Bosnia: Energy Firm Accused of Fraud

Tuesday, 6 September, 2005

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Sead Numanovic

Bosnia's state-owned energy giant Elektroprivreda Herceg Bosna, EPHB, has been accused of serious financial irregularities after reportedly running up heavy losses.

An audit report commissioned by the Office of the High Representative in Bosnia, OHR, which was published on March 5, accused the Mostar-based electricity provider of "mismanagement, conflict of interest and theft" which resulted in the loss of 28 million US dollars in the course of 2001 and 2002.

The firm's director Matan Zaric resigned the day after the revelations. His decision was welcomed by High Representative Paddy Ashdown, who later called on the Bosnian prime minister Ahmed Hadzipasic to dismiss the company's executive board and nominate a new temporary manager.

The accusations follow last week's damning OHR report into another state-run energy firm in the Serb entity Republika Srpska, which is alleged to have lost 90 million dollars.

OHR's audit was designed to put EPHB's house in order ahead of its privatisation, which is expected to follow within the next two years, as well as regulate prices and impose greater business discipline. In the past, many state-run firms have been used as cash cows to serve the interests of political leaders and their parties.

The investigation uncovered evidence that the firm had collected less than 60 per cent of money owed by its customers, and that it appeared to be selective in settling its debts - especially those due from politicians and their parties.

Deputy high representative Donald Hays, speaking at a Sarajevo press conference a day after the report was released, accused EPHB of financing plans by the Croatian Democratic Union, HDZ, for the creation of a Croat entity in Bosnia.

The auditor's report alleges that the HDZ and the association of Croatian war veterans in Bosnia-Hercegovina had not paid the bulk of their electricity bills since 1998 with the knowledge and complicity of EPHB. Ashdown has now asked the party to settle its account.

The auditor contrasts this situation with that of certain other businesses in the Federation, which were apparently charged higher rates with no leeway over payment.

EPHB had direct political ties with prominent HDZ figures, and while the firm didn't employ them, the party had a final say in the management structure, according to the report.

With the upcoming privatisation of EPHB, the party, it seems, stands to lose an important source of income. The firm's cash during 2001 and the first 11 months of 2002, said the report, had been used to finance a number of companies and associations, some of which were close to the then HDZ leadership, as well as the incumbent Croatian member of the tripartite Bosnian presidency, Dragan Covic, who is also a party member.

The audit accuses EPHB of making monthly payments of some 845 dollars to Covic for "expert consultation services" and claims that the firm was unable to provide evidence of these services on request.

Covic's office has denied any wrongdoing, telling the media, "His employment was public (knowledge) and a copy of his contract can be found in EPHB, as can his report on this job. There is no need to question this arrangement."

The report goes on to allege that five per cent of the firm's income - around 380,000 dollars - was also donated to the HDZ-owned Mondo company.

HDZ has reacted angrily to the OHR's accusations, claiming in a statement that they were "unsubstantiated and unclear" and aimed at "criminalising the party leadership in Bosnia".

The EPHB management team also dismissed the allegations at a press conference held in Mostar the day after the audit was published, where its representative Marko Loncar told the media that the company had not donated any money to HDZ or to private companies such as Mondo.

He said that the claim arose out of confusion over the fact that the management board allocated some five per cent of its income for humanitarian causes, such as donations to a local university, radio station and schools - but not to any politically-linked enterprises.

The firm's management stated categorically that they had worked according to law - and described the report as a deliberate attempt to reduce the company's value ahead of privatisation to encourage cut-price bids from overseas enterprises.

But Hays has dismissed the claims. "No one wants to buy such companies. Foreign companies engaged in electricity business are leaving eastern Europe because they cannot make sufficient profits here," he said at the OHR press conference in Sarajevo.

Sead Numanovic is a journalist with the Bosnian daily Dnevni avaz.