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On June 23, 2021, the lower chamber of the Parliament of the Federation of Bosnia & Herzegovina, the House of Representatives, passed a decision instructing the Government to “analyze the existing legal framework in relation to the construction of small hydroelectric power plants and to initiate the parliamentary procedure of amending the existing laws in order to protect the rivers and the environment.” Such a broad and generic decision comes after months of campaigning by several NGOs, supported by local and Hollywood celebrities, aimed against the construction of SHPPs on Bosnian rivers, citing environmental concerns.

In the years after the war, the construction and commissioning of SHPP became one of the most attractive and lucrative investment opportunities. The principal reason for this is the rich hydrological potential of rivers in Bosnia & Herzegovina, supported by significant incentives granted by the authorities. As a result, dozens of SHPPs have been constructed and commissioned across the country, with dozens more foreseen by executed concession agreements. However, in recent years, the SHPPs went from a praised symbol of renewable energy to the focus of environmental protection issues.

Nonetheless, the parliamentary decision is not only vague in its contents, but also of questionable legal potential. Namely, the legal competence for granting concessions in the Federation of Bosnia & Herzegovina is divided between the Federation and ten of its Cantons, whereby the Cantons are competent for facilities with a production capacity of up to five megawatts, while the Federation is in charge of those exceeding this threshold. In practice, not a single concession has been granted by the Federation, under its Law on Concessions, in the 25 years of its history, and all of the concessions, including those for the construction of SHPPs, have been granted by the Cantons. As a result, the Government and the Parliament of the Federation of Bosnia & Herzegovina cannot formally prevent the implementation of the concession agreements already concluded between investors and Cantonal governments, and it is highly questionable if they can affect the granting of new concessions by the Cantons.

However, all SHPPs, as well as other energy production facilities, must be constructed in compliance with the general physical planning documents. The general physical plan of the Federation of Bosnia & Herzegovina is prepared by the Federal Ministry of Physical Planning and must be adopted by the Federal Parliament. Unfortunately, no such physical plan has yet been adopted by the Federation, resulting in a legal vacuum in which previous and/or temporary physical planning documents are used for construction permits. Furthermore, all energy production facilities must obtain an energy production license, issued by the Federal Ministry of Energy, Mining and Industry, regardless of who granted the concession.

Mostly due to the fact that concession fees are a significant source of income for the Cantons, and that any breach of concession rights could potentially expose them to legal disputes with investors, the Cantons don’t share the view of the Federal Parliament and so far show no signs of changing their attitude towards SHPPs. All of this could result in a constitutional dispute between the two levels of governance in the Federation, potentially placing investors and their projects right between them.

So far, the Government of the Federation did not show any intention of abusing the aforementioned authority in order to prevent the construction and commissioning of new SHPPs or to otherwise violate the existing legal framework. Instead, as the Federal Minister of Environment and Tourism stated in the aftermath of the parliamentary decision, the Government will undertake activities on amending the existing legal framework, as well as push for the adoption of the general physical plan of the Federation. According to the Minister, the aims of the Government are environmental protection, respecting the principles of the Aarhus Convention, and sustainable development of the energy sector. However, it remains to be seen what measures, if any, will be taken and how the rights of investors will be protected.

By Slaven Dizdar, Head of Real Estate and Energy, Marić & Co

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine.