VZCZCXRO7767
RR RUEHIK
DE RUEHVJ #0075/01 0260758
ZNR UUUUU ZZH
R 260758Z JAN 10
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC 1295
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

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 
-------- 
 
¶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 
--------------------------------------------- ------- 
 
¶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 
--------------------- 
 
¶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. 
 
SARAJEVO 00000075  002.2 OF 003 
 
 
 
POINTS OF CONTENTION: BLAGAJ AND POCITELJ 
------------------------------------------ 
 
¶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 
--------------------------------------------- ---- 
 
¶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 
--------------------------------------------- ------- 
 
¶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 
--------------------------------------------- -- 
 
¶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 
------------------------------------------- 
 
¶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