Energy and Coal Mines: Electric Power Systems (ELP), Mining Equipment (MIN)

Overview

Electric power generation and coal extraction are key sectors of infrastructure activity in Bosnia and Herzegovina.  Electric power is generated in both thermal and hydro power plants, and the country is a net exporter of electric energy.  The generating capacity is about 4,000 MW.   

After the 1992-1995 war, the once-unified power system in BiH was split into three vertically-integrated companies. There are three state-owned electric power generation and distribution companies: Elektroprivreda Bosne i Hercegovine (EPBiH), Elektroprivreda Republike Srpske (EPRS), and Elektroprivreda Hrvatske Zajednice Herceg-Bosna (EPHZHB).  Early international assistance focused on reconstruction of the physical infrastructure that was destroyed in the war.  As part of this effort, the international community spent hundreds of millions of USD from 1996-2001 on the reconstruction of facilities and networks.  Although international financing for physical improvements continues, particularly through the World Bank, the U.S. Government focus since 2001 has been on institutional strengthening and restructuring the Elektroprivredas (“EP”s).  BiH does not have a unified energy market.  The EP for the Republika Srpska (“EPRS”) covers only the territory of the RS and is not required to meet domestic demand in the Federation.  Within the Federation, the two EPs also cover distinct territories, with “EPHZHB” principally covering Herzegovina (a predominantly Croat region) and “EPBiH” covering the rest of the Federation.  These two EPs are not required to meet any domestic demand between each other or in the RS.

The international community through its “Power” projects has devoted extensive attention and developmental resources to the energy sector because of its high potential to contribute to BiH’s economic development.  BiH has a real comparative advantage in electricity, particularly because of its natural hydropower resources.  With investment in new hydropower generation, BiH could double its current power production levels.  If BiH can maintain its status as an energy exporter, it can become a key supplier in the new regional energy market.  However, BiH is less likely to attract the investment necessary to expand capacity in the sector if it does not follow through on the needed reforms that will make the power sector more efficient, transparent, independently regulated, and free from the corruption that allegedly still permeates the system.

The country has significant reserves of brown coal and lignite. Its primary mining resources are: iron, manganese, cobalt, nickel, chromium, lead, zinc, and bauxite. Reserves of iron ore deposits are estimated to be 653 million metric tons, zinc and lead 56 million metric tons while bauxite deposits are estimated to be around 120 million metric tons. There are two aluminum and aluminum oxide processing plants situated near bauxite mining operations. Annual coal production is about 8.8 million metric tons in open pits and casts.

Best Products/Services

• Desulphurization equipment/technology;
• Emission control equipment and systems;
• Generation equipment for hydro and thermal power plants (gas, coal);
• Heavy mining equipment.

Opportunities

In 2007, the Federation Ministry of Energy, Mining and Industry started a selection process for possible strategic partners for the construction of new power plants for the two state-owned electrical utility companies in the Federation (Elektroprivreda BiH and Elektroprivreda HZ HB). The invitation called for 11 plants in the Federation (7 hydro-power plants and 4 coal-fired power plants), with a combined installed capacity of 2,000 megawatts. Total value of these projects was estimated to be around USD 2.5 billion. However, in December 2008, the Federation Ministry of Energy announced that the plan to engage "strategic foreign investment partners" in the Federation had been put on hold. It is uncertain when and if the plan for those projects would be reactivated.  However, the politicians would need to adopt a plan soon in order to begin building new power plants in the Federation in time to meet their own energy demands in the next 5 -10 years.  There are also opportunities in construction of small hydro power plants and wind powered plants but due to lack of harmonization and adequate concession legislation between the canton and Federation-level governments regulating this area those opportunities would be rather limited in the near term.   

The Government of Republika Srpska announced in January 2009 that it would begin selecting strategic partners for construction of 24 new hydro and thermal plants in the Republika Srpska which could create some significant opportunities for sale of power generation equipment for both hydro and thermal power plants, as well as possible opportunities for contracts for power plant management. In the long run, the World Bank estimates that the energy sector in Bosnia and Herzegovina needs more than six billion USD in investment for modernization, life extension, and new generation facilities for the power generation and coal mines sectors.

U.S. companies interested in learning more information about current market opportunities in this sector should contact the U.S. Commercial Service office at the U.S. Embassy Sarajevo.

Resources

Elektroprivreda Hrvatske Zajednice Herceg-Bosna
Web Site: http://www.ephzhb.ba/

Elektroprivreda BiH
Web Site: http://www.elektroprivreda.ba/

Elektroprivreda Republike Srpske
Web Site: http://www.elektroprivreda-rs.com/ 

European Bank for Reconstruction and Development
Web site: http://www.ebrd.com

World Bank
Web site: http://www.worldbank.ba

Regulatory Commission for Electricity in the Federation Bosnia and Herzegovina (FERK)                 Web site:  http://www.ferk.ba/

Regulatory Commission for Energy of the Republika Srpska (RERS)                                                  Web site:  http://www.reers.ba/

The State Electricity Regulatory Commission (SERC)                                                                          Web site:  http://www.derk.ba/

Telecommunications (TEL, TES)

Overview

As of January 1, 2006, Bosnia and Herzegovina liberalized its telecommunications sector.  The Communications Regulatory Agency (CRA) of Bosnia and Herzegovina is currently working to resolve the issues of interconnection and tariff rebalancing as the necessary preconditions for full market liberalization.  Information about the sector’s regulatory framework can be found at http://www.cra.ba/.

Bosnia's post-war telecommunications sector, like electric power production and other infrastructure, was divided along “ethnic” lines following the 1992-1995 war. In the post-war period, the telecom assets previously owned by the Yugoslav state monopoly were divided into three, with infrastructure in the Federation split between the Bosniak-dominated BH Telecom in Sarajevo and Croat-dominated HT Mostar. Based in Banja Luka, Telekom Srpske’s fixed lines cover the territory of the Republika Srpska (RS).

The three incumbent operators -– BH Telecom, Telekom Srpske, and Hrvatske Telekomunikacije Mostar (“HT Mostar”) -- are the only licensed providers of mobile telephony services.  Telekom Srpske was privatized via a sale to Telekom Srbija (m:tel) for 646 million euros in December 2006.  Telekom Srbija is the incumbent fixed-line and mobile telephone provider owned by the Serbian Government and the Greek operator OTE (the Serbian Government in Belgrade owns a controlling interest in Telekom Srbija).  

Since the beginning of the liberalization process, the CRA has awarded 10 licenses to private fixed telephony providers, 66 licenses to private Internet Service Providers (ISPs) and 75 licenses to private network operators, mainly cable TV operators.  A notable development is the appearance of broadband Internet service deployed via cable TV.  The CRA anticipates that many of the ISPs will venture into Voice over Internet Protocol (VoIP) business now that international voice service is liberalized.  One VoIP provider, U.S. company AirABA, is already active on the BiH market.   

The complete list of all licensed service providers and network operators can be found at http://www.cra.ba/en/telecom/db/?cid=1165 

In the past three years, the United Nations Development Program (UNDP) together with local experts has been engaged in creating an ICT development strategy.  The results of this effort are presented on the project’s web site http://www.is.gov.ba/.

Best Prospects/Services

For the time being, the government-owned incumbent operators will remain the best opportunity for marketing goods and services.  For now, their monopoly position in the area of mobile telephony services will be allowed to continue to generate sufficient revenues to finance expansion and modernization of their networks.

The companies face the challenge of migrating from traditional technologies dictated and traditionally supplied by Ericsson and Siemens to Internet-based technologies.  All three incumbent operators have in their development plans the acquisition and deployment of the following technologies/services: IP/MPLS, VoIP, 3G, GRPS, EDGE, UMTS, broadband access networks – xDSL, Ethernet WAN, Ethernet Metropolitan Area Networks, Wi-Fi, W-LAN, etc.  

With the help of U.S. Trade and Development Agency, BH Telecom finalized a Wi-Fi deployment feasibility study and started a self-funded Wi-Fi pilot project.  Simultaneously, BH Telecom and the U.S. Trade and Development Agency worked on the Metropolitan Broadband Network pilot project to test the deployment of a broadband network throughout metropolitan areas in Bosnia and Herzegovina. The finalization of the Wi-Fi and the Metropolitan Broadband Network pilot projects allowed BH Telecom to move forward with the implementation of both projects in 2008.  

As mentioned above, Bosnia and Herzegovina has 66 ISPs and 75 network operators, mainly cable TV businesses.  The last couple of years have seen a steady growth of Internet penetration which, according to CRA, has reached 23 percent, however still lowest in the region. The appearance of CATV networks allowed the ISPs to forge partnerships with CATV operators and offer high-speed Internet via CATV.  Subsequently CATV operators realized the value of their access networks and ventured in the ISP business.  More fierce competition is expected in 2009.  

The recent liberalization of VoIP could signal the next big development in Bosnia and Herzegovina and may present a significant business opportunity; one local VoIP provider began operations in 2006.  The ISPs and CATV operators are expected to play a significant role in providing the VoIP service as soon as the situation regarding the interconnection rule and tariff rebalancing becomes clear.

Opportunities

The incumbent operators are required by law to conduct open public tendering procedures for the purchase of goods and services. Procurement notices can be found on the company websites.  Some form of local presence, either directly or through agents and distributors, is the best way to tap into these opportunities. Also, the Federation Government is determined in its intent to privatize the remaining two government-owned telecom companies, BH Telecom and HT Mostar in the near future. While HT Mostar is already partially privatized, the Federation Government still intends to sell the majority stake in the company to a private partner.  Most industry insiders expect the Federation Government will insist on a “strategic partner,” i.e. existing telecoms provider with significant market experience and expertise, rather than a simple sale of public equity, but a public debate continues on whether the Federation should sell a majority (51%) stake, or a minority stake in the company.  The privatization is pending the adoption of a broad privatization plan, to include the two telecom companies, and once this happens a public tender for selection of a consulting firm to advise on the privatization process will be issued. 

U.S. companies interested in learning more information about current market opportunities in this sector should contact the U.S. Commercial Service office at the U.S. Embassy in Sarajevo.

Resources

Communications Regulatory Agency of Bosnia and Herzegovina
E-mail: info@rak.ba
Web Site: http://www.rak.ba/ , http://www.cra.ba/

BH Telecom dd
Web Site: http://www.bhtelecom.ba/

Hrvatske Telekomunikacije d.o.o. Mostar
Web site: http://www.ht.ba/naslovna/index.php

Telekom Srpske dd
Web Site: http://www.telekomsrpske.com/

Eronet Pokretne Komunikacije doo
Web Site: http://www.eronet.ba/

Civil Aviation (APG, DFN)

Overview

The airspace of Bosnia and Herzegovina is of significant importance because of its location in the center of the European Civil Aviation Conference (ECAC) area with major trunk routes passing through it.  In July 2004, Bosnia and Herzegovina became the fifth country to ratify the Central European Air Traffic Services (CEATS) agreement, which creates a single air traffic control system for the upper airspace of eight central European nations.

Currently, BiH is outsourcing air traffic control services in the flight level 290-410 to the Croatian and Serbian service providers and in the flight level 100-290 to the Croatian service provider.  The flight level 290-419 should eventually become the responsibility of the newly established regional air traffic services agreement known as Central European Air Traffic Services (CEATS).  As for the flight level 100-290, Bosnia and Herzegovina is, with the help of Euro Control, taking steps to reform its Air Traffic Management (ATM) system with the goal of building a system capable of providing functional and effective air traffic control services, which is not the case presently.  With that in mind, the country has negotiated a loan with the European Bank for Reconstruction and Development to fund the creation of a national air traffic control center including the purchase of radar and other navigational equipment.

Bosnia and Herzegovina is located in the heart of the Balkans.  That location, along with the country’s poor road and railway network, makes civil aviation transport its fastest and most reliable connection to the outside world.  The country has four functional airports, although Sarajevo Airport accounts for more than 90 percent of the total passenger and cargo traffic. The other three airports have only occasional commercial charter traffic, mostly during summer months.  Despite the dominance of the Sarajevo airport, its geographically-challenged location in a valley means that many flights are cancelled and/or delayed during the winter months.   

In 2008, the Federation government picked Turkish Airlines, among a wide pool of bidders, as the preferred strategic partner for BH Airlines, the country’s national airline. Turkish Airlines acquired a 49% stake in the company and will modernize the existing BH Airlines fleet by leasing two Boeing planes. BH Airlines had only two airplanes and urgently needed fresh funds to boost its air fleet.

Best Prospects/Services

• Equipment for navigation, communications and meteorological services for airports 
• Three-dimensional maps (WGS 84) and related SID/STAR procedures (Standard Instrument Departure / Standard Terminal Arrival Route)
• Training services, especially for air traffic controllers

Opportunities  

In 2006, the European Bank for Reconstruction and Development (EBRD) funded Bosnia and Herzegovina’s purchase of air navigation, communication and meteorological equipment, software and training services to support the establishment of a new Air Navigation Services Provider which would take over the control of the intermediate and lower air space in Bosnia and Herzegovina. The project required the procurement of goods and services for the following: Acquisition of equipment for supporting provision of navigation, communications and meteorological services; Preparation of specific three-dimensional maps (WGS 84) and related SID/STAR procedures (Standard Instrument Departure / Standard Terminal Arrival Route); Training services for future BiH Air Navigation Service Provider (“BHANSP”) staff, especially for air traffic controllers; and Construction of an Area Control Center, Monopulse Secondary Surveillance Radar building with tower.   Although the tender was completed and the supplier selected, a number of future air-navigation and airport-related upgrades may present attractive opportunities for U.S. companies in this industry.  U.S. companies interested in learning more information about current market opportunities in this sector should contact the U.S. Commercial Service office at the U.S. Embassy Sarajevo.

Resources

BiH Department of Civil Aviation
Web: http://www.bhdca.gov.ba/

Sarajevo International Airport doo
Web Site: http://www.sarajevo-airport.ba/

Mostar International Airport
Web Site: http://www.mostar-airport.ba/

Banja Luka International Airport
Web Site: http://www.banjaluka-airport.com/

Tuzla International Airport
Web Site: http://www.tuzla-airport.ba/

Agricultural Sectors

Overview: Fruits and Vegetables

With a climate and terrain suitable for a variety of fruits and vegetables, the greatest investment potential in the agricultural sector lies in the production and processing of fruits and vegetables.  The majority of farms are small, family-owned units.  This structure best facilitates crops that require intensive manual labor such as berries, cabbage, cucumbers, tomatoes, potatoes, and peppers.  The current total market potential for fruit is estimated to be 700 million Bosnian Marks (KM) per annum.  Industrial processing of fruit in BiH involves mainly drying and production of fruit juices or pulp (i.e., concentrated juice) and jams.  Fruit processors note that there are fruit shortages, not just in the off-season, but throughout the year, affecting all types of fruit juice processors except for plum, apple, orange, and grape.  It will be necessary to introduce new varieties of trees and new hybrids that are better suited to local soil and climatic conditions and that offer higher annual yields.  

One of the best prospects for trade is in packaged fruit juice.  It is estimated that currently over 30 percent of local demand is met by imported brands. The average annual consumption of fruit juice is estimated to be 17 liters per capita (population of approximately 4 million).  Domestic products are cheaper than most imported products , but their packaging and labeling are less attractive than imported products.  At relatively low cost, domestic companies could produce and package the juice, reducing dependency on foreign juice imports.  Total annual imports of fruit juices and concentrates (mainly from Croatia, Slovenia and Serbia) amount to 78 million KM for about 17,000 metric tons (approximately 1,000 of which is in concentrate or pulp form and is further diluted by local companies).  The total market potential for fruit juices is estimated to be 260 million KM/year.  The whole fruit juice production sector currently has a capacity of 107,140 metric tons (“MT”) but produces 38,450 MT (36 percent capacity utilization).  

The fresh and processed vegetables sector continues to be relatively strong.  There are approximately 20 fruit and vegetable processors in BiH.  The two largest companies, Vegafruit and Vitaminka produce cabbage salads, pickles and peppers (around 20,000 MT of processed fruits and vegetables per annum) and export nearly 40 percent of production.  There is a cultural preference for eating processed vegetables (e.g., pickled goods) in the winter season.  Both the fruit and vegetable sectors generally lack proper cooling, processing and storage facilities.  The sector’s additional weakness is compliance with both food quality and safety standards.

	2006	2007	2008
Total Market Size	N/A	N/A	N/A
Total Local Production	810,000 MT	N/A	N/A
Total Exports	BAM 59 million*	BAM 67 million**	BAM 65 million***
Total Imports	BAM 205 million*	BAM 216 million**	BAM 220 million***
Imports from the US	N/A	N/A	BAM 0.5 million

(*FBiH and RS Statistics Institutes, **BiH Indirect Tax Administration, ***BiH Agency for Statistics,  UN Statistical Office,  ITA) (Currency note: US$ 1= KM 1.5240  on 2/6/09)

(Web Resources: Foreign Agricultural Service http://www.fas.usda.gov/, Fairs in BiH  http://www.komorabih.ba/, Foreign Investment Promotion Agency http://www.fipa.gov.ba/

Overview: Meats and Livestock

The demand for meat greatly exceeds domestic production.  While the fresh meat supply meets the demand, Bosnia and Herzegovina’s meat industry suffers from a deficit of raw meat for processing and must rely on imports.  There are more than 30 processing companies, but most are small-scale.  The annual capacity of the 11 largest meat processors is approximately 60,000 MT but only around 50 - 55 percent is utilized.  Processed meat, particularly dried and smoked, has a very long tradition in BiH.  The range of products produced and marketed in BiH includes dried and smoked sausages, salami, poultry products, and meat spreads.  However, although BiH has a significant meat industry, it is estimated that it imports more than 50 percent of processed meat products.  It is almost impossible to export animal products (especially beef) to most markets because of an inefficient veterinary system and lack of an accepted certification system.  The average value of total annual imports of meat and products is around USD140 million.  The estimated per capita consumption of meat and meat products is approximately 40 kg (including 16 kg of beef).

The low level of self-sufficiency and under-utilized capacity in many slaughterhouses and meat processing plants coupled with consumers confidence in quality of locally produced meat could be an opportunity for investing in this sector.  As with other sectors, the primary impediments to increased local production include lack of capital to modernize breeding, growing, and slaughtering facilities, as well as inadequate health and safety standards.  Additionally, further development of maize and other cereal grain crops would also increase domestic production.  

There is a demand for dairy cattle genetics but this market is still undeveloped.  There is an absence of programs for improved cattle breeding and breeding centers, as well as markets for selling cattle with improved genetics.  According to the State Veterinary Office, around 350,000 cattle annually are artificially inseminated.  150,000 - 200,000 doses of semen have been provided by a single local supplier, the Veterinary - Cattle Breeding Center in Banja Luka, with the remaining doses imported from Austria, Hungary, Croatia and Serbia. 

	2006	2007	2008
Total Market Size	145,000 MT(est.)*	145,000 MT(est.)**	145,000 MT(est.)***
Total Local Production	43,000 M/T	N/A	N/A
Total Exports	BAM12 million**	BAM 20 million**	BAM 32.5 million ***
Total Imports	BAM 174 million*	BAM 185 million**	BAM 255 million ***
Imports from the US	BAM 2.7 million	BAM 0.7 million**	BAM 3.0 million***

(*BiH Foreign Trade Chamber, **  BiH Indirect Tax Administration, ***BiH Agency for Statistics,     UN Statistical Office) (Currency note: US$ 1= KM 1.5240  on 2/6/09)

(Web Resources: Foreign Agricultural Service http://www.fas.usda.gov/, Fairs in BiH  http://www.komorabih.ba , Foreign Investment Promotion Agency  http://www.fipa.gov.ba  State Veterinary Service http://www.vet.gov.ba/)

Overview: Milk and Dairy Products

There are more than 100 dairies in BiH, with a total capacity of approximately 2 million liters/day.  Approximately one third of that capacity is actually being used.  Only 45 dairies exceed capacity of 1,000 liters/day and 10 exceed capacity of 100,000 l/day.  These dairies produce mainly high-volume, fast-turnover, low-margin products like fluid milk and only a few dairies produce value-added products like aged cheese.  As a result, most value-added milk products are imported from neighboring countries and European Union countries (UHT milk from Slovenia, Croatia and cheese from Germany).  Production of hard aged cheese is low because of its lower profitability in comparison with fluid milk and yogurt.  Long shelf-life products account for 34 percent of total dairy production.  Cheese accounts for 8 percent.  Production of cream, spreads, flavored milk drinks, butter, and flavored yogurts covers only around 10 percent of market supply and the rest is imported. 

There are many opportunities for investors.  Joint ventures, licensing arrangements, and mergers could help domestic producers compete effectively with imports by introducing new quality and safety standards, more efficient supply-chain management, modernized equipment, and effective marketing strategies.  Import replacement opportunities also exist for niche market products such as cheese, yogurt, sour cream, and ice cream. There is insufficient cold-chain capacity and poorly organized milk collection in most rural areas.

	2006	2007	2008
Total Market Size	486,000 MT (est.)	500,000 MT (est.)	500,000 MT (est.)
Total Local Production	215,000 M/T*	N/A	N/A
Total Exports	BAM 30.1 million*	BAM 43 million**	BAM 55 million***
Total Imports	BAM 116 million *	BAM 134 million**	BAM 150 million***
Imports from the US	BAM 0	BAM 0	BAM 0.3 million***

(*BiH Foreign Trade Chamber, ** BiH Indirect Tax Administration, ***BiH Agency for Statistics,   UN Statistical Office) (Currency note: US$ 1= KM 1.5240  on 2/6/09)

(Web Resources: Foreign Agricultural Service http://www.fas.usda.gov/, Foreign Investment Promotion Agency  http://www.fipa.gov.ba State Veterinary Service http://www.vet.gov.ba/)