January 2000

Bosnia Update Memo

The following report outlines new developments in the past three months and the state of on-going developments.

Nb: These paragraphs are updates to the Master report and the July - October Update report and contain either revisions to these reports or new information.

General background

As mentioned in the first report, Bosnia and Herzegovina is divided into two administrative divisions, called "entities" (FBiH and RS). However, the Office of the High Representative (OHR) declared "The Brcko District" as a single administrative unit of local self-government existing under the sovereignty of Bosnia and Herzegovina. The Brcko District derives its powers of local self-government by virtue of each Entity having delegated all of its powers of governance to the District Government. The Constitution of Bosnia and Herzegovina, as well as relevant laws and decisions of the institutions of Bosnia and Herzegovina, are directly applicable throughout the territory of the Brcko District. The laws and decisions of all Brcko District authorities must be in conformity with the relevant laws and decisions of the institutions of Bosnia and Herzegovina. So there are in fact three administrative divisions in Bosnia and Herzegovina - both entities and the Brcko district. Some politicians demand the establishment of another similar district - the Sarajevo district, but for the moment these demands are not taken seriously.

1. Mobile telephone systems

At the end of year 1999 there were three mobile telephone systems (GSM) in Bosnia and Herzegovina, two from Bosnia and Herzegovina (both state owned) and the third from Croatia. Each of them covers a separated area, primarily on an ethnic basis. As mentioned in the first report, the Croatian CRONET does not comply with the numbering scheme in Bosnia and Herzegovina and in fact works like expansion of Croatian territory. The new system in RS, started in August 1999, has seen substantial growth. Another two operators announced their mobile phone services, one in RS and another in FBiH; the latter one plans to start in March 2000.

2. Ongoing changes in the institutional structures

• It is still true that there are no new laws and/or legal acts for copyright and intellectual property protection. But just recently there was a process of setting up a new agency for these purposes. The current (working) name is the Agency for Representation and Protection of Authors' Rights.
• The High Representative issued a Decision, naming the entire Governing Council of the Radio-Television of the Federation of Bosnia and Herzegovina, in order to expedite the establishment of genuine public broadcasting in Bosnia and Herzegovina (see Q2). The High Representative was forced to take this step after the Federation Parliament failed to appoint seven members of the 21-member Council as required by the Law, despite repeated appeals from the Office of the High Representative. Any further delay would jeopardise the right of citizens to have access to public broadcasting that operates in accordance with the Law and which fully represents the cultural diversity of Bosnia and Herzegovina. The High Representative has also named the international supervisor, who is obliged to ensure that international principles of public broadcasting are respected and that the Law's key provisions are implemented.
• The whole scheme of institutional structure in Bosnia and Herzegovina results form Dayton's Peace agreement. To modernise this whole process and to encourage transparency and accountability the new Electoral Law was finalised by OSCE, OHR and national experts and submitted to the parliament. However, both OHR and OSCE are disappointed by the passiveness of the BiH Parliamentary Assembly regarding the election law.

3. Ongoing changes in the regulatory framework

• On 15 November 1999 the Independent Media Commission declared its decision to take the Mostar-based Erotel TV off the air. Erotel-TV is said to be violating new legal environment for TV broadcasting.
• On September 9, 1999, The Council of Ministers made the final appointments (three full-time members and two of three part-time members) to the telecommunications Regulatory Agency. The Chairman is Mr. Jasenko Lasta. The first appointments to the Management Board of the Telecommunications Regulatory Agency have been made by the Council of Ministers early in 1999. However, of these appointments, one full-time member was unable to take up his position in the near future, and the two appointed part-time members had direct links with the operator, which made them ineligible. So the Office of the High Representative had to work hard with the relevant authorities to rectify the situation and ensure the proper functioning of the Agency as soon as possible. The Agency finally officially started to work at the end of September, but in fact has not yet started to work besides holding the Management Board meeting. The agency is expected to begin working in January 2000 when other members (beside the Management Board) will be appointed.

4. Ongoing changes in IS policies

4.1 With the new Law on Telecommunications now also de-facto acting, there are opportunities for foreign investments (including from private sources) as well as for some donor help that has been already agreed in the past. For instance, a year ago the European Bank for Reconstruction and Development (EBRD) signed its first reconstruction programme, together with some particular countries. There were also three assistance programmes attached: a technical programme to assist in the planning and procurement process; a programme to help in the creation on the initial legal and regulatory framework; and a programme to assist the operators in implementing international accounting methods. A lot of this was arranged quite some time ago, but the accomplishment was conditioned by the acceptance of the new Law.

4.2 Summary of the Law on Telecommunications

4.2.1 The Council of Ministers will appoint a Ministry to act as the supreme body to supervise Bosnia and Herzegovina, especially regarding:

• defining the basic conditions for providing international telecommunication services;
• regulation of the "common means" (by definition, "common means" represents equipment for connectivity between public telecommunication networks, frequency spectrum, numbering scheme, information necessary for telephone directories, specifications and standards etc.);
• appointment, planning and co-ordination of radio-spectrum usage;
• assurance of the technical compatibility of networks that are used in providing public telecommunication services;
• promotion of harmonisation of the public telecommunication services;
• representation of Bosnia and Herzegovina in international forums and bodies.

4.2.2 Independent Regulatory Agency for Telecommunications (the "Agency") will be established to maintain regulative functions regarding telecommunications. The Management Board of the Agency will consist of three full-time members, appointed to by the Council of Ministers, two full-time members from FBiH and one part-time member from RS. These members must be experts in the fields of telecommunications, frequency planning, law, economics, business, financing or civil service. Beside these conditions, they must not be related in any way to telecom operators or their partners. If the Management Board cannot come to the conclusion on some aspects, an expert with the internationally recognised reputation, appointed to by the General Secretary of ITU (the "Mediator") will provide his help. If Mediator's contribution will not lead to the final decision of the Agency, then the Council of Ministers has the last word.

4.2.3 Besides the Agency, a special Consultation Group will be established. Its primary goal is to allow various views of the wide area of interests regarding the telecommunication regulations to be heard. The Consultation Group must convene at least four times a year.

4.2.4 The Council of Ministers must issue additional rules that will explain the functioning of the Agency and the Consultation Group in detail.

4.2.5 The Agency is responsible for the provision of an effective and economic approach to international telecommunication services. Directives for doing this are yet to be prepared. The applications for providing public telecommunication services must be sent to the regulatory bodies of particular Entity. If there are any items related to the international services, the application must be forwarded to the Agency.

4.2.6 The Agency will take care of the development of the "Directory Data Base" as the "common means". Anybody in Bosnia and Herzegovina will be able to access to the information contained in database(s) of individual telecom operators regardless of the part of country that operator covers.

4.2.7 One of the Agency's responsibilities is the development and implementation of the numbering scheme to make public telecommunication services easier. The country code for Bosnia and Herzegovina will comply with the respective decisions of ITU.

4.2.8 It is illegal to provide public telecommunication services without the proper license. All three telecom operators that were providing telecommunication services prior to this Law continue to provide them. However, in six months the Agency will announce the time limits and additional conditions for providing international telecommunication services. The current operators will lose their rights to provide services if they do not respond to these time limits and conditions within the next six months.

4.3 As the Law on Telecommunications explicitly expressed the obligation to adopt the additional rules, the Council of Ministers on May 20, 1998 issued the "Book of Rules on Telecommunications" (Official Gazette, No. III/7). These rules prescribed the detailed ways of functioning of the Regulatory Agency for Telecommunications and the Consultation Group.

4.3.1 The first part of the "Book on Rules" deals with the international telecommunication services. It is said that there will be licenses for international telecommunication services with all obligations and restrictions that the licence holder will have to have. Included in these licenses are directives regarding all conditions for unlimited telecommunication traffic between Entities, cost-related pricing, arrangements for mutual connections between license holder and services in foreign countries etc. All agreements, contracts etc. with international responsibilities of Bosnia and Herzegovina must be turned over to the Agency.

4.3.2 The book also states that time limits and conditions for interacting connectivity between public telecommunication services will be established in such a way that they will be open, efficient and non-discriminatory.

4.3.3 The Agency will consult the Entities and the Consultation Group and then will issue as the Rule the "Numbering Plan for Telephone Services in Bosnia and Herzegovina". The main principles will take care of the sufficient expanse of the numbering pool so that the numbers can be used with no prolongation; there will be no advantage given to any operator. The country code for Bosnia and Herzegovina and the area codes for Entities cannot be changed without prior permission of the Council of Ministers. All other area code changes must be approved by the Entity on which territory would this change take effect.

4.3.4 The second part (in fact one article only) deals with satellite communications. It is said that the use of satellite stations is allowed without a special Agency or Entity's permission if there is a permission for a radio-frequency and the use of the satellite station is limited to the private (closed) network only.

4.3.5 All terminal equipment must be approved according to the rules that have yet to be issued (by Agency or Entity). The Agency and Entities will determine standards for connection of terminal equipment. These standards will take care of the protection of users, the electro-magnetic compatibility, protection of the public telecommunication network etc. Whether the individual attests will be required (as in former Yugoslavia) or the worldwide attests will be accepted is not mentioned.

4.3.6 The last part deals with radio communications, especially with frequencies (including procedures for applying permissions for using radio frequencies).

4.3.7 One of the first results from the new Law was the nomination of an independent Regulatory Agency for Telecommunications. Like in many other similar situations, this nomination was taken for granted just because it has been written in the Law. But in reality the Agency did not exist until September 1999, when the Management Board was nominated. However, as other members are not nominated yet, the Agency itself is still in the process of forming.

4.3.8 The first meeting on the Telecommunications Regulatory Agency Management Board finally took place at the end of September. They have not had a chance to deal with any substantive issues yet. The first issue the Agency will focus on is the work on the numbering scheme. The layout has been given by the Roundtable meeting in Switzerland on April 1999 (see Q2) and the numbering system was agreed at the technical level (for details, see Q2). Although final adoption of the numbering system for Bosnia and Herzegovina is yet to occur, all parties have agreed to an implementation plan. It is the primary responsibility of the Agency to work out details and adopt this numbering plan so that implementation can be completed as soon as possible (in the beginning of the next year at the latest).

4.3.9 The general agreement was reached on the policy framework for the telecommunications sector of Bosnia and Herzegovina, including state level representation to international organisations in accordance with the new regulatory situation, technical aspects of the numbering plan; and the issue of licences to existing international operators in the immediate months ahead.

5. Media and telecommunication markets: privatisation, foreign investments, mergers and acquisitions etc.

• In the context of a loan agreement from the European Bank for Reconstruction and Development it was required that all three telecom operators (JP PTT BiH Sarajevo, HPT Mostar and Telekom Srpska) must have completed and submitted their financial reviews. Both operators from FBiH (JP PTT BiH Sarajevo and HPT Mostar) already did. The reviews suggest that many anomalies and inappropriate accounting practices are present in the financial management of both companies. There will be changes to their accounting systems in accordance with International Accounting Standards, and fully audited accounts should be available in the year 2000. This requirement is urgent in order to enhance accountability of public utilities. Telekom Srpska is still in the process of selecting an auditor.
  
• The process of privatisation (on all sectors) is very slow. In RS, the Minister of Industry appointed a working group to analyse the Law on Enterprises in order to assure its consistency with EU Company Law directives, the privatisation process and modern corporate governance practices. The group also examines related enactments, like the Decree and the Law on Entry in the Court Registry. Proposed amendments will be introduced to the National Assembly. Another working group has drafted 32 accounting standards and Codex based on internationally accepted accounting principles for businesses. A similar package on internationally accepted auditing standards are in the process of preparation. Enterprise preparation has been slow. There are estimated 1600 companies subject to privatisation, but very few of them have reported to have done opening balance sheets and prepared privatisation programs. About 70% of state companies that are expected to require an ownership audit to prepare for privatisation already have compiled.
  
• In FBiH, the Law on Business Companies became effective and all companies must re-register until March 2000. The work on two other important laws for the privatisation process (the Law on Restitution and the Law on Concessions) show no progress. A series of regulations regarding the share registry and investment management companies and privatisation investment funds was adopted. The Share registry adopted its internal operations procedures. The legal framework for privatisation process is in place, but the Federation Privatisation Agency is proposing more comprehensive instructions for international tenders to make the process more consistent and transparent. Like in RS, the enterprise preparation continues to lag behind scheduled legal deadlines. Only 21% of companies that must privatise have done opening balance and 16% prepared privatisation programs.
  
• One of the main reasons for slow progress of privatisation process is the transformation process of the Payment Bureaux. Parliament adopted the Law on Amendments to the Law on Internal Payment Operations. Among others, the Law will remove the monopoly of the payment bureaux over payment transactions. In addition, the Law calls for cessation of internal payments in German and Croatian currencies. The current Governing Board of the Federation Payment Bureaux agreed to establish a new Government Board, consisting of five members including the Governor of the Central bank of Bosnia and Herzegovina. For straightening public financial management and improving transparency, Parliament adopted the State Law on Audit.
  
• In RS, the Development Bank forms a legal entity with the RS Payment Bureau, and functions as a combination of a payment bureau and a commercial bank. Before the transformation of the RS Payment Bureau starts, the Development bank should be separated from the RS Payment Bureau. The RS Government will decide the final outcome regarding the Development Bank.