Category: Bosnia and Herzegovina

Despite entering the corporate lexicon back in 2004, the concept of ESG (Environmental, Social, Governance) remained relatively obscure for over a decade. However, with the intensification of discussions around global warming, ESG has become a significant part of the conversation and a focal point for today’s companies.

The concept of ESG can be viewed as a set of standards that encompass the most critical issues in the implementation of sustainable development principles, such as respecting the criteria that companies use to enhance the ethicality of their operations. National and international regulatory bodies have begun assessing and implementing a range of practices related to sustainable financing, primarily focusing on potential ESG approaches and marketing for investors.

Given the vast and diverse nature of the topic, it is natural that different interests among companies and governments worldwide follow different agendas and, of course, pose challenges to overall efforts. Variations among countries globally will make it difficult for global companies to set their own ESG agenda while complying with different local regulations in the countries where they operate.

The “Environment” aspect of ESG remains a priority as climate differences continue to escalate, and decarbonization criteria at the micro and macro levels drive further economic development. In addition to climate change, another topic of interest within the “E” component to monitor is biodiversity protection.
For this year, it is predicted that the previously overlooked “Social” aspect of ESG will receive the most attention. This encompasses issues of pay equality, labor conditions, and diversity in governance boards.

The “Governance” aspect of ESG refers to governance factors in decision-making processes, ranging from policy creation to the allocation of rights and responsibilities among different corporate stakeholders, including management and interested parties. Investors looking at an ESG-oriented company will want to ensure that its accounting and reporting systems are reliable and transparent. They will also assess how the company deals with its shareholders, including their ability to vote on significant matters, and seek evidence that the corporation engages in lawful practices.

Due to the increasing regulations of the European Union regarding climate change and equivalent legal frameworks among countries, ESG targets emerge as key guidelines that assist businesses in preparing for and implementing standards that positively impact the environment while ensuring socially responsible governance. Therefore, ESG standards can be defined as strategic changes for the successful long-term operation of companies. Bosnia and Herzegovina and Serbia’s major trading partners have long incorporated ESG standards into their legislation, so it is time for the Western Balkans to catch up with these processes and ensure regional and global competitiveness for their products and services.
EU regulations are considerably broader, especially concerning sustainability reporting; they support comprehensive climate goals, including achieving climate neutrality by 2050 as part of the

European Green Deal. For instance, Bosnia and Herzegovina and Serbia are yet to adopt their first regulations directly related to ESG. In practice, ESG influence strengthens by aligning domestic regulations with the EU, including participation in the value chains of numerous products and relationships with consumers and creditors. For example, banks with the highest market shares in the Western Balkans, mostly foreign-owned, regularly assess ESG risks when providing loans, although local regulations in these countries do not typically require them to do so. As a result, accessing funding sources will become increasingly challenging for companies in the region unless they comply with ESG standards.

Similarly, EU partners are increasingly demanding that suppliers and subcontractors from the Western Balkans report on their ESG compliance because their EU partners and customers need to assess potential ESG risks and incorporate them into their projects.

Investors are also becoming more interested in ESG as they see opportunities for greater returns on their investments in green or socially responsible projects.
Companies that neglect these areas will find it increasingly difficult to borrow money from lenders, attract investors, sell goods to customers, compete in exports, and attract top talent, ultimately affecting their market success in the future.

In summary, ESG trends to watch this year are related to the further development of ESG regulations and reporting standards, primarily in the national and then international markets. The advancement of this trend will be driven by individual companies that need to be more transparent regarding their actions and final outcomes.

By Marija Plavsic, Business Development Manager, Ibrahimovic & Co

The Cizmovic law firm and Moravcevic, Vojnovic, and Partners in cooperation with Schoenherr have successfully represented UniCredit Bank Banja Luka in a dispute with Bitminer Factory, leading to the overturning of a EUR 131 million first instance judgment. Reportedly, the Vila law firm is representing UniCredit Bank Banja Luka in relation to the criminal charges that the bank filed against Bitminer Factory.

According to Schoenherr, “in its April 18, 2023 ruling, the Higher Commercial Court in Banja Luka accepted UniCredit Bank Banja Luka’s appeal against the first-instance decision ordering it to pay Bitminer Factory damages predominantly consisting of lost profit and default interest. In 2019, Bitminer Factory filed a lawsuit before the District Commercial Court in Banja Luka claiming damages for the unjustified termination of its bank accounts. The company alleged that the termination of the bank accounts obstructed its initial coin offering relating to a start-up renewable-energy-powered cryptocurrency mining project in Bosnia and Herzegovina.”

In early 2022, the first instance decision required UniCredit Bank to pay damages to Bitminer Factory amounting to roughly EUR 130 million (as reported by CEE Legal Matters on January 21, 2022). 

UniCredit Bank Banja Luka reported it has “always claimed that its decisions and actions in this matter were in accordance with the law and that the Bitminer Factory case was unfounded. During the entire procedure, the bank provided all the necessary evidence and fully cooperated with all relevant institutions based on the application of the rule of law in the legal system of Republika Srpska.” The bank announced it “remains fully available to clients, providing them with support in their daily business activities.”

The Cizmovic team included Partners Jovan Cizmovic and Milica Cizmovic.

Schoenherr’s team included Partners Matija Vojnovic, Natasa Lalatovic Djordjevic, Dusan Obradovic, and Vojmir Kuritc and Attorneys at Law Vladimir Markus, Jelena Arsic, and Minela Sehovic.

Schoenherr did not respond to our request for clarification on the matter.

After 5 years of drafting and procedural manoeuvres, the Parliament of Bosnia and Herzegovina finally adopted last year amendments to the Public Procurement Law.

These amendments are one of the main reasons why Bosnia and Herzegovina recently received a recommendation for candidate status for EU membership. This supposed to be further harmonization of the public procurement regulations in accordance with the EU directives as well as with international standards and recommendations of the Council of Europe in this area.

What is particularly interesting are the provisions concerning public procurement in the field of legal services provided by lawyers and similar professions such as notaries and representatives of minors, as they are now exempted from the application of the Public Procurement Law, as prescribed by the Article 10. Legal services concerning lawyers are defined, as follows:

1) legal representation in arbitration or conciliation in Bosnia and Herzegovina and another country or before an international bodies,
2) legal representation before courts or administrative bodies in Bosnia and Herzegovina or another country or before international courts and institutions,
3) legal consultancy services provided during the preparation of any legal proceeding or if there is a concrete indication and a high probability that the legal matter to which the advice refers will become the subject of such proceedings.

The assumption is that such legal services can only be provided by a lawyer within the framework of the intuitu personae relationship, which is characterized by the strictest confidentiality. So, as the Bosnia and Herzegovina Public Procurement Agency explains, the logic of these provisions is actually to give the contracting authority the possibility to freely choose a lawyer as such a relationship is a relationship of complete mutual trust and confidentiality. This confidentiality could be threatened if there is an obligation of the contracting authority to determine the conditions for the award of such a contract as well as the obligation to publish such conditions. The Bosnia and Herzegovina Public Procurement Agency also explains that the purpose of these provisions is to guarantee the full realization of the right to a defence, as well as that every person should have the opportunity to turn to his lawyer completely freely.

Before the amendments, legal service had to be procured through the public procurement process and offered price was the basic criteria that contracting authorities had to apply when engaging lawyers. This easily turned to be false economy, as sometimes such low bids resulted with poor performance in the courtroom.

However, we must emphasize that these provisions on exemption of legal services are not completely clear and precise. For example, above could mean that the exemptions from the public procurement do not apply to the general provision of legal consultancy services to contracting authorities by lawyers, but only if they relate or may later relate to concrete judicial proceedings of arbitration. However, it will be interesting to see how this distinction will be made in practice, as almost every matter that is subject to legal advice may result with a judicial proceeding.

It should be noted that legal services that are not listed in Article 10 of the Law on Public Procurement, are awarded in accordance with a special by-law adopted on the basis of the Law on Public Procurement.

These recent amendments on the Law on Public Procurement also introduced more details related to public procurement officers, exemptions according to EU directives, prior market verification, mandatory division into lots, personal capacity of bidders, disqualification due to conflict of interest and corruption according to EU directives.

Anti-corruption provisions are also introduced, however, one of the most significant shortcomings in this law is the lack of mechanisms for punishing law breakers, which protects all those who misuse this law, i.e., public procurement, from sanctions. In addition, political influence on the appointments and work of the members of the Procurement Review Body has not been removed, which further increases the public’s mistrust of this process.

We surely look forward to seeing how these changes will be implemented in practice.

By Davorin Marinkovic, Partner and Nikola Markocevic, Senior Associate, Dimitrijevic & Partners

Partners Andrea Zubovic-Devedzic and Indir Osmic have been appointed the Co-Managing Partners of the CMS Sarajevo office as of April 1, 2023, taking over from Nedzida Salihovic-Whalen who will stay on as a Partner.

Zubovic-Devedzic has expertise in banking and finance and corporate and M&A. She joined CMS Reich-Rohrwig Hainz in 2010 as a Senior Associate and was promoted to Attorney-at-Law in 2012. Earlier, she was a Lecturer at the Sarajevo School of Science and Technology from 2010 and 2012. In 2010, she also worked as an Associate at the Maric Law Office and as a Legal Advisor at MKF Mikra. Prior to that, Zubovic-Devedzic was an Associate at Wolf Theiss, from 2008 to 2009, and also worked as Project Coordinator at WUS Austria’s Sarajevo office.

Specializing in corporate and M&A, banking and finance, real estate, compliance, and tax, Osmic joined CMS Reich-Rohrwig Hainz in 2015 as an Associate. He has been promoted to Partner in 2020. Earlier, he served as a Professional Associate at the Indirect Taxation Authority of Bosnia and Herzegovina, from 2009 to 2010, and as a Consultant at Bosnia and Herzegovina’s Office of the High Representative in 2009.

“Andrea and Indir bring a wealth of experience and expertise to the position, and the firm is excited about the future of the Sarajevo office under their leadership,” CMS announced. “This decision was brought with great confidence in their skill to continue to build the successes of the Sarajevo office.”

On March 20, 2023, Sajic announced that the EUR 190 million financing transaction between the Export-Import Bank of China and HE Dabar for the development of the Dabar hydropower plant (reported by CEE Legal Matters on January 19, 2022) had closed.

According to Sajic, “after approving the loan to a Bosnian institutional company, which is a company owned by the state,” the financing transaction has closed.

As originally reported, Schoenherr advised HE Dabar on the EUR 190 million loan facility received from the Export-Import Bank of China for the development of the 160-megawatt Dabar hydropower plant. Sajic, working alongside Milbank, advised CEXIM on the deal.

The Dabar project will be one of the largest hydropower plants in the region, according to Schoenherr: “Located on the Trebisnjica River in Republika Srpska, Bosnia and Herzegovina, the Dabar plant is expected to produce about 250 gigawatt-hours of electricity per year and is the most significant hydropower plant within the planned Gornji Horizonti hydropower complex. The project company Dabar is a subsidiary of the incumbent power utility of the Republic of Srpska – Elektroprivreda Republike Srpske.”

According to Sajic, “HPP Dabar applied for a loan amount up to 85% of the EPC contract to be entered into by and between HPP Dabar and the China Gezhouba Group Co Ltd, as EPC contractor. The Republic of Srpska provided a Guarantee for the loan in favor of lender HPP Dabar.”

Schoenherr’s team included Partners Matija Vojnovic, Ivana Panic, and Srdjana Petronijevic and Attorneys Jelena Arsic, Bojan Rajic, Minela Sehovic, and Zoran Soljaga.

The Sajic team included Managing Partner Aleksandar Sajic, Senior Partner Sanja Djukic, Senior Associate Milica Karadza, and Associate Nikolina Zubac.

This is a breakthrough moment for Bosnia and Herzegovina as the country receives the EU membership candidacy status but, still, there are difficulties ahead, according to Miljkovic & Partners Managing Partner Sead Miljkovic.

“After six years of filing an application for EU candidacy, and 14 years since the signing of the stabilization and association agreement, Bosnia and Herzegovina finally received the EU membership candidacy status in mid-December,” Miljkovic says. “This is good news for investors, and we are happy as professionals and citizens that this process is moving forward. However, knowing that it will take additional years to fulfill the criteria for joining the EU, we are aware that there are still a lot of difficulties ahead, including reaching a political consensus on certain important aspects. We do not expect this process to be smooth.”

“The other important development is the general elections for all levels except local authorities, held in October,” Miljkovic notes. “For a while, we were waiting for the results to be published as the process was challenged by political stakeholders. In the past three or four weeks, there have been serious discussions between the stakeholders for the formation of the government at the state level, which is obviously very important for the country and the progress toward EU membership.” According to him, so far, a consensus might have been reached among the major political players. “The coalition agreement regulating principles of governance until 2026 has been signed by eight different parties representing the civic block, two center-right parties – SNSD and HDZ – as well as their coalition partners that will be forming this stretched coalition,” Miljkovic points out.

“For the legal sector, these are positive moves, as we might finally get a more functional government at the state and entity levels,” Miljkovic says. “It is obviously something that impacts the economy to a great extent and hopefully will result in the generation of investments. This is a breakthrough moment compared to the past years for a number of reasons, but a major one is that we will finally have a government that is not on a technical mandate similar to the previous one, with the same people being in power for over eight years.” According to him, this has led to a number of criminal charges and blockades of main processes, such as the adoption of legislation and implementation of major infrastructure projects.

Miljkovic highlights that for the market, there is a slight rise in insolvency and restructuring cases. “Recently, there was a large restructuring proceeding involving six banks, including international banks with a seat outside of Bosnia and Herzegovina,” he notes. Miljkovic says that some changes are expected: “as a result of inflation and the energy crisis, we are about to see what the outcome will be. The Bosnian currency is linked to the euro, and the fall of the euro against other currencies has an impact on us as well. We expect some sort of slowdown.”

On the bright side, Miljkovic points out that there is an increase in interest in renewable energy projects. “This is of strategic importance for the country: the current resources and generation facilities are quite outdated, which definitely asks for a shift in investment policy from traditional sources such as coal to greener energy,” he notes.

The Sajic Law Firm has successfully represented the Association of Composers-Music Creators of Bosnia and Herzegovina (AMUS) before the Supreme Court of Republika Srpska in a dispute related to the unauthorized use of copyrighted musical works.

AMUS is a collective organization for the protection of the rights of authors of musical works. According to Sajic, the court had to determine whether the unauthorized public use of copyrighted musical works in the defendant’s shopping centers, business sales, and catering establishments violated the music creators’ rights.

“In its decision, the supreme court established that it was a matter of mandatory collective exercise of copyright and that AMUS possesses not only the right, but also the obligation, to collect compensation on behalf of the authors of this type of copyright work,” the firm informed. “In addition, the court established that AMUS exercises rights for both domestic and foreign authors of musical copyright works.”

According to the firm, the supreme court decision of November 17, 2022, makes it impossible for business entities to use copyrighted musical works without providing compensation. “Otherwise, the economic basis of the author’s profession would be called into question, which would ultimately cause negative effects on the continuity of social creativity,” Sajic added. “Precisely for the stated reason, the court provided legal protection in a case in which the unauthorized use of copyrighted musical works, without a previously concluded contract with a collective organization, was unequivocally established.”

The Sajic team included Senior Associate Igor Letica.

With large energy and infrastructure projects under development in Bosnia and Herzegovina, local legal professionals are facing an uphill battle against the double standards in their industry, according to Sajic Law Firm Senior Partner Natasa Krejic.

“We are a small country in the middle of Europe with a huge energy and infrastructure potential,” Krejic says. “We are rich in natural resources due to our natural characteristics – we have very developed landscapes and favorable climate, including an abundance of precipitation.” According to her, “investors from many different countries, especially China, consider Bosnia and Herzegovina a good destination to move their capital and start new projects.”

Krejic says that, in the past few months, this process has accelerated. “With the energy crisis in general and the rise in renewable energy demand, currently, there are several projects in different stages of development,” she notes. “For example, the construction of hydroelectric, solar, and other power plants from renewable sources is increasing.” Additionally, Krejic notes that “large infrastructure projects are being developed, such as the construction of highways, in which Chinese investors are not only constructors but financiers, as well.”

“Other than China, a large number of foreign investors who are also interested in Bosnia and Herzegovina are coming from European countries, including Germany,” Krejic continues. “They are not only looking at our energy potential but, more importantly, they started moving their production facilities to our region. In particular, companies that produced materials/goods in China in the past are now more inclined to relocate to Balkan countries, including Bosnia and Herzegovina.” According to her, the main reasons for such moves are, “first, the COVID-19 crisis and, now, the situation with Russia and Ukraine, which led them to take into account their expensive logistics and reconsider their choices.” Additionally, she notes, “our profit tax is very low, which makes Bosnia and Herzegovina attractive to these foreign investors.”

On a different note, Krejic says that Bosnia’s legal sector is currently struggling for several different reasons. “The other very relevant and unpleasant topic of conversation among colleagues – notably local law firms – is the unfair competition with both larger and smaller foreign law firms,” she points out. “Foreign law offices that operate on our market are registered as limited liability companies and enjoy the benefits of that, while local law firms do not have such an option. Our legal framework regulating the local law offices’ activities, on the other hand, is very conservative and outdated, not allowing us to advertise, or establish offices or branches locally and, especially, abroad.” Krejic says that foreign law firms that register as limited liability companies can access all those opportunities. “We are obviously in some kind of disadvantaged position, and we do not yet have sufficient tools to compete with them,” she notes.

Finally, Krejic says that another problem legal professionals are struggling to deal with is a high degree of corruption. “It is very difficult to work and function properly, as we encounter corruption in all levels of administration, especially judiciary,” she notes. “This affects not only lawyers but also regular people and businesses and is an impediment to the further development of our market.”

ODI Law has opened a new office in Bosnia and Herzegovina with the addition of Mia Civic as a Partner.

Civic joins from Telemach BH, where she had been the Head of Legal since January 2022. Before that, she was the Director of Legal Affairs at Holdina, between 2018 and 2022. Earlier still, Civic was a Senior Associate Lawyer with Law Office Miljkovic & Partners, between 2015 and 2018, and a Legal Advisor at Prvi Faktor, between 2007 and 2015. She also served as an Associate Legal Counsel with the Special Department for Corruption with the Prosecutor’s Office of Bosnia and Herzegovina, between 2004 and 2007, and as a Legal Officer/OHR National Prosecutor with the Office of the High Representative, between 2002 and 2004.

She covers banking/finance, corporate/M&A, and dispute resolution among others.

“We are very excited to be putting a foot on the ground in Sarajevo,” commented ODI Managing Partner Uros Ilic. “Building upon a past acquaintance, we are very much looking forward to working with Mia Civic and her team to support our clients’ endeavors in Bosnia and Herzegovina, an exciting emerging market, adding an important piece to ODI’s regional map. The launch is well-timed to meet the increasing demand for well-coordinated inter-jurisdictional mandates. With Mia’s pedigree, the market entry significantly adds to unwavering high-quality support for ODI’s clients.”

“Coal still matters” has been the predominant energy policy in Bosnia and Herzegovina over the past decades. It sounds very old-fashioned these days in Europe, but lignite (brown coal) is the most important energy resource in the country. The fact that almost 60% of the electricity generated in the country originates from coal-fired thermal power plants leads to the conclusion that Bosnia and Herzegovina heavily relies on coal.

Joining the Energy Community Treaty, combined with the European green agenda in general, did create something that might be described as renewable sources enthusiasm in the country a decade ago. This enthusiasm produced a wish list of a number of large-scale hydro projects that were expected to be constructed by now. But not much really happened. The only new facility of significance in the past decade was the new 300-megawatt thermal power plant.

The constant failure to meet the expectations of the Energy Community turned the enthusiasm among energy stakeholders into something that may be described rather as passive resistance. Decarbonization in this country was rather seen as a “first world problem” and, literally, as a threat to the national economy, as closing the thermal power plants would decrease the country’s exports (where the export of electricity plays a significant part).

National plans included a number of new coal-fired thermal power plants with capacities of almost 2,000 megawatts, aiming to replace the existing ones, which are considered among the biggest European polluters. But the response from the Energy Community was “No. No. No.” Building new coal-fired energy facilities nowadays is heresy, or at least inappropriate. A dissenting lawyer might argue that replacing old facilities with new coal-fired plants, with lower emissions, may fall under the definition of “decarbonization,” because the ultimate result will be a reduction of the total emissions anyway. It sounds rather like a topic for law students’ debate competitions, but definitely not grounds for a real discussion. In the meantime, the official policy is still silent about new thermal power plants and pretends to follow the (green) mainstream.

This practically means that the country is determined to make the green energy piece of total output bigger, by encouraging investments in renewables and energy efficiency projects. Magic words, such as the “improvement of the regulatory framework,” are echoing through the corridors of power. Luckily, a number of international organizations have been present in the country and offered technical assistance for the improvement of local legislation by sharing best practices.

A new package of renewables legislation was created this year, introducing new concepts for local law practitioners such as prosumers, renewable energy communities, auctions – a plethora of new things for us to learn about in order to be able to guide clients through the countless impediments to the implementation of new renewables projects. No, this is not a matter of pessimism – but rather a call to continue with improving the environment for investments in general – as, in recent months, we have been witnessing an increased interest for foreign investments in renewables in Bosnia and Herzegovina.

Wind and solar projects have been catching the imagination of those investors, but it was similar earlier with the hydro projects, where not much actually materialized in the end. Indeed, that undisputable potential might be lost this time around as well, with investors still missing support along the lines of a one-stop shop that would allow them to avoid going around and dealing with different governmental departments on their own, ultimately discouraging them from engaging with the whole process to begin with.    

Another green piece that deserves equal attention is on the other end: consumption. Or, to be more specific, energy efficiency. This area has been totally neglected by decision-makers and one politician’s comment above all illustrated this: “Why should we save electricity? It’s very cheap here.”

Energy efficiency laws were introduced almost a decade ago, but the energy service company (ESCO) mechanism, as the most exciting part of this new framework, has been left totally unexplored. ESCOs were merely mentioned in those laws but the secondary legislation needed to allow contracting ESCO projects in public sector buildings, as well as tax legislation that will accommodate features of ESCO financing, have yet to be introduced. Consequently, there were no such projects so far.

All in all, there have been some improvements, but it will take much more energy to make this Bosnian green energy piece bigger.

By Davorin Marinkovic, Partner, Dimitrijevic & Partners

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.