All the secrets of the Dodik-Orban energy community

The Republika Srpska (RS) plans to export surplus electricity to Hungary. In return, this BiH entity would receive oil and oil products from that country.

This idea was first mentioned in mid-October when Milorad Dodik, then a member of the Presidency of Bosnia and Herzegovina (BiH), held talks with Hungarian Prime Minister Viktor Orban in Budapest.

According to the Hungarian Prime Minister’s official website, Orban and Dodik discussed in Budapest “joint projects that will contribute to mitigating the impact of the energy crisis on BiH and Hungary”.

Dodik confirmed this in an interview with the Hungarian public service (MTVA) programme “Serbian Screen”, which was broadcast on 8 November. He explained that Orbán had presented the idea.

According to his estimates, he said, the Republika Srpska could produce about 35 % of its surplus electricity for export.

Radio Free Europe (RSE) did not receive a reply from the relevant ministry in Hungary or from the country’s largest energy company as to whether they were aware of this idea and whether concrete steps had been taken.

Initiative for the creation of a regional energy community

In addition to the Republika Srpska and Hungary, Serbia would also be involved in the whole story and would be subject to the same arrangements as Hungary.

RSE did not receive a reply to the question on the “energy community in solidarity” from the competent ministry of the Republic of Serbia or from the Petroleum Industry of Serbia.

According to the Minister of Energy and Mining of the Republic of Srpska, Petar Đokić, there is an initiative to form a regional energy alliance consisting of several countries. Đokić stresses that this idea still needs to be further developed.

“We have yet to discuss the details, and how it will be organised, what its functions will be, whether certain rights are being acquired, of course certain rights are being acquired, of course obligations are being acquired,” Đokić told RSE.

He stresses that this idea can be useful for “the energy security that we want to ensure in this way”.

At the same time, Elektroprivreda Republike Srpska, the company that produces and sells electricity in the RS, says it is aware of the idea, but that no one has contacted them so far about its implementation.

What are the possible risks?

Luka Petrović, Director of Elektroprivreda RS for RSE, believes that the energy crisis has hit Europe and that “it is logical that some new solutions for energy stability and independence should be sought”.

“All electricity companies can be better connected and create a more stable, independent energy system. This is of course also the mission of future interconnections, but everything needs to be analysed and the pros and cons of interconnection need to be seen,” Petrovic said.

He adds that there are potential obstacles to the possible creation of such an association, as Europe is trying to ban electricity exports to power producers that do not pay a carbon levy.

One of the commitments in the Western Balkans Green Agenda that BiH should fulfil is the introduction of carbon dioxide (CO2) taxes.

If this tax were to be introduced, BiH would avoid the Carbon Boundary Adjustment Mechanism (CBAM), which is due to be activated from 2027.

Under this system, all products whose production is carbon-intensive will be subject to a levy when imported into the EU market. This also applies to electricity, and the EU is one of BiH’s most important partners in electricity trade.

“Within this energy community we would have a big advantage, because in Serbia there are certain energy deficits, we have surpluses, Hungary sometimes has a surplus, sometimes a deficit, so overall this community would improve our stability”, Petrovic believes.

The ERS Director says that due to the drought year and the poor performance of hydroelectric power plants, they have had to import electricity. He adds that they are now “working at full capacity and have enough electricity to export”.

How much electricity do we export and how much oil do we import?

According to the Entity Statistics Office for 2020, 7899 gigawatt hours (gWh) of electricity were generated in the RS, including the market of the other BiH, of which 3634 gWh were exported to entity, the Federation of Bosnia and Herzegovina.

The RS exported a total of 358.9 million KM (approximately €179 million) of electricity last year.

BiH does not have its own oil refinery and is therefore dependent on fuel imports, which are mainly produced by processing Russian crude oil.

What do European and national regulators say?

The RSE Energy Community stresses that it is difficult to comment on the announcement of the creation of a “Solidarity Energy Community” because they do not have enough information.

They reply that they consider that the Energy Community Treaty “provides a solid framework for regional energy cooperation between the European Union and neighbouring signatory countries”.

The State Electricity Regulatory Commission (SERK) explained to RFE/RL that there are no restrictions on international electricity trading, as long as the company has a licence.

The regulator’s licence for international electricity trading in the RS is held by Elektroprivreda RS from Trebinje, Rudnik and the Stanari thermal power plant, “Energy Financing Team” from Bileće and “Renewable Energy Solutions BH” from Banja Luka.

Agreement amid sanctions against Russia

From 5 December, the European Union sanctions against Russia include a complete embargo on imports of crude oil by sea, and from 5 February next year also on oil products. This does not exclude the countries of the Western Balkans, which receive most of their crude oil from Russia.

For Ivan Brodić, editor of the regional energy portal “Energy Press”, it is unusual that the story of the electricity-for-oil swap comes at a time when Russia is under sanctions.

He tells RSE that the idea has its origins in Serbia’s partial dependence on Russian oil and the announcement by Aleksandar Vucic, President of Serbia, to build an oil pipeline to Hungary.

“I don’t know how many energy producers Hungary has to show solidarity with the RS, but I do know that the exception for Russian energy producers in terms of sanctions against Hungary only applies to Hungary. Hungary has no right, for example, to sell Russian oil products across its border,” Brodic stressed.

Brodic said that the export of electricity in exchange for other energy products is a rare case in Europe.

“Direct exchange is actually a very rare phenomenon in free market countries, usually such exchange for energy, food for oil, electricity for oil and so on refers to countries like Iran, Iraq, Venezuela, to countries that are under sanctions for some reason” , Brodic said.

As regards energy solidarity, he recalls that a similar regulation has existed at EU level since 2017, which refers Member States to each other in the event of gas shortages.

The signing of such agreements only became more frequent this year, when the energy crisis caused by the Russian invasion of Ukraine began.

Relations between Dodik and Orban

The leader of the Hungarian right and the President-elect of the Republic of Srpska have long enjoyed a close relationship.

The first major meeting took place when Dodik met Orban in Budapest in 2019, after which the Hungarian Prime Minister said he wanted to formalize relations and strengthen cooperation with the RS.

They subsequently met several times in Budapest and Belgrade, and Orban visited Dodik in Laktaši near Banjaluka last November.

At the end of last year, Orban opposed the German government’s proposal that the European Union impose sanctions against Dodik.

On the eve of the last general elections in BiH, the Hungarian Prime Minister endorsed Dodik in a video announcement and was one of the few leaders in the region to congratulate him on his victory – but it still took time during the vote count due to accusations of electoral fraud by the opposition.

Economic cooperation between Hungary and the RS has also intensified over the past year.

At the meeting in Laktaši, it was agreed to establish a fund for the assistance of the RS, through which Hungary will help the economy of Bosnia and Herzegovina entity with 100 million euros.

So far, €35 million have been invested in the purchase of agricultural machinery.

A major investment is also coming in the energy sector, as the Budapest-based company “Lugos Renewables” will be the majority owner of a solar power plant worth more than €50 million to be built in the south of Bosnia and Herzegovina.

The company told RFE/RL that construction is expected to start next year.