BiH oil industry goes private

15/02/2007

Republika Srpska has concluded one of its most significant privatisation ventures so far, selling off two state-owned refineries and a gas station chain.

By Vlatko Vukotic for Southeast European Times in Banja Luka – 15/02/07

Zarubezhneft president Vladimir Ivanovic-Kushnarev (left) and Republika Srpska Prime Minister Milorad Dodik toast at the signing ceremony earlier this month. [Getty Images]

After several years of decline, the state-owned oil refinery in Brod, the motor oil refinery in Modrica and the Petrol gas station chain have been sold to the Russian-owned firm NeftegazInCor, a subsidiary of Zarubezhneft.

Republika Srpska Prime Minister Milorad Dodik and Zarubezhneft president Vladimir Ivanovic-Kushnarev attended the signing ceremony in Banja Luka at the start of this month, concluding a deal that has been in the works since August 2006.

The purchase price was 119m euros -- 42m euros for an 80% share of the oil refinery, 67m euros for a 75.6% share of the motor oil refinery, and 10m euros for Petrol and its 80 stations.

The new owner is also obliged to invest 970m euros over the next four years and ensure production at the Brod refinery -- once one of Bosnia and Herzegovina's most successful companies until it was crippled by a 150m-euro debt. Vnesheconombank is financing the project and all planned investments.

Under the sales contract, half of the plant's debt will be covered by the buyer in the next nine years, while commercial debts will be paid off from the price of the capital. The new owner must also pay back wages owed to employees, who will be retained until repairs at the refinery are complete. Officials say it should be online within the next six months.

With Brod back in operation, the annual level of RS crude oil production is expected to rise to 4.2m tonnes by 2010.

One of the tasks facing the new buyer will be bring the oil refinery into line with European standards. In the meantime, the government and Council of Ministers are expected to allow fuel sales with a higher percentage of sulfur, compared with those standards.

Meanwhile, high-standard eurodiesel is also to be produced, and will be used as the basis for motor oil production. That, in turn, will provide an incentive for the motor oil refinery in Modrica to increase production.

NeftegazInCor hopes to take over the entire BiH oil market, which consumes 1.5 million tonnes of oil per year. With its capacities nearly tripled, the refinery should be in a position to challenge the key regional players, Croatia's INA and Hungary's MOL, for market share.