VZCZCXRO7736
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHVJ #1426/01 2521444
ZNR UUUUU ZZH
R 081444Z SEP 08
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC 8900
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHEHNSC/NSC WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 SARAJEVO 001426 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EUR/SCE (FOOKS) 
 
E.O. 12958: N/A 
TAGS: EINV ENRG EPET PGOV PREL BK
SUBJECT: BOSNIA: SARAJEVO SELLS ELECTRICITY SURPLUS DESPITE 
DEFICIT IN MOSTAR 
 
REF: SARAJEVO 1199 
 
¶1. (U) Summary: Sarajevo-based electricity distributor 
Elektroprivreda BiH (EPBiH) announced their intention to sell 
close to 200 mln USD worth of surplus electricity to 
prospective utilities and electricity trading companies. 
Although profits from electricity surplus would be a boon for 
the Federation Government's budget, they would come at the 
expense of the Federation's other utility, Mostar-based 
Elektroprivreda (EPHZHB), which continues to run a deficit. 
According to Federation officials, the two companies are 
treated as separate enterprises and EPHZHB must compete with 
international bidders for purchase of electricity from EPBiH. 
 Because the Bosniak-run, Sarajevo-based, EPBiH has been 
favored by Federation government officials who plan to expand 
its healthy electricity generating resources, the disparity 
between the two companies, and the parallel tension between 
the Bosnian Croat and Bosniak leaders, will continue.  The 
Bosniak leaders have held off on a decision for a Federation 
energy strategy to avoid making it an election issue.  End 
summary. 
 
¶2. (U) Elektroprivreda BiH (EPBiH), one of the two power 
utilities owned by the Federation Government, announced plans 
to sell 1.6 billion kilowatt-hours of surplus electricity 
next year, which could be worth 196 million USD.  2009 will 
be the first year in over five years that EPBiH will have 
surplus electricity to sell themselves, as an obligation to 
compensate Elektroprivreda Croatia for investments made to 
help build the Kakanj thermal power plant expires this year. 
In return for the pre-war investment, Elektroprivreda Croatia 
was granted a five-year term in which they sold EPBiH surplus 
electricity. 
 
¶3. (SBU) According to EPBiH General Manager Amer Jerlagic 
around 20 neighboring utilities and power trading firms are 
interested in bidding to purchase the surplus electricity. 
According to the media, only Bosnia and Bulgaria are 
electricity exporters in southeastern Europe.  The Federation 
has been working on a plan to build more thermal and 
hydropower plants to increase electricity generation, 
however, domestic political squabbles have resulted in a 
continued stalemate on sector development (reftel). 
 
WHAT ABOUT BOSNIA,S INTERNAL ENERGY NEEDS? 
------------------------------------------- 
 
¶4. (SBU) We asked EPBiH Executive Director Emir Aganovic 
about the electricity needs of Mostar-based Elektroprivreda 
HZHB, a company that is also owned by the Federation 
Government and is continually short of electricity, and how 
that fits in with export of EPBiH,s surplus.  (Note: In 
2007, EPHZHB's electricity shortfall was 1.3 billion 
kilowatt-hours, in 2008, officials predict the shortfall will 
be 1.26 billion kilowatt-hours. End note.)  According to 
Aganovic, EPHZHB must compete with any other international 
bidder or power trading company for the surplus electricity. 
The only benefit to EPHZHB is that the sale price would be 
significantly lower, since transit of electricity to Mostar 
is obviously much cheaper than transit to Slovenia, Italy or 
Greece.  Privatization of Aluminij Mostar, one of the 
country's largest exporters, is being held up largely over 
the dispute of guaranteed access to below-market-rate 
electricity from EPHZHB.  The factory takes more than 
two-thirds of EPHZHB's entire load, leaving ordinary 
ratepayers with the possibility of having to cross-subsidize 
the cost of buying expensive alternate-sourced electricity. 
 
 
 
FUTURE ENERGY NEEDS STILL NOT ADDRESSED 
--------------------------------------- 
 
¶5. (U) After paying off debts to investors and other arrears, 
EPBiH,s reported net profit for the first half of 2008 
amounted to 15 million USD.  Jerlagic told the press that the 
company plans to re-invest some of these profits in renewable 
energy resources.  According to him, wind power is the great, 
untapped resource for Bosnia with a potential of 1,000 to 
1,200 megawatts, annually.  He discussed plans in the media 
of investing in a 30-MW windpark in southern Herzegovina as 
well as several small hydro-plants. 
 
¶6. (U) Jerlagic warned that Bosnia and Herzegovina, as a 
whole, must develop an energy sector development strategy or 
 
SARAJEVO 00001426  002 OF 002 
 
 
there will be a country-wide deficit of energy within a 
decade.  Federation Minister of Energy Vahid Heco went even 
further in a June interview, threatening that the Government 
must begin developing new hydro and thermal power plants 
otherwise they will be have an electricity deficit by 2012. 
 
COMMENT 
------- 
 
¶7. (SBU) Despite owning both Sarajevo-based EPBiH and 
Mostar-based (Bosnian Croat-controlled) EPHZHB, the 
Federation Government treats these two companies as separate 
enterprises, a strategy that does not benefit electricity 
consumers.  With the government focused mainly on bolstering 
the capacity of EPBiH with new power generating resources, 
EPHZHB will continue to be left in the dark, creating further 
tension between Bosniak and Bosnian Croat interests. 
Although a situation where energy resources are divided 
unequally between Bosnian Croats and Bosniaks will inevitably 
create tensions in the Federation, the worst case scenario is 
that the internal squabbles among political party officials 
will result in continued stagnation of the energy sector, 
dashing any hopes of creating a long-term electricity export 
strategy.  We can also expect Croat political parties to add 
this dispute to their list of grievances against the Bosniaks 
that they use to justify their demands for a third entity. 
 
 
ENGLISH