Russia Purchases Bosnian Oil Assets

BANJA LUKA, Bosnia and Herzegovina -- Bosnia's Serb republic sold majority stakes in the country's sole oil refinery, Brod, lubricant producer Modrica and fuel retailer Petrol to Russian state oil firm Zarubezhneft on Friday for 121.1 million euros ($157.7 million).

Officials hope the deal will aid the economic recovery of the Serb Republic, for which the indebted refinery, mostly idle since the country's 1992-95 war, has long been a headache.

"This is a significant gain for the Serb republic," the republic's prime minister, Milorad Dodik, said after signing the deal with NeftegazInKor, part of oil company Zarubezhneft.

Zarubezhneft aims to increase production to 4.2 million tons of oil per year and invest 970 million euros in the companies over the next four years, Dodik told reporters.

The refinery, in northern Bosnia on the border with Croatia, can process 120,000 tons of crude per month (about 30,000 barrels per day), covering 80 percent of Bosnia's needs.

It lost its markets because of the war in the 1990s.

The Serbian republic Industry and Energy Minister Gojko Ubiparip said details of the deal had not changed since it was initialed in Moscow last month.

Zarubezhneft will pay about 40 million euros for a 70 percent state stake in the refinery. It also plans to acquire a 10 percent stake owned by the state pension fund, Ubiparip said.

The other 20 percent will remain owned by small shareholders.

Zarubezhneft will pay 67 million euros for a 64 percent stake in the Modrica motor oil plant and 10 million euros for a majority stake in retailer Petrol, Ubiparip said. It also agreed to build a railway track linking Brod and Modrica.

Dodik said his government needed to get an approval for the sale by the country's Competitiveness Council.

It must also ensure Bosnia's central government extends until 2010, when Zarubezhneft aims to have finished modernizing the refinery, its temporary decision to let Brod produce lower quality fuel until the end of the year.

The post-war split of Bosnia into two autonomous regions, the Serb republic and the Muslim-Croat federation, has left each running its own economic policy and privatization process.

The Muslim-Croat federation's government sold its indebted fuel retailer, Energopetrol, to a consortium linking Hungary's MOL and Croatia's Ina last year.

But the central Cabinet, based in Sarajevo, has the final word on foreign trade policy and rules on standards of imports and exports.

Analysts said the sale was welcome but added that the price would hardly cover the debts of the companies, estimated at some 300 million Bosnian marka ($204.6 million), as announced by the government.

"We shouldn't be thinking about the earnings from this sale," economic analyst Damir Miljevic said. "It is very important to restart the refinery and that workers keep their jobs and get salaries."

Dodik said Zarubezhneft would keep all employees in the companies and pay their wage arrears.