July 2000

Bosnia Update Memo

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

1. Introduction and Summary

State institutions, with the notable exception of the Council of Ministers, continued to meet regularly but failed to take significant decisions or adopt legislation at a satisfactory pace. Despite the time past after the signing of the Dayton-Paris Accords, the ruling political parties' opposing visions of the State have yet to be overcome. Delayed contributions by the Entities, which finance almost entirely the State budget, also undermine the functioning of the state institutions.

2. Information Society Policy

2.1 Historical overview and general legislation

In spring 2000, Bosnia and Herzegovina held its second municipal elections with relatively high participation. Party pluralism improved, but nationalist parties continued to dominate in predominately Croat or Serb municipalities. These elections were the first to be held under new Provisional Election Commission rules. The major national elections will take place in November 2000, and the whole country seems to be concerned more-or-less with nothing else.

In the FBiH, the Parliamentary Assembly continues to meet regularly, but its functioning is still hampered by a lack of political will. While agreement is generally reached on economic legislation, laws regulating essential issues such as judicial reform, pension and invalid insurance funds are procrastinated. The Government of the Federation continues to suffer from parallel lines of authority along ethnic lines.

The District of Brcko was officially proclaimed, with the appointment of the interim government and District Assembly.

2.2 Telecommunications and Internet

The Telecommunications Regulatory Agency has yet to work with full capacity, but its Management Board continues with regular meetings. With a lot of help (and pressure) from the Office of the High Commissioner, the regulation concerning the Telephone Numbering Plan has been adopted. This is a major step toward creating a modern and efficient telecommunications sector, for the regulation established uniform dialling in the entire territory of Bosnia and Herzegovina. According to this plan, there will be ten new area codes in FBiH, nine in RS and one in Disctict of Brcko. Implementation began in May, when all areas were given a unique area code. The new numbering plan consists of a two-digit area code (three with the leading zero) with a six-digit subscriber number. Current five-digit numbers will be extended to a six-digit numbers, if necessary.

In addition, the rearrangement of the areas covered by the new area codes means that some subscribers would need to change their number. The time window for fully functionality of the new Numbering Plan is very short - until July 1. The uniform dialling in the entire territory of Bosnia and Herzegovina will finally terminate the irrational situation where some parts of Bosnia and Herzegovina were using not only special area codes from abroad but also country codes of foreign countries. Even worse, some calls from such areas to the neighbouring countries were treated (and charged!) as local long-distance calls instead of international calls.

The Telecommunications Regulatory Agency also signed a normalisation agreement with SFOR, which allows for the return of certain frequencies to civilian authority.

There are still no roaming agreements between the mobile networks in the country.

2.3 Access for all

Draft legislation on Freedom of Information at state and entity level has been prepared by an expert group, sponsored by the Organisation for Security and Co-operation in Europe and in co-ordination with the Office of the High Commissioner. The aim is to develop this legislation as an issue for coming elections in autumn and have it adopted by the end of the year.

2.4 Others (Media)

Active reform of the Public Broadcasting System (starting at the end of 1999) is continuing. The illegal broadcast of Erotel TV was successfully halted in a joint operation by Independent Media Commission, the Office of the High Representative and SFOR. Strategically important network frequencies were thus liberated.

Legislative reform of the public broadcasters remains behind schedule. The FBiH Parliament has yet to ratify the legislation imposed by the High Representative in July last year. The RS Government has failed to develop an acceptable draft law for Radio Television of Republika Srpska. The Law on Public Broadcasting System therefore cannot be drafted until the Public Broadcasting System's Board of Governors has agreed on a concept for the nationwide public broadcaster.

The second phase of the licensing procedure (announced by the Independent Media Commission in November 1999) is expecting to begin to live. This entails the granting of long-term licenses. The required information on all existing broadcasters is now known to the Independent Media Commission. This allows for the development and implementation of a frequency spectrum plan. In this second phase, all broadcasters will have to meet much higher standards, including those technical standards laid down by the International Telecommunications Union. In order to address the specific problems of broadcasting in Bosnia and Herzegovina, the Independent Media Commission has developed a detailed body of regulations for the second phase of licensing.

Facing the approaching elections all broadcasters and print media are required to give fair coverage and equitable access to all registered political parties, coalitions and independent candidates. The Independent Media Commission will supervise that all actions run according to its rules and guidelines.

3. Market: Privatisation, foreign investment, mergers, acquisitions, call for tenders, ...

A non-navigable bureaucracy, legislative barriers, resistance from enterprise managers, and political resistance have been the central obstacles to a rapid privatisation. The Economic Task Force is considering measures including the establishment of a FBiH central tendering office, the appointment of international experts to the privatisation agencies and a strategy to address co-capitalised companies.

As the Office of the High Representative has repeatedly pointed out, a successful privatisation process is key to economic reform in Bosnia and Herzegovina. Thus, OHR very closely supervises the whole situation. The adoption of tender regulations of the proper international standards was delayed behind all reasonable deadlines, thus leading to unsatisfactory tender results and obvious lack of transparency.

Because of this and also some other obstructions and unreasonable actions, the Office of the High Representative has taken some drastic actions to advance economic reform (including the removal of the president of the Management Board of the Federation Privatisation Agency). The major action is the issuance of a decision amending the banking laws in each of the Entities. This Decision, simultaneously amending banking laws in both Entities, creates the conditions for sound banking examination, which is essential for the establishment of a reliable and efficient banking system.

The transformation of the Payment Bureaux, to be completed by the end of the year 2000, is an imperative economic reform. The International Advisory Group on Payment Bureau Transformation advises and assists the authorities in both Entities. In both Entities, the Governing Boards of the Payment Bureaux have committed to the transformation process.

Based on the Law on the Policy of Foreign Direct Investment, a new Foreign Investment Promotion Agency at the State level was founded. The Foreign Investment Advisory Service (a joint service of the International Finance Corporation and The World Bank) presented a framework on foreign investment promotion strategy for this new Foreign Investment Promotion Agency. Further technical assistance will be provided.

In May 2000, The Office of the High Representative issued a Decision amending the Framework Law on Privatisation of Enterprises and Banks in Bosnia and Herzegovina to protect investors from restitution claims. The Decision tackles the result of the combination of two problems, which had a deterrent effect on potential investors because they created a situation of great uncertainty. Firstly, there is still no restitution law on the level of the State. Secondly, the actual ownership of many enterprises and banks that are slated for privatisation is unclear. As a result, potential investors intending to buy assets in Bosnia and Herzegovina did not know whether a former owner might appear and be given the assets that the investor wanted to acquire.

Investors are now legally protected form such situations. The Amendment issued by the Office of the High Representative states that the privatisation of enterprises and banks will not prejudice possible restitution claims that may be brought in accordance with the future Entity restitution laws but only if these restitution laws incorporate the following two conditions: they exclude from restitution in kind those enterprises and banks as well as their land, assets and buildings, which are in the process of being privatised; and they stipulate that competent authorities will provide fair compensations if there are legitimate restitution claims.

At the request of the International Community, the FBiH Prime Minister cancelled the tender privatisation. A number of reasons underlie this decision. Certain privatisation transactions were seen as sub-optimal, non-transparent, and some doubts had been raised about their fairness. Potentially, 143 companies were to be sold through tender process. Freezing of the process would not affect those deals that have been signed (24 companies).

To resume tender operations, three conditions have to be fulfilled. Firstly, new tender regulations prepared and proposed by the International Advisory Group on Privatisation have to be adopted. Secondly, the International Advisory Group on Privatisation would choose the companies proposed for tender privatisation, where potential foreign investor interest exists. Thirdly, international experts proposed by different agencies will be named and should be involved in the preparation and evaluation of the bids of the companies selected. Cantonal privatisation agencies are expected to follow this tender process.

The bank privatisation in FBiH is being implemented, pursuant to the Law on Privatisation of Banks. Majority of state-owned banks should be privatised by August 2000. Concerned with the slow pace of bank privatisation and reform, the Office of the High Representative is working with international community to develop a strategy to address technical, legal, and political problems in the near term.

Privatisation in Republika Srpska is benefiting from the support afforded by high level officials including the Prime Minister. This attention was instrumental in extending the deadline for registration in the middle of May for citizens eligible for privatisation. In parallel, 1,118 enterprises have been registered in the RS Directorate for Privatisation, out of which 960 submitted their privatisation programs. So far 22 enterprises have been privatised.

It is increasingly accepted that overall economic reform must include the public utilities and infrastructure sectors given their size and strategic position in the economy. There is also a wide recognition to develop State-level mechanisms in this area. Principles of a market economy, deregulation, creation of an environment to attract private sector investment including foreign investment to renew the industry, are important.

An Inter-Governmental Working Group of senior experts form the State-level, the Entities and the International Community has recently been created to draft modern legislation of concessions for all levels of government in Bosnia and Herzegovina. Leading international experts will assist to draft the legislation. Significant opportunities for concession-type arrangements exist over a wide spectrum (including posts and broadcasting transmission infrastructure).

Little tangible progress on the privatisation of state-owned enterprises was made in the Brcko District. An expedited privatisation programme for the District is to be established with the help of a foreign development agency.

4. Standards

The Office of the High representative together with representatives of the Council of Ministers established the joint working group to review a wide variety of pre-Dayton governmental institutions and to propose modernised legislation for these bodies where appropriate. Among its first points of focus are the Institute for Standardisation, Metrology and Patents.