January 2001

Bosnia Master Report

This is the final Alternative Networks report on Bosnia as the ESIS project ended in January 2001. This Master Report covers the whole period of the ESIS project surveying the Countries of Central and Eastern Europe, March 1999 - January 2001 inclusive. 

1.1 The regulatory background

As it was pointed out in the Regulatory developments report and in Key person contacts and organisations report, the country is administratively divided into two entities with very high level of autonomy. There exists federal ministries, but in fact the real authorities are their counterpart ministries in Federation of Bosnia-Herzegovina (FBiH) and Republic of Srpska (RS). Most of the regulations and legal acts were inherited from the former Yugoslavia, because of the war that started immediately after the declaration of the independence. Consequently, there were not any real conditions to build a new regulatory system. Reconstruction and building of a new regulatory system was one of the most important tasks in the project period for both of the entities, and the governments, as well as for the federal administration. This is especially evident in the process of privatisation, which started and is in progress during the period July - December 2000, in both entities.

1.2 Business constraints and entry barriers

Considering the communications and industry, Bosnia and Herzegovina is tightly connected to the neighbouring countries, and via them to the rest of the world. RS is under very strong influence of FR of Yugoslavia, and their business community. Similarly, there is great influence from Croatia and its business community in parts of FBiH with Croat population.

During the project period, there was a very high level of activity in the field of liberalisation and privatisation in both entities. Despite these efforts and undergoing process of the privatisation in the country, there are still certain business constraints. The privatisation process of the major part of bigger companies is at the beginning. Consequently, many of these companies are still owned by the State. However, there is also a substantial number of small and medium privately owned enterprises.

1.3 Attitude of the incumbent operator towards alternative network providers

There is not very much to say on this issue. All existing operators are still state-owned and monopolistic. However, with a new "LAW ON FOREIGN INVESTMENT AND CONCESSIONS" there are opportunities for foreign investors. Under this law there is a possibility for foreign investments to invest their funds, but there is limitation in certain fields, including telecommunications, that the foreign investor could not own the enterprise or be a dominant partner if it finances together with a domestic company (or person). (Article 6 and Article 7 of this Law).

The transportation system of the Republic of Srpska and Bosnia and Herzegovina as a whole does not function properly. War damage, lack of maintenance of facilities, falling behind in development and applied technologies, lack of new investments in the past period describe the present situation.

Ineffective transportation system affects the economic activities and a possible improvement of the economic situation. Participation of the transportation costs in the economy in accordance with the estimations is over 25 per cent, which is extremely high comparing to the developed European countries where it is less than 10 per cent.

In the larger privatisation project the Government of the Republic of Srpska planned a quick privatisation of the tertiary sector of services, which includes communications in all sectors. Large infrastructure systems would be privatised later as parts of separate projects. The way to collect funds for that purpose has to be in accordance with the world standards, taxes and budgets must be transparent because that is also a way to attract other sources of financing. Special attention should be paid to the professional training, forming of management systems for infrastructure sectors, and on the level of direct works introduction of new technologies and sophisticated equipment for collecting, processing and transfer of data should be planned. At that stage the role of international organisations regarding technical support and co-operation will be of great importance relating to the transfer of modern technologies and co-financing of local experts employed by the government agencies.

1.4 On-going regulatory developments concerning alternative networks

The war and several years’ lack of growth in the domestic economy have added important factors for consideration in the privatisation programme of both entities. These factors are characterised by enormous destruction of property, human loss and displacement of citizens, market loss, obsolete technology, decrease in consumer purchasing power and the accumulation of debts of enterprises, banks and the state.

The privatisation programme is intended to play an integral part in the economic recovery of the country. In that context, the main objective of the programme in both entities is to change the structure of ownership so that every enterprise has real owners with clearly defined ownership rights. The primary goals that the privatisation programs has to achieve, or support, during the economy and social transformation process include: post war reconstruction; fast economic revival; increased employment; and liquidation of domestic and foreign debts accumulated by enterprises, banks and the state. Other objectives of the program include: contributing to the maintenance of social stability; dealing with outstanding claims, especially frozen foreign currency deposits; assisting the development of funding for the public pension system; securing resources for the restitution of property; and developing healthy and liquid capital markets.

Participants in the privatisation process include enterprise managers, agencies authorised to approve and implement specific privatisation programs and buyers, or specifically, citizens, private enterprises, investment funds and foreign investors.

The privatisation programme was established by new legislation. All existing publicly owned enterprises in RS are included in the programme, with three exceptions:

a. Infrastructure and utility undertakings (such a railways, electric power etc.) will be included in the programme only after the various sectors to which they belong have been re-organised to fit the new internal structure of the country;
b. A number of large enterprises will be restructured (i.e. broken up) under a special programme before parts of them are offered in the main privatisation programme; and
c. Banks will be dealt with under a separate programme.

Complete legislation for a privatisation is established in both entities. In RS it contains the following laws:

1) Law on Enterprises - Part one
Joint Provisions

2) Law on Enterprises - Part two
Capital Company
Stock company
Company with limited liability
Public Enterprise
Enterprise for employment of disabled persons

3) Law on Enterprises - Part three
Linking of Enterprises
Business association and other forms of linking

4) Law on Enterprises - Part four
Status changes and company form changes
Penalty clauses
Transitional and closing provisions
Explanation
Amendments

5) Law on OBS in the Process of Privatisation of State Capital in Banks
General provisions
The procedure of producing a bank opening balance sheet
Penalty provisions
Transitional and final provisions

6) Law on Privatisation Investment Funds and Privatisation Fund Management Companies
General provisions
Privatisation investment fund management companies
Privatisation investment fund
Penalty clauses
Transitional and closing provisions

7) Law on Securities
General provisions
Issuance of Securities
Authorised participants on the Securities Market
Law on the Securities Commission
Protection of investor's interests and transparency of work
Penalty provisions
Transitional and final provisions

8) Law on OBS in Course of Privatisation of State Capital in Enterprises
General provisions
Enterprise balance sheet preparation
Penalty provisions
Transitional and final provisions
Explanation

9) Law on Privatisation of State Capital in Enterprises
General provisions
Privatisation authorities
Buyers in course of privatisation
Means of payment in course of privatisation
Eligibility for vouchers
Obligatory Transfer of Shares to Funds
Enterprise preparation for privatisation
Privatisation methods
New share issue
Privatisation costs and revenues
Provisions on sanctions
Transitional provisions
Explanation

10) Law on The Central Registry of Securities
General provisions
Founding, legal status and registered capital
Activities of Registry
Governing bodies of the Registry
Transitional and closing provisions
Explanation

The legislation contains also the following regulations:

• Rules for Auction and Dutch Auction
• Regulation on Distribution and Utilisation of Vouchers and Coupons in the Course of Privatisation of State Capital in Enterprises
• Rules for Tender Sale
• Rules for Direct Sale
• Rules for Voucher Offer
• Regulation on Defining and Adjusting the Structure of Permanent Capital of an Enterprise
• Methodology for Preparation of Program for Privatisation of State Capital in Enterprises
• Methodology for Preparation of OBS in the Course of Privatisation of State Capital in Enterprises

In FBiH it contains the following laws:

• Book of Regulations on the Conditions and Procedure for Licensing the establishment of the Privatisation Management Companies, Licensing the management of the Privatisation Funds, and Licensing the establishment of the Privatisation Funds ("Official Gazette of the Federation of BiH", No. 29/99)
• Model Contract on the Management of the Privatisation Investment Fund ("Official Gazette of the Federation of BiH", No. 29/99)
• Instructions on obligatory elements of the contract between the Privatisation Management Company and the Depository ("Official Gazette of the Federation of BiH", No. 29/99)
• Instructions on obligatory elements of the contract between a Privatisation Management Company and the Securities Registrar ("Official Gazette of the Federation of BiH", No. 29/99)
• Book of Regulation on registration and transfer of securities with the Securities Registrar ("Official Gazette of the Federation of BiH", No. 32/99)
• Book of Regulations on the format and contents of the Prospectus for the first issuance of shares of the Privatisation Funds ("Official Gazette of the Federation of BiH", No. 32/99) with annexes:
• Annex 1. First Page Contents of the First Share Issue Prospectus of the Privatisation Fund
• Annex 2. Obligatory Elements of the Prospectus for the first share issue of Privatisation Fund
• Resolution on determination of Administration Fees ("Official Gazette of the Federation of BiH", No. 34/99)
• Book of Regulation on public promotion of Privatisation Management Companies and Privatisation Investment Funds ("Official Gazette of the Federation of BiH", No. 42/99)
• The Book of regulations on changes and amendments to Regulations on the conditions and procedure for licensing the establishment of privatisation management companies, licensing the management of privatisation funds and licensing the establishment of privatisation funds ("Official Gazette of the Federation of BiH", No. 44/99)
• The Decision on the list of banks fulfilling conditions for the performance of depository operations on the account of privatisation funds ("Official Gazette of the Federation of BiH", No. 44/99)
• The Book of Regulations on inspection of business operations of privatisation management companies and privatisation investment funds ("Official Gazette of the Federation of BiH", No. 48/99)
• Book of Regulations on the method of entry and maintenance of the Register with the Securities Commission of the Federation of Bosnia and Herzegovina ("Official Gazette of the Federation of BiH", No. 49/99)
• Book of Regulations on the contents and publishing of the report on Business operations of Privatisation Management Company and Privatisation Investment Fund ("Official Gazette of the Federation of BiH", No. 49/99)
• The Decision on suspension of securities issues which are based on decisions made before the Law on Securities came into force ("Official Gazette of the Federation of BiH", No. 44/99)
• Book of Regulations on the Conditions and Procedures for Conversion and Devaluation of Securities, and Merging and Splitting up of Shares ("Official Gazette of the Federation of BiH", No. 44/99)
• Book of Regulation on the conditions and procedure for the termination of a Privatisation Investment Fund management contract.
• The Book of Regulations on the Depository Banks of Privatisation Investment Funds
• The Book of Regulations on the Conditions and Procedure for Licensing Physical and Legal Persons for the Performance of Broker and Dealer Business Operations in the Securities Trading
• The Book of Regulations on the Accounting of PIFs;
• The Book of Regulations on the Methodology for Determining the Net Asset Value of the Privatisation Investment Fund;
• The Book of Regulations on the Keeping and Maintenance of Business Books and Records of the Privatisation Companies and Privatisation Investment Funds;
• The Instruction on the Passage, Contents and Disclosure of the Decision on the Increase of the Registered Capital of the Privatisation Investment Fund;
• The Decision on the Change and Amendment to the Resolution on the Compensation Rate System;
• The Book of Regulations on the Amendment to the Book of Regulations on the Conditions and Procedure for Licensing the Establishment of the Privatisation Company, Licensing the Management of the Privatisation Funds and Licensing the Establishment of the Privatisation Fund.
• The Book of Regulations on the Disclosure of Information on the Acquisition of More Than 5% of Privatisation Investment Fund Shares ("Official Gazette of the FBiH", no.17/2000);
• The Book of Regulations on the Method of Reporting on the Use of Privatisation Claims ("Official Gazette of the FBiH", no.17/2000)
• The Book of Regulations on the Maintenance of the Register of Persons from Article 29 and 121 of the Law on Funds Management Companies and Investment Funds ("Official Gazette of the FBiH", no. 17/2000)
• The Program of the Examination of Vocational Ability for the Acquisition of a License for the Performance of the Broker and Dealer Business Operations in the Trading of Securities ("Official Gazette of the FBiH", no. 17/2000)

The process of the privatisation is currently underway. The registration of people for vouchers is finished. There was a number of biddings for the privatisation of the enterprises with the capital valued below and above 300.000 DM in the Republic of Srpska entity, as well in Federation of Bosnia and Herzegovina.

2.1 Types of companies offering networks

Alternative infrastructure in the meaning of this document presents the infrastructure of telecommunications owned by companies for whom provision of communication services is not the main activity, but rather a contribution to the main activity. Such companies can be companies of power engineering, railroads, road maintenance, etc. Alternative communications networks are also deemed to mean communications networks owned by organisations that for some reasons (security, price, etc.) do not use public communications networks.

The role of alternative networks in Bosnia and Herzegovina is small. This follows from the fact that in the period until collapse of the former Yugoslavia, the national communications networks were part of the SFR Yugoslavia. The prices for telecommunication services were fixed by the State, and there was no possibility to build and operate alternative networks. During the war, the major part of telecommunications networks was destroyed. Despite the process of liberalisation and privatisation in both entities, operating alternative networks is discouraged mainly by dominance of state monopoly in telecommunication sector.

There are great potentials in a number of companies for establishing alternative networks. These "candidate" companies operate in different sectors—for example in gas distribution, railway, water supply, electrical power distribution, etc. However, water and draining networks, waterways, motorways, and railways are all under state monopoly. Under the Stability Pact, there are plans to improve and extend these networks, but no progress has been made in building alternative networks. This is a consequence of the general shortage of investments, and because of that these potentials are not effective and cannot be developed for public usage.

Developments in the period 1999-2000 can be briefly summarised as follows:

• Concerning the companies providing public services there have been no considerable developments from the aspects of their activities in the telecommunication sector;
• Competition is becoming more intense in the Internet services market.

Electrical networks are provided under a state monopoly in both entities.

Due to the state monopoly of state owned Telecomms in both entities there is no alternative telecomm operator that will provide telecommunications services.

2.2 Types of operators using the networks

All the potential alternative networks in both entities are internal networks. They are used only by network providers and not by the general public. The role of alternative networks in the voice telephony market does not exist.

2.3 Types of services offered by the operators on the networks

These networks do not provide any telecommunications service to the general public.