All our lost arbitrations: Will anyone be held accountable for hundreds of millions of lost disputes?
Photo: Armin Durgut/Pixsell
According to estimates, Bosnia and Herzegovina is currently facing one billion convertible marks in costs related to disputes lost before international arbitration courts. Elektroprivreda RS, Oil terminals Ploče, Elektroprivreda BiH - these are just some of the energy companies whose millions in lost arbitration awards will be paid or have already been paid by the citizens of this country.
By Elmedina Šabanović i Nermin Bise
The continuity of disputes being lost before the international arbitration courts has so far undermined fiscal stability and called into question the normal functioning of state-owned energy sector companies. A series of awards lost before the arbitration courts have marked previous operations of Elektroprivreda RS.
We bring to your attention the fact that according to the decision of the International Center for Settlement of Investment Disputes (ICSID) from last year, RiTE Ugljevik must pay damages of 67 million Euro plus interest of 58.2 million Euro to Elektrogospodarstva of Slovenia. Agreement was reached to pay the damages in installments and to deliver a third of the electricity produced in Ugljevik.
This is the outcome of a yearslong dispute that our country led before the Arbitration Council in Belgrade in relation to non-delivered electricity, starting from June 12, 2011 until rendering of the award decision by the Arbitration Council in Belgrade.
The Slovenians also initiated a dispute before a court in New York, which is currently pending.
There is also another arbitration dispute against our country before the ICSID, which is soon to be ended. Bosnia and Herzegovina was also sued by the Slovenian company “Viaduct” before this court for the cancellation of concessions for the construction of hydropower plants on Vrbas.
The contract on the concession award for the construction of hydropower plants on Vrbas, worth 165 million Euro, was signed by the RS Government back in 2004. Two hydropower plants are planned: HPP “Krupa” and HPP “Banjaluka – Niska”.
However, the RS Government had in 2013 signed a second concession with Elektroprivreda RS on construction of hydropower plant only a few kilometers away from the hydropower plants planned by the Slovenian company, thus the company “HES Vrbas” had sent a damage claim of 23 million Euro to the RS Government for the contract termination. Given that no agreement was reached, the Slovenian company decided to initiate arbitration proceedings.
Photo: HES Vrbas/Capital.ba
Lawyer Nenad Baroš says that their clients are asking for compensatory damages for suspension of concession rights for the construction of two hydropower plants on Vrbas River.
“The entire factual and legal description of the case in question has been reasoned by the award of the Arbitration Council from April 18, 2022. We do not have the authority to present the details of the award, since the parties to the proceedings did not give consent to ICSID to publish the award, or rather, there was no consent of Bosnia and Herzegovina”, claims Baroš.
Due to this unilateral termination of the concession contract the Republika Srpska had in 2022 lost a 90 million worth dispute before the arbitration court, and shortly thereafter the RS submitted a request for the annulment of the award and postponement of the enforcement until the final decision, which the court upheld, and rendering of the decision is expected very soon.
At this moment, according to media reports, Croatian Elektroprivreda could also sue BiH for as much as 100 million Euro, in relation to the investments made by HEP in RiTE Gacko. However, it is stated that the negotiations are still ongoing and that the HEP still has not abandoned a peaceful resolution, although they have contacted the Council of Ministers and the Office of the Attorney General of BiH three times since 2017.
Photo: Luka Petrović/Elektroprivreda RS
Luka Petrović, director of Elektroprivreda RS, told Tačno.net that Elektroprivreda’s intention is to arrive at reasonable arguments from both sides through a peaceful resolution, and that they have no disadvantages in future disputes because they know very well what had happened in 1992.
“In terms of hydropower plan on Trebišnjica, and particularly Bilećko lake, we know what happened and what were the obligations, and what HET did during the construction of the system and which obligations it had assumed, as well as what it had financed from 1965 to 1992. So, two generators HET 1 and two generators Dubrovnik 1. We also know what Gacko was doing until 1992 in terms of energy delivery and to whom it was delivered,” underlines Petrović.
He also stated that their intention is to exhaust peaceful resolutions and not to go to expensive arbitrations where both parties would worsen relations and then the past would become the present.
We know that we will lose
Commenting on millions lost to damages in arbitrations, economic analyst and business consultant Zoran A. Pavlović stated that we should ask ourselves what are the reasons for certain behavior that could be regarded as the absence of business behavior of the authorities in BiH, more so in the RS than in the FBiH, that they do not try to find any form of agreement with partners with whom they are somehow at odds.
“What are the reasons that the governments in the FBiH and the RS do not approach this problem solving context, is a really unusual, strange question. However, the one thing that was certain, and not disputed, is that the Slovenian Elektroprivreda had in the former Yugoslavia co-financed the construction of Ugljevik Thermal Power Plant. It was known that Slovenian money was invested there. Why weren’t dialogues initiated from the beginning?”
Ugljevik Photo: Dejan Rakita/Pixsell
Concerning the disputes lost before the international arbitration courts Zoran A. Pavlović emphasizes that Bosnia and Herzegovina goes to courts even though it is quite clear that it will lose.
“Totally incomprehensible. There was nothing in dispute that would require arbitration, which could have been either avoided or an agreement could have been found that both RS and BiH, i.e. Ugljevik, were ultimately forced to accept by the arbitration,” explains Pavlović.
In terms of gravity of the arbitration process, Pavlović notes that according to the available information, if everything were to be paid, it would be a third of the budget of Republika Srpska.
The best illustration of how energy companies in BiH start international legal processes and with what intention is the example of the legal process before the Arbitration Court of the International Chamber of Commerce in Paris in the case of Deltagrip v. Oil Terminals Ploče, which was reported in detail by Tačno.net. /Linkovat/
We remind you that the British company Deltagrip, then owned by the Balkan trader of oil and oil derivatives Jasminko Umićević, sued Oil terminals Ploče (NFT), asking for more than BAM 200 in damages, but Deltagrip got around BAM 15 million by the award.
Given that the accounts of Oil Terminals Ploče were blocked at the time, this award has led this company to bankruptcy. In order to avoid the loss of a strategic company owned by FBiH, the then Federation government, headed by Nermin Nikšić, gave consent to the Federation Terminals, which own Ploče Oil Terminals Ploče, for a loan with commercial banks with the aim of paying Deltagrip.
NTF Ploče/Photo: Energetika.net
Another lawsuit by Deltagrip for compensation of profit lost in the period from February 2007 to April 2009 has been brought up under the leadership of HDZ-appointed director of NTF, Josip Tomić, who was convicted for embezzlement in this company before the Croatian court.
According to the ruling of the Commercial Court in Zagreb from 2021, the case was settled in favor of Deltagrip, amounting to a total of 4.186.230 US dollars, plus default interest, which is estimated at around 10 million US dollars.
In the end, due to the unfavorable contracts signed by Josip Tomić as director of NTF Ploče, Deltagrip will be paid close to 25 million convertible marks. However, even this amount is symbolic when we take into account the fact that NTF Ploče, as a strategic company with over half a billion convertible marks, was under the threat of bankruptcy on two occasions.
Block 7 and possible consequences
Elektoprivreda BiH also continuously loses international arbitration proceedings. We remind you: this state-owned company, which is currently operating with a loss of 160 million convertible marks, lost an arbitration dispute before the International Court of Arbitration in Brussels against the Austrian company “Strabag”, and has to pay seven million Euro.
This arbitration started due to a dispute related to the construction of the Vranduk hydropower plant, whose construction was stopped in 2016.
At this moment, the question arises as to how the decades-long “saga” of the construction of Block 7 of the Tuzla Thermal Power Plant will be resolved. According to announcements by Prime Minister Nermin Nikšić, as well as current information from Elektroprivreda BiH, the idea of completing this generational project worth 1.6 million convertible marks has failed.
Zoran A. Pavlović/Photo: Klix.ba
Zoran A. Pavlović underlines that the only guarantor for the payment of millions lost before the international courts is the state of Bosnia and Herzegovina.
“Since we also have Block 7 in Tuzla, I personally think that it is absolutely necessary to establish a body or coordinator at the BiH level, because BiH is behind everything. It will question the authorities of both entities about the steps that were taken in relation to lawsuits. When you look at everything related to the lawsuits, Bosnia and Herzegovina is mainly the guarantor. Of course, it will be all settled from the revenues generated by the budgets of the entities, but in fact it is in some way a loss of credibility of BiH”, he concludes.
Let’s move on: Mittal v. Bosnia and Herzegovina
A new arbitration process, Mittal v. Bosnia and Herzegovina, will soon come before ICSID.
Indian billionaire Pramod Mittal initiated arbitration against Bosnia and Herzegovina due to a dispute in the company GIKIL. Mittal is the majority owner of GIKIL, and according to the allegations, they decided on an arbitration dispute due to the violation of the bilateral agreement on the protection of investments between Bosnia and Herzegovina and India.
The problem has been caused by the majority owner’s dissatisfaction with the fact that the Tuzla Canton Government, as a co-owner, allegedly did not invest in the company. Allegedly, only Mittal invested, while the cantonal government exclusively took part of the profits.
Last year, the Cantonal Court in Tuzla raised an indictment against Mittal and former members of the GIKIL management. They are accused of organized crime in connection with the abuse of position and authority and of concluding a harmful contract.
Photo: Gikil
The BiH Council of Ministers has approved BAM 800.000 last year for the conduct of this proceeding, and so far BAM 465.000 were spent.
A representative in the House of Representatives of the FBiH Parliament, Admir Čavalić, told Tačno.net that, if one were to look at the cumulative amounts of claims made in arbitrations, the amount would reach several billion convertible marks.
“However, if we circle back to the payment obligations, my estimate is a few hundred million convertible marks, and possibly even more than a billion convertible marks. The repayment term can be up to 10 years in some cases. What is important to state is that there is no transparency in the reporting on this issue from different levels of government, and especially regarding ultimately responsibility for the payment of these funds. I can give an example of this and that is the relationship between the Government of RS and a public company in terms of transferring responsibility for debt payment”, said Čavalić, emphasizing that the problem arises from the fact that the structure of our state is decentralized.
Photo: Čavalić
Čavalić states that there are current cases that are ongoing and those that have the potential to be initiated, such as the mentioned cases of Block 7 of the Tuzla TPP. However, according to him, there is great cause for concern in the announced case of Mittal v. Bosnia and Herzegovina.
“The current concern is the dispute filed by Mittal in the GIKIL case. Here we have an exceptionally high amount that can threaten the fiscal stability of Tuzla Canton. We also have examples of mutual settlement of obligations, as in the case of INA-MOL. This year, the Government of the FBiH allocated five million convertible marks for the purpose of settling of these obligations”, says our interlocutor from the Parliament of the Federation of Bosnia and Herzegovina, adding that the repayment term is relatively “tolerable”, which can be considered as an extenuating circumstance.
There is one Office of the Attorney General
Out of over 1.100 arbitrators from almost every country in the world, BiH does not have a single arbitrator in ICSID. This information speaks volumes about the reputation of our country in the world.
Portal Tačno.net contacted the Office of the Attorney General of Bosnia and Herzegovina with questions concerning the protection of the interests of Bosnia and Herzegovina before the Arbitration Court in Washington, the value of awards rendered in the arbitration proceedings so far, who are the representatives of our country and how the awards are paid.
Assistant Attorney General of BiH Mladen Draganić answered our questions very generally and briefly.
“The BiH Office of Attorney General represents Bosnia and Herzegovina in international arbitration proceedings, including investment arbitration proceedings before ICSID. Given the complexity of the proceedings in question, specialized law offices are hired to represent Bosnia and Herzegovina. To date, not a single international investment arbitration procedure has been resolved to the detriment of BiH, so no damage whatsoever has been caused to Bosnia and Herzegovina on these grounds.”, said Draganić.
Reticence of the BiH Office of Attorney should be understood to a degree, since when a request for arbitration is submitted to ICSID, the mutually agreed ban on public disclosure of information comes into force at that moment due to the confidentiality of the proceedings. Anyone who violates this agreement loses the right to arbitration and automatically loses the case without the right to appeal.
In the dispute with the Slovenian company “Viaduct”, our country was represented before the ICSID by two law firms: Karanović&partners from Belgrade and Zeiler Floyd Zadkovich from Vienna, while investors from Slovenia are represented by B&B Legal, a law office based in Sarajevo and Banja Luka.
We were denied information on how much the services of two law firms representing BiH in the lawsuit with Slovenian investors cost.
For the sake of illustration, we can use the example from neighboring Croatia, which was represented before ICSID by Gavrilović firm, the cost of which was 1.8 million US dollars only for lawyers, for each party respectively.
Regardless of the number of lost disputes, so far no one in Bosnia and Herzegovina has been held accountable for the hundreds of millions of paid international awards.
