January 08, 2014
TheSrpskaTimes

In the past 9 years since the Republika Srpska Concession Law has been in force and applied, the Republika Srpska collected almost 257 million KM of concession revenue. According to the official data of the Republika Srpska Concession Committee, 321 concession agreements have been signed. The biggest number of agreements, 126, were concluded in the sector of mineral materials, followed by agreements made in the field of construction and operation of small hydro plants – 115 agreements.

 By: Jelena Stanišljević

The biggest amount of money, almost 182 million KM, was collected for the public budget as fees for using natural resources for the production of electricity. A total of 57 million KM were collected on the basis of signed concession agreements in the field of mineral materials and the exploitation fees. The question as to where, or for what, the 257 million KM in collected revenues were spent remained without a concrete, mathematical answer, with an attempt to make things vague with bureaucratic excuses.

The new Republika Srpska Law on Concessions was approved by the National Assembly of the Republika Srpska in June this year. The new Law that was presented as a final legal solution for concessions in the Republika Srpska was severely attacked shortly after that. The Law introduced some novelties compared to the Republika Srpska Law on Concessions that had been in force. Besides being a regulator, the Republika Srpska Concession Commission also became the body that opens the bids received during the public call. A negotiation procedure is introduced „in case of a bid placed by a public company performing an activity of general interest, the activity of which is subject to concession“ or „in case of execution of contracts made by the Government or public companies, that relate to the implementation of the object of concession“. Besides being the Republic’s revenue, the concession fee became the revenue of a local community too, depending on the responsibility for granting the concession and proportionally to the level of the development of local community. The local communities are required to allocate the proceeds from the concession fee for designated purposes, i.e. investment-development projects for building and reconstruction of primary infrastructure facilities (water supply, sewage, heating pipeline, local roads, etc) as well as for new economic capacities that are in the function of economic development, employment and protection of the environment (ecology). It is an open secret that certain local communities that are a Concedent under large and valuable contracts and investments, almost „live on” the concession fee.

OF THE TOTAL 321 CONCESSIONS AGREEMENTS, 126 WERE IN THE FIELD OF MINERAL MATERIALS, 115 WERE IN THE FIELD OF CONSTRUCTION AND OPERATION OF SMALL HYDRO PLANTS, 68 WERE IN THE FIELD OF AGRICULTURE, 8 WERE ENERGY AGREEMENTS, AND 3 WERE IN THE FIELD OF TOURISM 3. INTERESTINGLY, THERE IS ONLY ONE AGREEMENT IN THE REPUBLIKA SRPSKA ON A CONCESSION IN THE FIELD OF GAMES OF CHANCE.

A Concession Agreement may be assigned to a third person or a financial organization with which a concessionaire made a financing contract related to the concession, if for economic, organizational, financial or other justified reasons the concessionaire is not able to fulfill the contractual obligations within the deadlines or in the manner defined in the Concession Agreement, or, if the concessionaire is not able to fulfill its obligations from the financing agreement. In this case, in order to secure fulfillment of contractual obligations a concessionaire may change the ownership structure in a percentage higher than 50% or otherwise change the owner, with a previous approval of the Republika Srpska Concession Commission. „The new Law also introduced a concept of „an interested person’s initiative“, that does not fit with concession terminology, which rather includes a self-initiative bid and the public announcement, and not initiative“, Predrag Askrabic, the president of the Republika Srpska Concession Commission, says.

„The result of the circumstances in which we started the whole concept around the concessions in the second stage of the transition, was that the first wave of concessions in the Republika Srpska was just a „make-up“ with many elements of concessions remaining without a detailed analysis that was supposed to build-up on the existing law. Not all the concessions are or should be the same, believes Professor Dusko Jaksic, the director of the Republika Srpska Economics Institute. „It is not the same if you, for example, grant a concession for a thermo-mineral source for economic activities, health, tourism or scientific purposes. There are very complex subjects that cannot be covered by just one concession field. This was why in Croatia they divided concessions in separate fields under their new legislation or amendments to the old one, so, for example there are separate concessions in the field of public health. There is no universal ideal of successful concession. For any specific field there is a special potential that should be developed“, Jaksic says.

IN THE 2012 REPORT OF THE SUPREME OFFICE FOR THE REPUBLIKA SRPSKA PUBLIC SECTOR AUDITING, IN THE SECTION REGARDING THE MINISTRY OF AGRICULTURE, FORESTRY AND WATER MANAGEMENT, THE AUDITORS STATED THAT THE MINISTRY DID NOT HAND OVER THE POSSESSION OF 86 LESSEES IN THE TERRITORY OF GRADISKA MUNICIPALITY WITH WHICH IT HAD MADE AGREEMENTS ON LEASING LAND OWNED BY THE REPUBLIKA SRPSKA IN 2008.

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The president of the Republika Srpska Concession Commission, Predrag Askrabic, says that due to the Commission’s recommendations, 28 agreements have been terminated this year in the field of construction and operation of small hydro-plants. Some were terminated due to the request of concessionaires themselves as they could not fulfill the contractual obligations and some were cancelled due to the recommendation of the RS Ministry of Industry, Energy and Mining. „These projects are not so explicit or clear, many things are unclear, because the first public call was announced on the basis of the old pre-war documentation, and the situation on the ground has changed. The situation on the ground proved to be different from that in certain studies and analyses, so that the data that was on paper was of much higher quality than the information found on the ground. On the other hand, the Ministry does not have enough resources to check this or ascertain what exactly it has. So, everything was done on the basis of some theory that was developed before the war. The situation has changed in the meantime, there are minefields, the water flows have diminished, new water intakes and fishponds have emerged, and all that resulted in the reduction of available energy“ Askrabic explains.

And indeed, this could be a perfect illustration of the real situation with the concessions in the Republika Srpska. Regardless of both official and unofficial insistence on the huge potential of natural resources that we allegedly have, the facts speak for themselves. They show that in certain fields we still use the studies that are even two decades old, that some areas in the Republika Srpska are inaccessible, that the rivers are intersected by entities’ or state borders, all of which naturally decrease a potential investor’s and the Republika Srpska’s profit because the concession’s potential profit must be divided between multiple entities. It is also true that most natural resources have been known about and exploited for a long time and that the concession agreements for them were signed a long time ago.

Taking the possession of the concession subject has proved to be especially challenging for the concessionaires in the Republika Srpska – this is an issue that is supposed to be solved at the moment of publishing a call for granting a concession. However, the experience so far has shown that on a number of occasions the Republika Srpska Government signed concession agreements without being able to ensure the fulfillment of contractual provisions. According to data provided by the Republika Srpska Public Attorney’s office, which is currently representing the Republika Srpska (the Ministries and local communities) in 15 cases before the courts. In 9 cases against the Republika Srpska the concessionaires are claiming total compensation of 9.601.586 KM. In 5 cases the defendant is the Ministry of Agriculture, Forestry and Water Management. The Ministry did not provide any answer to our questions.

THE OFFICIAL ANSWER GIVEN BY THE REPUBLIKA SRPSKA FINANCE MINISTRY TO THE SRPSKA TIMES’ QUESTION ABOUT WHERE 257 MILLION KM OF CONCESSION FEE WERE SPENT WAS THE FOLLOWING: „INCOME FROM THE CONCESSION FEE THAT COMPLETELY BELONGS TO THE REPUBLIKA SRPSKA BUDGET IS USED TO SERVICE THE PLANNED BUDGET SPENDING IN ACCORDANCE WITH THE BUDGET PLAN. FOR A MORE DETAILED ANSWER, PLEASE CONTACT THE CONCESSION COMMISSION AND THE MINISTRY OF INDUSTRY, ENERGY AND MINING.“ SO WE DID. THE ANSWER THAT WE RECEIVED FROM THE COMMISSION AND FROM THE SECOND MINISTRY WE CONTACTED WAS THAT THE ONLY AUTHORITY CAPABLE OF PROVIDING AN ANSWER WAS THE FINANCE MINISTRY. IN THE LATTER MINISTRY WE WERE TOLD THAT UP TO THAT MOMENT THEY HAD NEVER BEEN INQUIRED ABOUT THE ISSUE OF SPENDING THE MONEY COLLECTED FROM CONCESSION FEES.

Certainly there are some positive examples in the Republika Srpska of successful agreements made to the mutual satisfaction of both parties. So, as a result of good cooperation, 18.5 million KM went into the RS budget from the concession fees in the last year, with the level of receipts from concession fees in the RS increasing by two million KM annually. As good examples of successful concessions, the Republika Srpska Concession Commission gives the Brown Coal Mine Stanari near Doboj, Vukoje Vineyards, MG Gold orchards, Fly Fishing, thermal plant Ugljevik, at least 10 small hydro plants, and about a dozen more that are being constructed, and 20 that finished all the paperwork and are now waiting for investors, as well as the mines Ljubija, Boksit Milići, and mineral water sources Vtinka and Kruna.

THE DISTRICT COURT OF BANJALUKA RULED IN FAVOR OF PRNJAVOR’S COMPANY “RATAR” AND AGAINST THE GOVERNMENT OF REPUBLIKA SRPSKA FOR THE UNILATERAL TERMINATION OF THE CONCESSION CONTRACT IN 2006. “RATAR” HAS RECEIVED COMPENSATION OF 6 MILLION KM. THE GOVERNMENT OF SRPSKA HAD DECIDED TO TERMINATE FOUR CONTRACTS FOR THE CONSTRUCTION OF SMALL HYDRO-POWER PLANTS IN THE MUNICIPALITY OF SIPOVO DUE TO LACK OF MONEY AND THE MUNICIPALITY’S UNWILLINGNESS TO PARTICIPATE IN THE REALIZATION OF THE CONTRACTS.

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What would be a systematic solution?

The experts agree that, given the importance of this social field, both from the point of view of economy and business and as an ecological, social, regional and state issue, all the laws and by-laws governing this important social field should be harmonized first. The state should design a register of public goods, ensure updated and accurate data on land records, land registry and other plans. Although it is quite clear how challenging this task would be in terms of finances and organization, both the economists and legal experts agree that this is necessary if the Republika Srpska wants to give the concessions a real strategic meaning.

„ Things still take place haphazardly here. All public goods in the RS should first be registered and then we can proceed to their use in a planned way, but everything happens somehow randomly, without a plan and certainly without appropriate preparations. For example, at times when small hydro plants are an issue, everyone comes to ask for concessions for small HP, if it is agricultural land, then everyone asks for that… at the same time the principle things are not dealt with – strategic documents, strategies… Legal issues are not tackled either, and it is necessary to harmonize all the laws that overlap. It often happens that something can be done under one law and cannot be done under another, which creates real gray areas and problems for potential investors. Concession itself is clear, but when the implementation on the ground starts many problems arise. Take for example the agricultural land – there are many usurpers, the state cannot take possession of its own goods, and consequently cannot transfer the possession to the concessionaire, so it often happens that, for example, 100 ha of land is granted to the concessionaire who cannot then take possession of even 50 ha“, says Predrag Askrabic, the president of the Republika Srpska Concession Commission.

THE REPUBLIKA SRPSKA CONCESSION COMMISSION WAS FOUNDED ON 23 JANUARY 2004, PURSUANT TO THE DECISION OF THE REPUBLIKA SRPSKA NATIONAL ASSEMBLY, AND STARTED WORKING IN MAY OF THE SAME YEAR. THE COMMISSION HAS 5 MEMBERS, WHO WORK ON A FULL-TIME BASIS, AND, AS THEY ADMIT, THEY HAVE SPENT THIS YEAR’S BUDGET OF 720.000 KM MAINLY FOR SALARIES, WITH AN EXCEPTION OF FIELD VISITS.

The president of the Commission publicly admits that the Law on Concessions is applied only 25% of the time. He supports this statement with the fact that there are fields in the law that should be made a subject of concession and this is not done. „Public transportation of persons, goods, all this is the subject of the Concessions Law, which is implemented only 25% of the time, because the Commission does not have a mandate to enter somewhere where there is no contract; this should be done by the inspection bodies, but they do not do it“, Askrabic says.

To end the story on concessions in a symbolic way, we did not even get the answers from the Ministry of Industry, Energy and Mining concerning the importance of concessions in the Republika Srpska, good examples or systemic solutions for concessions. Concessions in a country that has natural resources but that does not have the money to optimally use them, are indeed a huge potential, but without a comprehensive and strategic plan that would be a number one priority of all the ministries and the Republika Srpska Government, the only thing that remains is a potential and not reality. On the other hand, 257 million KM collected from concession fees are very real. What would happen if the Concession Law was implemented 100% of the time, and the Ministries and the Republika Srpska Government could readily give all the answer on concessions to any interested party?

„ Agro Group“ Case

Four years ago Agro Grupa made an agreement with the government to take-over PIK Samac. The Government’s obligation was to grant the concession to the company for one thousand hectares of agricultural land. However, the Government never fulfilled its obligation, therefore Agro Grupa could not take possession of the land. Agro Grupa sued the Republika Srpska for the amount of lost profit and claimed compensation for losses of about 3.5 million KM. The Republika Srpska managed after all to grant a concession to 499 hectares of land and made a settlement with the plaintiff for 1.4 million KM, asking it in return to waive all other claims and interest. Soon after that, the Republika Srpska Government annulled its earlier decision granting approval to the RS Public Attorney Office to make the settlement payment of 1.4 million KM to „Agro Group“ Brcko. The Public Attorney’s Office brought the new procedure on behalf of the Republika Srpska Ministry of Agriculture, Forestry and Water Management, before the District Commercial Court in Doboj, to pronounce null the out-of-court settlement with the Company „Agro Group“ Brcko.

Economic policy for 2014

The draft Economic Policy for 2014 states that the Republika Srpska Government will continue to monitor and support the implementation of the concession agreement for designing, construction, operation and maintenance of a distribution gas system in connection with the gas pipeline in Gornji Sepak, designed to supply natural gas to Bijeljina Municipality, an investment of 45.78 million KM by the investor „Bijeljina gas“ d.o.o.

The Government will also continue to monitor and support the concession agreement for construction, operation and maintenance of the system for autonomous supply of Liquefied Petroleum Gas to the city of Banjaluka, an investment worth 162.5 million KM, by the investor „Teplogazservisprojekt Oversiz Moskva“ i.e. „GAZSERVIS“ d.o.o. Banjaluka.