Money-losing BiH oil industry dependent on foreign firms

29/09/2008

Recent developments in Bosnia and Herzegovina's oil industry underscore the country's continuing dependence on foreign producers with agendas of their own.

By Jusuf Ramadanovic for Southeast European Times in Sarajevo – 29/09/08

Bosnian oil refineries are operating at a loss. [EU]

Despite a seemingly advantageous position in terms of oil, Bosnia and Herzegovina (BiH) finds itself vulnerable to price spikes and the whims of foreign producers.

Despite soaring energy costs, BiH's Energopetrol oil company still lost 1.75m euros in the first six months of 2008. In addition, the Croatian petro-giant INA has been Energopetrol's majority owner for two years, evidence of foreign influence over BiH's oil industry.

Although the country has significant refining capacity, with the Bosanski Brod refinery able to process 4m tonnes yearly, it finds itself completely dependent on oil imports and subject to fluctuations of supplies and prices. Respectable domestic reserves, represented by the 876 derricks pumping oil out of the ground, have failed to protect the country's motorists and factories from paying some of the highest prices in Europe for energy.

Russian foot-dragging in scaling up production at Bosanski Brod has added to the uncertainty and unprofitability of what should be a highly lucrative industry. More than a year and a half after Republika Srpska (RS) finalised the sale of BiH's two refineries and an oil distributor to the Russian firm Zarubezhneft in February 2007, all three enterprises operate at a loss. The larger of the two refineries, the war-damaged Bosanski Brod, is operating part time and with only 1,500 workers rather than with the regular payroll of 8,000. It alone lost 32m euros in 2007 and 7m euros so far in 2008.

Moscow's inaction has humiliated RS Prime Minister Milorad Dodik, who prizes co-operation with Serb-friendly Russia. Twice in August, he travelled to the Russian capital to spur Zarubezhneft into reviving Bosanski Brod. According to the press and RS Economics Minister Slobodan Puhalac, full production will resume there in early October.

Economist Miso Brkic explains Zarubezhneft's inertia. "The Russians have been buying companies in Southeast Europe not in order to start operating them but simply to keep them out of Western competitors' hands," he says.