C's four sections
for financing. In his opinion, the Sarajevo-Mostar-Croatia
section's financing and construction should never have been
the EBRD and State's initial focus. Instead, he asserted
that the Sarajevo-Doboj-Banja Luka portion, should have been
the priority because it has the heaviest traffic patterns and
highest number of traffic accidents.


7. (SBU) According to EBRD officials, the State completed
loan prerequisites in accordance with international
standards, including feasibility studies, environmental
impact assessments, public hearings, and preliminary design
work. However, Buco asserted that the public hearings were
cosmetic, purely to "check the box" for the EBRD and EIB
loans. The EBRD is frustrated that the Federation has
ignored the State's progress and prior work and is
"arbitrarily" moving alignment of the route. If the
Federation fails to quickly resolve the dispute, now in its
sixth month, EBRD told us that the European Investment Bank
(EIB),EBRD's counterpart in the 5C project, may pull its
funding for the Pocitelj portion, jeopardizing EBRD's funding
for the remaining pieces.

PROGRESS AMONG EXPERTS SUSPENDED FOR POLITICAL GAIN
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8. (SBU) Following the August 2009 Croat walk-out in the
Federation Parliament, HDZ-BiH leader Dragan Covic and SDA
leader Suleiman Tihic formed a committee of experts to
resolve 5C. According to both Buco and Bilandzija, both
technical committee members, the group prepared a compromise
for the Federation Parliament's review. However, according
to Buco, the Federation Government, led by Prime Minister
Mujezinovic, is politicking and has refused to place the
issue on Parliament's agenda until a new Minister for Spatial
Planning, his close ally, is appointed (ref C). (Note:
Former Federation Minister of Spatial Planning Salko Obhodjas
resigned in September 2009 over the 5C corridor dispute; he
has yet to be replaced. End note.) Mujezinovic has
allegedly complained that he does not have any appointees
among the Federation Government Ministers and this position
would be the PM's first opportunity to select an official.
To further aggravate the stalemate, we understand that
Federation President Borjana Kristo (HDZ-BiH) is playing quid
pro quo and will not accommodate the PM's candidate until his
party (SDA) agrees to revoke the appointment of Stipe Prlic

SARAJEVO 00000075 003.2 OF 003


as the General Manager of HT Mostar - the Mostar-based
telecom provider. (Note: Last month, the Federation
Government, against HDZ-BiH leader Covic's wishes, approved
Prlic's reappointment. HT Mostar has been the traditional
"cash cow" for HDZ-BiH, and Prlic's reappointment would
complicate HDZ-BiH,s access to campaign funds (ref D). End
Note)

5C CORRIDOR NOT A PRIORITY FOR REPUBLIKA SRPSKA
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9. (SBU) After foiling attempts in 2005 to create a
state-level highway directorate that would have managed
construction and maintenance of the 5C corridor, the
Government of Republika Srpska (RS) to date has not completed
a single highway project. RS Prime Minister Milorad Dodik
has tabled construction of the RS portion of the 5C corridor
in lieu of the Banja Luka-Doboj highway. In November 2008,
PM Dodik signed a concession with the Austrian firm Strabag
to finance and build a large package of roads, a deal he
called the "largest single investment in BiH." That package
included both the Banja Luka-Doboj section and the RS portion
of the 5C corridor. However, Strabag announced in November
2009 that they "were still looking for financing," for their
RS road projects. Local media speculate that the RS
Government could owe Strabag close to 90 million KM (USD 66
million),even if the projects are not completed.

COMMENT: 12 YEARS WASTED, NO ROAD IN SIGHT
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10. (SBU) Each side makes their case -- under the guise of
keeping BiH's best interests at heart -- that they are
combating corruption and ensuring Bosnian citizens' rights to
voice their concerns over the route. It is clear that the 5C
corridor, like almost every other project in Bosnia, is about
far more than a highway route, construction, concrete, or the
economic advancement of BiH. The route has become embroiled
in political squabbles and hijacked into the political
maneuverings between State and Federation-level Bosniak and
Croat officials, while Bosnian lives and livelihoods hang in
the midst. The most common assertion behind the failure to
move privatization and development forward in every sector
(from railways to telecom) in the Federation is its fractured
political climate -- the dueling Bosniak parties and their
power feud with Croat politicians. The problems with
Corridor 5C demonstrate the obstacles -- discord, apathy and
opportunism -- that all too often block the road to a
brighter future for Bosnia and Herzegovina.
ENGLISH