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NEWS 16 Feb 17

Bosnia Seeks Solutions for Costly Business Disputes

A conference will promote better arbitration to make Bosnia more attractive for potential foreign investors, amid three investment disputes involving the country that could cost it over 700 million euros.

Eleanor Rose
Photo: Brian Turner/Flickr.

Sarajevo's third annual arbitration conference on Thursday will see experts promote more efficient mechanisms for settling financial disputes involving Bosnia and Bosnian companies, including three ongoing cross-border cases in which the Bosnian state is potentially liable for more than 700 million euros.

The conference, organised by the Sarajevo-based association ARBITRI, will feature local and international speakers discussing how to improve international commercial settlement procedures, which would provide a more stable environment to attract foreign investors.

“Arbitration is a relatively young concept in Bosnia and Herzegovina compared to other countries,” the president of ARBITRI, Nevena Jevremovic, told BIRN.

“Local firms are becoming more and more involved in arbitration, which is a trend that started in recent years. But there is a lack of relevant discourse,” she said. 

The event, entitled ‘Chasing Efficiency in International Arbitration - Lessons for BiH [Bosnia and Herzegovina]’, is intended to raise awareness of arbitration and promote its use as a quicker and more cost-effective way of settling disputes than using courts.

Bosnia has an arbitration tribunal attached to the country’s Foreign Chamber of Commerce, which hears domestic and cross-border disputes that do not fall under the jurisdiction of local courts.

However economic analyst Zlatko Hurtic told BIRN that use of the arbitration tribunal was “almost non-existent” at present and that the majority of cases are still heard in the country’s commercial courts.

“However, the Federation [entity government] is drafting legislation [on out-of-court settlements] that will make this process more mandatory in order to decrease pressure on courts and speed up the process of resolution of business disputes,” said Hurtic. 

In arbitration, parties appoint a single arbitrator or panel of arbitrators and cases can be concluded within a year for lower costs, rather than seeing the years-long proceedings of ordinary courts. 

Strengthening and raising awareness of local channels for arbitration would improve the environment for foreign investors since they can be sure their interests will be protected in a cost-effective way, said Jevremovic.

There are concerns over direct foreign investments in Bosnia after reports earlier this month that it had dropped to 80.5 million Bosnian marks (41.2 million euros) in the nine months from January to September 2015 – a fall from 223.4 million marks in the same period in 2015. 

However Jevremovic said the most pertinent aspect of arbitration efficiency for the wider public – beyond the companies that may use Bosnia's own system – is the category known as international investment arbitration, in which Bosnia currently has more than 750 million euros at stake. 

The Bosnian state is embroiled in three high-value cases being heard at the World Bank’s International Centre for Settlement of Investment Disputes, ICSID, and the Permanent Court of Arbitration in The Hague.

All three concern large infrastructure and energy projects that went sour. 

The largest-value of the three, in which Slovenian energy firm Elektrogospodarstvo is claiming about 700 million in damages at ICSID from the Bosnian state, relates to a contract to construct and operate a thermal power plant that dates back to the 1970s.

After the war of 1992 to 1995 interrupted operations, and with the plant now wholly owned by the government of Republika Srpska, the Bosnian Serb entity, the Slovenian firm claims it is owed payments for electricity and construction of the plant.

The process, which was launched in 2014, is in its mid-stages after an order for both sides to provide relevant documents was issued by the tribunal in December.

The other two cases, that of Viaduct doo Portoroz, Zevnik and Goljevscek v. Bosnia (lodged at ICSID in November) and Strabag v. Ministry of Telecommunications and Transport (being heard at the Hague arbitration tribunal), also involve claims in the millions of euros.

International arbitration proceedings can be hampered by inefficiencies such as parties requesting more documents than they need and lodging unreasonable motions with the tribunal, said Jevremovic. 

According to Jevremovic, for a country facing financial difficulties such as Bosnia, losing the disputes would be “a difficult hit to take”. 

ARBITRI’s next conference could see a more in-depth discussion of the three cases as well as the topic of transparency in international arbitration, she said. 

Bosnia is not currently signed up to UNCITRAL, the UN convention that allows for transparency in international investment arbitration procedures.

Thus, she said, “even if new cases are brought in, it is most likely that all we will have will be basic information on who the parties are and what the motions are”.

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