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Winds of Change Blow Past Bosnia

Mirsad Bajtarevic Sarajevo, Sibenik and Vienna

While Western Europe increasingly embraces alternative energy, Balkan states are ignoring the potential gains.

Alija Krha bends his tall, gaunt frame to pick vegetables from his modest garden overlooking Podvelezje, a barren and lonely plateau covered in shrubs and occasional brambles in southern Bosnia and Herzegovina.

One of only three people to return to this desolate area following the 1992-1995 war, the 70-year-old man's weather-beaten face lights up when the conversation turns to the wind.

“This is great news. Windmills wouldn’t bother anybody here,” he says, when told a Western investor plans to build wind farms on these blustery highlands. “It could help develop this area and convince youngsters to return here and to neighbouring villages.”
 
But it’s far from certain that wind farms – and the more distant promise of investment – will come. For more than four years, Vjetroenergetika, a local company founded by the Austrian firm Windkraft Simonsfeld GmbH, has been struggling to proceed with a 40 million euro project to build a wind farm at Podvelezje.
 
Each year has seen new delays and obstructions. “This is a classic example of how not to treat foreign investors,” complains Zejna Sanjevic–Kussmaul, a Vjetroenergetika manager.
 
Despite steadily rising prices for energy on world markets, and growing interest in environmentally-friendly, clean sources of electricity, the construction of wind farms in Bosnia meets resistance at every turn.
 
Most of this resistance is passive rather than deliberate, and stems from poorly defined legislation and red tape. It’s also partly from the ignorance of local government officials and from conflicts of interest between would-be investors and the state power companies, who want to control the construction of these facilities and harvest the profits.
 
The result: Bosnia is missing out on the green revolution in power production that has been sweeping the rest of Europe for the past decade.
 
The answer is blowing in the wind
 
Wind farms have become an increasingly familiar part of the landscape in Western Europe for several years now. Throughout the European Union, EU, governments have encouraged the development of alternative, green sources of energy,  for their positive environmental impact.
 
Wind energy has helped many countries meet their obligations under the 1997 Kyoto Protocol. This obliges both developed and so-called transitional economies to cut emissions of greenhouse gases – one of the main factors behind global warming – and develop and use a certain percentage of alternative energy sources. EU member states have agreed wind farms should meet 12 to 14 per cent of total electricity needs by 2020.
 
Significantly, investments by EU companies in the development of alternative energy sources in other countries are calculated as a part of the balance sheets of their own countries. This explains why an increasing number of European firms are using their expertise to invest in South East Europe.
 
Faruk Mustovic, author of Wind Farms in Bosnia and a leading local expert, is a committed enthusiast. “Not only do wind turbines not produce CO2 and greenhouse gases but they substitute fossil fuels, effectively reducing emission of greenhouse gases,” he says.
 
Austria leads the way
 
Austria, a leader in the field in Europe, uses renewable energy sources for one-quarter of the country’s total electricity consumption. Authorities there have allowed construction of about 900 wind turbines, many located in the fertile flatlands north of Vienna, near the villages of Bruck an der Leith, Parndorf, Neudorf and Zurndorf.
 
The meadows there teem with wind turbines that soar into the sky like giant sunflowers. Each is an average of 100 metres high with 50-metre-wide three-bladed rotors. Farmers and local wildlife have got used to this exotic intrusion: crops grow as usual and wild animals and birds live all around.
 
“The only opponents to wind farms in this area are the Viennese who have second homes here and who want to be surrounded by pristine nature on the weekends,” says Gottfried Pschill, an engineer in charge of Energiepark in Bruck an der Leith.
 
Pschill says the windmills have caused no problems with the local community or with environmentalists. Austria learnt from the mistakes made by Germany which, initially, did not conduct feasibility studies, and allowed the construction of wind farms near important bird-nesting sites and in the flight paths of migrating species.
 
Austria did not repeat this error. Today, Energiepark and other Austrian companies are financing the construction of wind farms in neighbouring Hungary and Romania.
 
Not in my village, thanks
 
Of all the countries in the Western Balkans, Croatia has made most progress in drawing up legislation to allow the introduction of wind farms into the energy system. As a transitional country, the Kyoto Protocol obliges Croatia to work towards generating 5.8 per cent of its electricity from renewable sources by 2010. The two existing wind farms currently produce around 1 per cent of Croatia’s overall energy needs.
 
It took five years before Croatia had drafted legislation for this purpose, exempting investors from fees for the use of land, for example.
 
Enersys of Germany has already built a wind farm with 14 turbines in the mountains north of Sibenik, Dalmatia. This wind farm, with a total strength of 11.2 MW, produces 30,000MW/h of electricity per year, which is enough to supply some 10,000 households.
 
Regional authorities now plan to issue building permits for additional wind turbines across Croatia’s South West. But despite official support, these plans still meet suspicion and resistance from some communities.
 
Villagers in Bruska, near Benkovac, Dalmatia, fear that proposed wind farms will wreak havoc with a natural landscape that they treasure. “They’ll ruin our pastoral haven and our environment,” laments Nikola Cacic, sitting under a walnut tree in front of his home.
 
Mate Bulin, an engineer at the Sibenik-Knin District Chamber of Commerce, says he hopes local objections will be overcome through offers of compensation in the form of water supplies or street lighting. Enersys, meanwhile, is voluntarily paying 0.5 per cent of its profits to the city of Sibenik. But some villagers in the areas where wind farms are planned still doubt they will reap any direct benefits from the projects.
 
Interest flags in Bosnia
 
While the problems in Croatia mostly stem from local objections, at least the law and administrative procedures regulating wind farms are in place. By comparison, Bosnia’s regulations in this field are still in diapers, says Zeljko Samardzic, manager of the wind farm near Sibenik: “Judging by our experiences in Croatia, things will get going in Bosnia in two years or so.”
 
“Not even the minimal conditions (for investors) have been met in Bosnia so far,” agrees Tonci Panza, director of Adria Wind Power which operates a wind farm on the Croatian island of Pag.
 
The first obstacle facing potential investors in Bosnia is the complex administrative setup inherited from the Dayton Peace Accord, which ended the 1992-1995 conflict in the country. This created two semi-independent entities, the Federation and the Republika Srpska. The former comprises ten cantons, each possessing its own mini-government.
 
The weak, overarching Bosnian state has neither developed an energy strategy nor adopted a specific energy law. The same applies to the assemblies of the two entities.
 
The power grid in Bosnia is divided along ethnic lines, managed by three different power companies: Elektroprivreda BiH, Elektroprivreda Herceg Bosne and Elektroprivreda Republike Srpske. Each offers different purchase prices for electricity generated from alternative sources.
 
Because of power grid limitations, the entity governments in 2002 limited the strength of any single alternative energy source to the power grid to only 5 MW. This decision, which has since been rendered redundant by the development of the power grid and alternative energy sources, poses another obstacle to investors, effectively preventing them from building and exploiting more than two 2MW wind turbines.
 
Other disincentives are slowing the production of alternative energy in Bosnia. Unlike Croatia, it is already energy rich and the only country in the region to export electricity, mainly generated from thermo and hydroelectric power stations.
 
Moreover, because Kyoto categorised Bosnia as a developing country, as opposed to a transition state like Croatia, Bosnia has no obligations to reduce its emissions of greenhouse gases and is not a party to ANNEX 1 of the Kyoto Protocol. These factors help explain the lack of interest on the part of  authorities in alternative energy sources, even though Bosnia has an estimated wind capacity of 1,000 MW. By comparison, Croatia has an estimated capacity of 1,700 MW, while the figure for Serbia is estimated at only 190 MW.
 
Wind taken out of investors’ sails
 
Despite the less-than-favourable climate facing foreign investors in Bosnia, several companies in the region have shown interest in exploiting its natural resources, hoping the legislative and institutional framework will improve in the meantime.
 
Energy 3, a company co-owned by the Slovenian firm E3 and Impro-Impeks of Bosnia, has been planning to build 15 wind turbines in the south of the country with a total capacity of 30MW. Austria’s Vjetroenergetika has developed a similar project for 16 turbines, with an overall capacity of 32 MW.
 
Both companies received concessions for construction from the government of the Herzegovina-Neretva canton in 2007. Yet, neither signed an agreement to start the implementation of the projects. In both cases, the main obstacle was bank guarantees required from the investors by cantonal authorities.
 
Bosnian law does not specify what percentage of a project’s total value the bank guarantee needs to cover; consequently, cantonal authorities have been demanding guarantees for the entire value of projects. Bosnia’s leading commercial banks, such as UniCredit Group and Volksbank BH, have confirmed their interest in supporting investments in environmentally sound electricity but say they cannot underwrite total guarantees for projects that cost 40 million euros each.
 
Esad Humo, economy minister for the Herzegovina-Neretva Canton, says the cantonal authorities are not to blame; the fault lies with companies failing to submit the required documents: “We’re all in favour of foreign investments and new technologies but we cannot take them at their word,” he said. “We must know if they are capable of fulfilling assumed obligations and this is why we need guarantees. I have to protect the interests of the state and abide by the law.”
 
But the various obligations are often irreconcilable, creating something resembling a Catch 22 situation. While the authorities demand full bank guarantees before they will sign project implementation contracts, the banks require signed implementation contracts before they will issue any guarantees.
 
Tonci Panza, of Adria Wind Power, notes that Croatia’s authorities have never demanded such bank guarantees, recognising they may not be feasible for expensive development projects.
 
Some would-be investors in Bosnia hope the situation will improve now that Bosnia has signed the Stabilisation and Association Agreement, SAA, with the European Union. The key trade deal with Brussels was agreed on June 16, 2008. “Bosnia will have to adjust to European Union directives, legislation and new technologies,” Energy 3’s manager, Miralem Campara, says.
 
But others remain doubtful, suspecting other factors behind government obstructions, such as corruption and conflicts of interest. Some foreign investors, speaking under condition of anonymity, have complained that government representatives have more or less openly sought bribes in order to push through projects.
 
Aside from corruption, local experts, such as Faruk Mustovic, suspect that Bosnia’s three national electric companies want to maintain an absolute monopoly on power and so block other companies seeking to develop wind power.
 
Keeping a grip on the supply of power
 
The case of Ante Andric, a small entrepreneur from Tomislavgrad, in south-western Bosnia, suggests the existing big three energy companies are keen to keep control of the country’s power supplies.
 
Andric installed a 100 kW wind turbine on his own land three years ago to provide electricity for a small factory producing plastic construction materials. Andric’s wind turbine is connected to the Elektroprivreda Herceg-Bosne system. But he feels the arrangement is far from fair or reciprocal, because he is obliged to give all his surplus electricity for free to the company, while he has to pay for electricity from the grid when he doesn’t have enough wind.
 
Elektroprivreda Herceg-Bosne says anyone producing their own electricity needs a permit if they wish to sell power to the company. But Andric says this is effectively impossible; the procedure is so complicated that he never even tried to apply.
 
On the other hand, the experience of companies that have applied to sell power to state companies is not encouraging. Loncar plast and Eurograniti from the town of Posusje, both own two 80 kW wind turbines and applied for permits to sell surplus electricity to Elektroprivreda Herceg-Bosna a year ago. Today, their applications remain bogged down in red tape.
 
Vlatko Medjugorac, of Elektroprivreda Herceg-Bosne, says the two applicants “failed to submit all the required documentation.” However, representatives of both Loncar plast and Eurograniti have now said they are tired of running in circles and are taking their cases to court.
                                        
Elektroprivreda Herceg-Bosne, meanwhile, is preparing to build three wind farm projects on its own, in Livno, Tomislavgrad and Mostar, to produce power by 2010. Elektroprivreda BiH says it supports initiatives to introduce alternative energy sources to its system, but only under the company’s terms and conditions.
 
Emir Aganovic, executive director for facilities and maintenance in the company, says projects such as those planned for Podvelezje may be implemented “if an acceptable agreement is reached,” with investors.
 
In such a situation, investors have little choice but to accept the power companies’ terms and offers.
 
In the cases of Energy 3 and Vjetroenergetika, for example, Elektroprivreda BiH offered to sign agreements in September 2008. The state power company will set up a joint venture with Vjetroenergetika, which will implement the original project, while Energy 3 hands over its entire project to Elektroprivreda BiH.
 
Despite this one-sided outcome, Campara from Energy 3, said the company was satisfied with the terms of the deal as their costs will be reimbursed and they hope this cooperation with the state power company will place them in a better position to carry out two similar projects planned in the same area.
 
Bosnia’s third power company, Elektroprivreda Republike Srpske, has decided to delay seeking potential investors in wind farms until it finalises a wind power exploitation feasibility study, expected in 2009.
 
While investors, governments and three state power companies continue their struggles and manoeuvres to control the future of alternative energy, the inhabitants of Podvelezje are still awaiting their wind turbines.
 
For them, alternative energy represents the last hope of new jobs and better infrastructure. “I hear they have promised to make a new road, and better power lines, as well as a water supply system,” says Ismet Stranjak, owner of Sunce, a small motel in Podvelezje.
 
“Nothing has been done here for ages,” he adds. “But God has given us this wind, which in the end may help secure people’s livelihoods in these parts.”

Fellow Bio

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Mirsad Bajtarevic

Mirsad Bajtarevic was born in 1969 in Kranj, Slovenia. He is an award-winning journalist with more than 15 years of professional experience

Topic

Topic 2008: Energy

Energy is a topic that preoccupies officials, politicians and citizens across Europe - and arguably one of the biggest challenges facing this continent and the international community.