BiH’s TPP Ugljevik must pay EUR 34 million to Slovenia for investment dispute from Yugoslavia

The Arbitration Council in Belgrade has ruled that the firm operating the Ugljevik coal mine and thermal power plant in Bosnia and Herzegovina has to pay BAM 67 million (EUR 34 million) in damages to Slovenia’s state-owned Elektrogospodarstvo Slovenije Razvoj in Inženjering (EGS-RI). EGS-RI invested in the construction of the Ugljevik back in the 1980s and the power plant failed to pay it back in electricity as agreed. Slovenia and BiH were both part of the Socialist Federal Republic of Yugoslavia, which fall apart at the beginning of the 1990s.

RiTE Ugljevik, now a subsidiary of state-controlled power utility Elektroprivreda Republike Srpske (ERS), will also have to supply one-third of the produced electricity to the Slovenian company EGS-RI until the end of its operation, at prices that the two parties would later determine. The amount of damages is not final, because the Arbitration Council in Belgrade must yet define the amount of interest for the period in which the electricity wasn’t delivered – from June 2011 to December 2021.

The Slovenian side said the ruling cannot be appealed.

Of note, ERS’s two coal power plants – Gacko and Ugljevik, with a capacity of 300 MW each, produce 56% of electricity in the entity, one of the two that make up BiH. The other one is the Federation of BiH.

Minister of Energy and Mining of the Republic of Srpska Petar Đokić said EGS-RI initiated two arbitration proceedings for compensation based on the same violation of two agreements on the construction and use of the TPP Ugljevik.

Đokić: Courts in BiH have decided that the Arbitration Council in Belgrade is competent to decide on the claim

The agreements were signed on December 22, 1981, and August 25, 1989, before the dissolution of Yugoslavia. EGS-RI has initiated arbitration proceedings before the International Center for Settlement of Investment Disputes – ICSID in Washington, with a claim of EUR 770 million, and the Arbitration Council in Belgrade, for EUR 695.1 million.

Đokić said EGS-RI’s claims are based on the Energy Charter Treaty, and the Agreement on Reciprocal Promotion and Protection of Investments, signed between BiH and Slovenia in 2001. Previously, the proceedings were conducted before the courts in BiH, which decided that the Arbitration Council in Belgrade was competent to decide on the claim.

Slovenia’s company asked for EUR 695.1 million in compensation

On July 13, 2020, the Arbitration Council decided to reject 90% of the claim. Still, it ordered TPP Ugljevik to supply a third of the produced electricity to the Slovenian company until the end of its operation. The compensation of EUR 34 million was determined on July 3 this year, Đokić added.

According to him, RiTe Ugljevik will now begin negotiations with EGS-RI and Slovenia’s power utility Holding Slovenske Elektrarne (HSE), which represented EGS-RI.

Of note, on October 30, 2020, ICSID suspended the proceedings pending the completion of the arbitration in Belgrade. Đokić now said that the two sides would inform it about the new developments.

HSE: Arbitration in New York to continue

HSE, which operates coal-fired plant Šoštanj and hydropower plants on the Sava, Drava, and Soča rivers, succeeded in affirming the Slovenian electric power industry’s past investments, CEO Tomaž Štokelj said.

The company noted that it launched a dispute in 2014 over 5 TWh of undelivered electricity.

It is the second major success in international arbitrations, given that in 2021 HSE achieved a settlement with General Electric with EUR 261 million.

When it comes to the proceedings in New York, the Slovenian utility said it is ongoing and that it would continue after the arbitration in Belgrade is over.