Bosnia’s sole aluminium producer Aluminij said on Oct 15 it is no longer able to continue its operations and to service its liabilities after local power producer EP HZHB blocked its accounts a day earlier over BAM 38mn (EUR 19.4mn) of unpaid debt.

Aluminij’s head Ivo Bradvica said in an open letter to Aluminij’s business partners that the move was politically motivated since EP HZHB is controlled by Bosnia’s Federation government, which also has a 44% stake in the aluminium producer.

“This blocking of our accounts means our collapse – the collapse of Aluminij and I assure you this would lead to a catastrophe, which would engulf Herzegovina, the Muslim-Croat Federation and after that the Republic of Croatia,” Bradvica said. “We are now left with no other choice but submitting a proposal with the court for opening bankruptcy proceedings and appointing a bankruptcy receiver, which is in plain and simple words the end of Aluminij.”

He said that Aluminij tried to agree with EP HZHB on restructuring the BAM 38mn debt (owed for just 3.5 monthly bills) via other legal means, including transforming the debt into a credit, but the power producer was fervent in demanding the immediate payment of the arrears, demonstrating it was not ready to make any concessions. Bradvica called the bid to block Aluminij’s account an unprofessional, irrational, rushed and tragic move, which prevents the company from meeting its business commitments to clients and partners.

The blockade took place even though the Federation’s government has obliged to subsidise the aluminium production and to be a mediator in finding a solution good for both Aluminij and EP HZHB on the debt repayment.

The news on Aluminij’s blocked accounts come only a month after the company’s 16-year long ownership structure issue was finally resolved, enabling it to seek cheap financing at international lenders to support its production. Aluminij’s shareholders nowapart from the Federation’s government include small shareholders (44%) and the government of neighbouring Croatia (12%).

The unresolved ownership structure was one of the main reasons for the past unsuccessful privatisation of Aluminij to a Glencore-led consortium.

In June, Aluminij said it had been rolling monthly losses of BAM 9.7mn (EUR 5mn) since the start of 2013. The firm already recorded a EUR 33.6mn loss in 2012, well exceeding the initially targeted BAM 10mn loss. The loss was mainly due to higher electricity tariffs and falling prices on the metal market.

Searching for cheaper electricity alternatives, Aluminij invited energy firms to submit power supply bids earlier this year and as a result signed a deal in July with Slovenian energy trader GEN-I for the supply of 100 MWh of electricity in August 1-December 31, 2013.

The company needs some 225 MWh of electricity per annum and used to buy 100 MWh from Croatian power producer Hrvatska Elektroprivreda but after Croatia joined the EU on July 1, the contract was amended and became no longer favourable for Aluminij. It receives the remaining 125 MWh from EP HZHB, the smallest of three power utility firms in Bosnia.

Aluminij – one of Bosnia’s top exporters, annually produces 130,000 tonnes of primary aluminium, raising the output by another 30,000 tonnes via additional processing and enriching the metal. It exports nearly 90% of its production under the form of anodes, billets, slabs, ingots and wire for further processing.