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BiH is missing its chance to end dependence on Russian gas, create jobs, and grow its economy
June 24, 2023

Ambassador Murphy

Dramatic changes in the geopolitical situation over the last 18 months have made Europeans rethink their energy security and take measures to diversify away from dependence on countries that would use energy as a weapon.  Bosnia and Herzegovina would benefit from doing the same.  The Southern Interconnection is the only currently viable project that would allow BiH to break its complete reliance on a single source, Russia, for its natural gas.  Just as importantly, the project would also create jobs and help grow the Federation’s and BiH’s economy.  Unfortunately, HDZ BiH leader Dragan Covic’s obstruction has prevented this vital project from moving forward.

Here’s what Covic is blocking.  The Southern Interconnection is a natural gas pipeline that would connect BiH to the broader European gas network via Croatia to allow for gas imports from sources other than Russia.  Adding new sources of energy is good for consumers, government, and business alike.  It would bring new energy supplies to the Federation of BiH, including areas that have never had access to natural gas.  This would empower businesses to grow, create jobs, and spread prosperity.  It would also allow business and industry to switch to cleaner fuels, reducing air pollution.  Experts estimate the Southern Interconnection would immediately create hundreds of local construction jobs, with additional benefits to businesses that serve these workers.  The new energy sources would almost certainly create more than 1,000 additional, permanent jobs in BiH by allowing businesses to expand their operations, and all BiH citizens would benefit from the security and improved reliability of supply offered by connecting to the European gas network through the Southern Interconnection.

Dragan Covic’s HDZ BiH withdrew its support last summer for the Federation’s gas transmission system operator BH-Gas to develop and build the Southern Interconnection.  HDZ BiH’s move to block the Law on the Southern Interconnection came after the party voted in favor of the same law in the Federation of BiH House of Representatives in 2021.  Despite good faith outreach from Federation of BiH coalition partners to move the project forward, Dragan Covic has chosen to pursue his own interests rather than those of the Federation’s residents.  He and his party have neglected their governing responsibilities by continuously refusing to engage in the important work of improving BH-Gas’s management structure, thus allowing the company to undertake the project.  As a result, the project has not advanced despite government and business leaders alike identifying the Southern Interconnection as a top priority for BiH.

Instead of moving forward with BH-Gas, the only organization with the capacity and preparation to undertake the project as the implementer, HDZ BiH is now insisting on the establishment of a second gas transmission system operator under ethnic Croat control.  This has no basis in law and is both technically and economically illogical.  The creation of a second gas transmission system operator would increase costs to consumers, further fragment the BiH gas market, undermine FBiH government functionality, open the door to more Russian malign influence, and drastically complicate negotiations with financial institutions, as well as with Croatia on the construction of the interconnection, making the project all but impossible.

Time is running out. International financial institutions are turning away from funding new natural gas projects and their willingness to back the interconnection will decrease with time.  Further project delays mean that Federation consumers and businesses could pay more down the road for the same project – or worse, could mean that the Southern Interconnection is never built, causing BiH to forego the many economic and security benefits it would provide.  Without qualified financing, BiH will also forfeit up to €26 million ($27.9 million) in grant funds from the European Union’s Western Balkans Investment Framework.  Dubious suggestions about alternative financing are yet another distraction and unlikely to materialize, especially if there is not an approved framework law for the project that is consistent with international standards and makes economic sense.  In other words, Dragan Covic’s approach to the Southern Interconnection is likely to kill the project.

The way forward for this project is clear.  First and foremost, the project cannot and will not materialize without the necessary legislation in place to support it.  The Law on the Southern Interconnection must pass, without amendments that create opportunities for corruption or ethnic segmentation.  BH-Gas, as the Federation transmission system operator, must be improved and restructured to serve all citizens in the Federation through supervisory board and management reforms.  The FBiH government should urgently request financing from a qualified international financial institution and supporting grants from the EU.  Failure to move forward on the Southern Interconnection prolongs dependence on Russia and keeps the people of the Federation isolated from the economic benefits offered by a new source of energy.

BiH is at an energy crossroads, but HDZ BiH is blocking the path toward European integration and energy security.  This obstruction now stands to doom any hope of energy diversification, to forfeit the jobs that come with the project, and to limit economic growth in the Federation.  The choice is clear: to do what is right for the residents of the Federation and BiH or to put personal interests ahead of the people’s interests.  Which path will Dragan Covic choose?  Failure to act soon will send a clear signal to BiH and the international community exactly where Covic’s priorities lie.

Ambassador Murphy's video message

European countries across the board are rethinking their energy security and taking measures to diversify away from dependence on Russia. The Southern Interconnection, the only currently viable project that would allow BiH to break its complete reliance on Russia for natural gas, would connect BiH to the broader European gas network via Croatia.