Czech power company CEZ said it will pull out from a joint venture project with the power company of the Serb-dominated Bosnian entity of Republika Srpska, Elektroprivreda Republike Srpske, effectively putting the kiss of death on a 1.4 billion euro project to overhaul the existing power plant and build a new factory in the southeastern town of Gacko.
Representatives of CEZ, the biggest listed company in central Europe with a market capitalisation of $21 billion, accused the Bosnian Serb government of multiple breaches of contract, including delays in registering property in a timely manner, issuing concessions, expropriating land for the mine, and putting forward a feasibility study to parliament.
They said they will sell their stake in the project back to the Republika Srpska government, for the amount of expenditures and costs they have invested into the project so far, local media reported on Thursday. CEZ officials didn’t mention any exact figures.
The Republika Srpska Ministry for Industry, Energy and Mining said in a statement it was surprised to hear about the possible CEZ pullout from media. It added that both sides have a right to compensation for eventual damages which, if cannot be agreed, can be reached through an international arbitration.
The director of the Elektroprivreda Republike Srpske, Branislava Milekic, told media that the project was still good and valid and expressed hopes that they find a way to continue the project with CEZ.
The ambitious project was marred with problems from the very beginning.
In April 2007, CEZ and the RS government closed a partnership deal envisaging a joint venture project to build a new power plant at Gacko worth 1.4 billion euros. According to this deal, the RS is investing the existing Gacko thermal power plant to the formal value of Euro 100 million, while the Czech partner will invest 106 million Euros in overhauling the present power plant and take an additional loan worth one billion Euro to build a new one. The Czech company would have owned 51% of the new plant’s shares.
In the existing Gacko power plant’s ownership structure, the 100% government-owned Elektroprivreda Republike Srpske had 65% of shares; the RS Pension Insurance Fund 10%; RS Restitution Fund 5%; and Small shareholders 20%.
According to independent experts and NGOs like Transparency International, at the time the deal went through, the formal value of Gacko power plant – set by the RS government at 100 million Euros – was put well below its realistic market price, which at that time reached 165 million euros on the Banjaluka stock exchange.
Small shareholders, primarily investment funds from the RS and abroad, protested strongly against the RS government’s decision and eventually pressed charges at local courts, which has effectively blocked further implementation of the project.
The eventual collapse of the Gacko project would deliver a serious blow to the Republika Srpska government and its gung-ho approach to economic development and privatization.
Local experts and NGOs have been increasingly warning that this aggressive approach to the projects such as Gacko or several other projects had been done in a such non-transparent way as to leave room for corruption, fraud or disregard to local stakeholders.