Win-Win Western Balkan Power Deal

BMI View: Recent power deal between Bosnia-Herzegovina and Croatia highlights the formers strategy to leverage is competitive advantage as a regional power exporter, as well as the latter's aim to reduce power net import dependency and to upgrade its infrastructure ahead of EU admission. However, we continue to highlight risks concerning an overreliance on weather-sensitive hydropower, as well as poor transmission infrastructure.

Bosnia-Herzegovina and Croatia has yet again embarked on a joint hydro power project. This time around the agreement is concerning a EUR180mn, 300MW, hydro power plant on Bosnia's Trebisnjica river in the south near the Croatian city of Dubrovnik. Construction is expected to start in 2013 and be completed in 2016.

The joint power project is a win-win situation for a region in desperate need of power infrastructure renewal. A combination of wars followed by economic decline on the 1990's, and aging infrastructure has left the Western Balkans with a largely inadequate power generating system. However, in order to meet a growing demand due to increasing industrialisation and expansion of energy intensive industries such as agriculture and manufacturing new investments are needed.

Hence, the aim of the project is twofold:

  • Bosnia-Herzegovina is capitalising on its location in the heart of the region and its power resources - most notably water for hydroelectricity, and coal - to strengthen its position as one of few power exporters in south east Europe. According to government figures Bosnia-Herzegovina exported 2329GWh of electricity in 2011. However, according to the Foreign Investment Promotion Agency that number could be boosted, as it estimates that merely 35% of the country's 6000MW hydro potential is being utilised.

The ongoing move away from nuclear in certain European markets, in particular Germany, is opening up further potential export markets for countries such as Bosnia-Herzegovina. Though we have long highlighted Chinese active investment into neighbouring Serbia, a substantial, EUR350mn, new loan deal with state-owned China Development Bank to construct a 300MW coal-fired plant in Stanari indicates that interest have now turned to Bosnia-Herzegovina.

  • With the new power project Croatia is hoping to reduce its heavy dependence on energy imports. Croatia currently imports up to 30% of its electricity consumption at a cost of over EUR400mn per year.

Furthermore, the recent deal is also underpinned and strengthened by Croatia's aspiration to EU membership (scheduled accession in July 2013). Hence, in the process off undergoing reforms inherent to the EU accession process the state power board HEP plans to invest US$3.2bn in production, transmission and distribution facilities by 2016, and may issue international bonds to raise funding.

However, there are risks to above mentioned strategies, the most pertinent being an over-reliance on weather-sensitive hydroelectric power - brought to the forefront by this year's bitter winter and droughts. Moreover, merely building more power stations will not be enough unless the low capacity of transmission infrastructure is addressed. Hence, both diversification and market reforms would be beneficial, particularly to an exported like Bosnia-Herzegovina.

Strategic Investments
Power Projects Planned Or In the Pipeline*, MW, By Country (LHS) and By Technology (RHS)
This article is tagged to:
Sector: Infrastructure
Geography: Bosnia-Herzegovina, Croatia

Enter your details to read the full article

By submitting this form you are acknowledging that you have read and understood our Privacy Policy.