VZCZCXRO6454
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
DE RUEHVJ #0251/01 0610852
ZNY CCCCC ZZH
R 020852Z MAR 09
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC 9805
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBS/AMEMBASSY BRUSSELS 0075
RUEAIIA/CIA WASHINGTON DC
RUEKJCS/JCS WASHINGTON DC

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 
 
 
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¶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