Serbia looks to tighten relations with western kin

By bne IntelliNews March 13, 2008

Dejan Kozul in Belgrade -

While Serbia is at loggerheads in the south with its newly independent neighbour Kosovo, Belgrade's relations to the west with the Bosnian Serb Republic have never been better. A growing influx of investments is raising hopes in the minds of some Serbian politicians of an eventual union.

Aware that it is about to lose not just the Kosovo territory but also the mines and companies in which it has been investing for years, for the past few months Serbia has made the biggest investments in the Bosnian Serb Republic (or more accurately Republika Srpska), one of the two political entities which comprise Bosnia Herzegovina.

The largest was the €646m that Telekom Srbija paid for a 65% stake in the Bosnian Serb Republic telecommunications firm Telekom Srpske. The price that Serbia paid shows how desperate it was to purchase it, as well as the political dimension to the deal: the next highest bid came from Telekom Austria, which offered almost €200m less.

Another fertile ground for deals is the energy sector. While much of the former Yugoslavia's energy infrastructure was destroyed during the Balkan wars in the 1990s, the Bosnian Serb Republic has huge potential. Rivers in this part of Bosnia - the Drina and Vrbas - have the biggest hydroelectric potential in the whole of the Balkans, but surveys show that only 30% of that potential is being utilised. Other energy sources include the oil deposits in Ugljevik, Gacka and Stanari, where the state's first new thermal power plant will be built by 2012. Given that power shortages are an increasingly dire problem in the region, the importance of the Bosnian Serb Republic to the energy sphere is growing.

The energy ministry of Republika Srpska has announced plans to build the Buk Bijela hydropower station on the Drina River together with Serbia. This power plant will have four 112.5-MW turbo-generators, producing approximately 25% of the electricity that the republic produces now. Serbia and Republika Srpska representatives have also announced plans to build five more hydro power plants and, according to some estimates, the cost of building these could exceed €1bn.

Miodrag Zec, a former adviser at the Serbian Privatization Agency, claims that there are real basis for cooperation between the two countries - and not just on a political basis. However, he sees the lack of money as the main problem. "Until now, the representatives of Belgrade and Banja Luka haven't done much. There is much more talk than real work. Money is a big problem and the fact that there hasn't been any large project signed apart from that takeover of Telekom Srpska just shows that problem," Zec says.

Internal tensions

However, the improved relations between the Bosnian Serb Republic and Serbia have caused a worsening of relations inside Bosnia itself. According to the Dayton Agreement that ended the Balkan war in the 1990s, both entities in Bosnia Herzegovina have financial autonomy so Sarajevo has almost no influence in the Serb part of the country. With ethnic issues no longer the driving force in the country, it's financial control that causes most antagonism between the two parts. However, Zec says that this kind of financial decentralisation doesn't only exist in Bosnia. "I cannot see the reason why it should be different. If German federal states have fiscal sovereignty, why shouldn't Bosnian entities have the same? Especially bearing in mind that Bosnia Herzegovina is separated not just in financial, but also ethnical and religious, matters," he says.

Even if relations between Belgrade and Banja Luka have never been better, unity between Serbia and Republika Srpska lives on only in the most nationalistic heads. There is a possibility that some Serbs in this Bosnian entity will organize a referendum on independence, but the politicians there would never want Belgrade to then take control. Their position is that an independent entity with complete control over all financial matters is quite attractive. Unity with Serbia would change that and leave them not much better off than the present situation of having to keep Sarajevo at arms reach. Serbian nationalists like to say that Serbia is wherever Serbs are - but not perhaps in the Bosnian Serb Republic.

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Serbia looks to tighten relations with western kin

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