Millions from Concession Fees Remain with Private Owners

The government of Herzegovina-Neretva Canton has not been charging concession fees from private firms excavating stone and ore for years. At least 53 firms are exploiting natural resources in the canton, while only one is paying the fee.

The Austrian firm Alpine Bau bought huge amounts of granite from a Jablanica quarry in 2008 for 70 pfennigs per square meter. Alpine Bau then crushed it into gravel and sold it to the Railways of the Federation of Bosnia and Herzegovina (FBiH) for 60 times what it paid.

Over the past three years, Alpine Bau had bought up 165,000 KM of granite and sold it to the railroads for 9.9 million KM.

The stone was sold by the former state company Granit via a firm called Alpine that Alpine Bau registered in Banja Luka. The material is used as the foundation under reconstruction of the railway from Konjic to Čapljina, done by Alpine Bau and another Austrian firm Swietelsky.

Machines are halted in Donja Jablanica while Swietelski waits for the outcome of a public tender for reconstruction of another stretch of railway from Bradina to Sarajevo.
Photo by CIN

Records from the state-level railways corporation in charge of the reconstruction show that this stretch cost about 100 million KM for which the government took out a loan from the European Development Bank.

Concession fees for the excavated granite are supposed to help pay back the loan. However, the government of Herzegovina-Neretva Canton which has authority over the excavation site in Jablanica, has not collected these fees in apparent violation of a 2003 Cantonal Concession Law.

The annual fee for granite in the canton is currently 25 KM per cubic meter. In other words, the municipal and cantonal authorities could have collected at least 5.9 million KM for the granite Alpine Bau supplied the railways.

Alpina’s stone crushers in Granite excavation site worked for almost two years after Granit filed for bankruptcy.
Photo by CIN

The government also decided in December 2008 that in order for a firm to be eligible for a concession license, it had to pay a one-time reimbursement amounting to at least 1.5 percent of the value of the site – or of the revenue the firm expected to make through the end of contract.

However, neither Granit nor Alpine have a concession license and paid nothing.

Granit has a license for excavation dating back to before the war. It dug in a site encompassing 15.2 million cubic meters for more than 65 years.

The cantonal government sold its shares in Granit to a general partnership led by Muhamed Marić, who’d been a director of the original company, in 2004. However, this general partnership did not meet obligations to invest almost 14 million KM and to hire 85 workers. After three years of litigation, the government rescinded the privatization contract in March 2010.

Hundreds of unused stone blocks sit in the Granit compound.
Photo by CIN

In January 2010, production was halted and Granit went into bankruptcy, which is ongoing.. In May of 2012, Granit began extracting stone again to pay back its debts.

Granit submitted a request for a concession license in 2006, but the cantonal government had a condition – that Alpine Bau be allowed to take over the general partnership’s ownership shares in the firm. Granit’s biggest shareholder refused and the Austrian firm gave up on that idea of taking over the firm.

Granits former director Muhamed Marić says that the firm met all criteria for the award of concession license in 2006.
Photo by CIN

According to the railway contract Alpine Bau bought from Granit 2.5 million cubic meters of stones for 1.8 million KM. The railways used less then one tenth of that and the rest is still at the quarry.

Marić said that Alpine Bau bought stone that Granit had deposited in the quarry for decades as the firm extracted bigger blocks of granite. He said that he would have signed the same contract because it helped to clear out debris that hindered production.

Business Deals with Public Companies

Three other local companies that don’t have concession contracts to extract granite from Jablanica are Granitmont, Jablanit and Gabro-lit. Unlike Granit, they have not obtained a license to excavate.

Granitmont’s site, owned by Konjic businessman Enver Bećirević, has more than 34,000 cubic meters of stone. Gabro-lit, with reserves of 29,000 cubic meters, is owned by Zejnil Delalić, a war-time commander of the BiH Army from Konjic and a former president of Granit’s Board of Directors. The canton and the municipality could have collected at least 1.6 million KM in fees based on the amount of stone.

The size of the excavation site Jablanit claims has not been established. The firm owned by Nezir Kevrić has done no exploration. For this reason the Ministry of Industry denied its request for a concession license.

One of the excavation sites in Jablanica area. It belonged to Granit, but now is owned by Zejnil Delalić, former president of the firm’s Board of Directors.
Photo by CIN

Granitmont and Jablanit export crude stone and granite and sell remainders to private firms and public agencies.

Granitmont built granite pavement worth 157,000 KM in Jablanica in 2011, according to the municipality’s web page. On its own page, Granitmont enumerates 16 squares and streets in BiH it had paved with granite stones.

Jablanica Attorney General Sead Delalić said there is nothing controversial about the fact that Granitmont got a public tender because the Law on Public Procurement does not require a firm to show proof of payment of concession fees in order to be allowed to participate in public bids. However, officials from the BiH Agency for Public Procurement say that public bodies can request this.

Jablanit’s web page says the firm has done stonemasonry at Freedom Square in Tuzla and was paid by that municipality. It also worked on the renovation of a Mostar branch office of the Union Bank–the only government-owned bank in BiH.

Everybody Wants to Exploit, But No One to Pay

The companies extract other stone in the canton. Almost eight years after the Law on Concessions was passed in the canton, 53 firms, including those from Jablanica, are digging for stone and ore. However, the cantonal government collects concession fees only from Konjic–based PBP which extracts dolomite, lesser quality stone than granite.

PBP’s owner Muhamed Novalić says that his firm is struggling to stay afloat because competitors not paying fees can offer lower prices.

Muhamed Novalić, owner of PBP , said authorities were neither closing down illegal quarries, nor requiring their owners to show proof of the stone’s origin.
Photo by CIN

He said that he asked for a concession license in 2003 and the following three years he spent some 300,000 KM on a mining study and a collection of 30-odd licenses and approvals needed to legitimately conduct his business. The cantonal government awarded him the concession in 2006, but he had waited another three years to sign the contract. During that time, the government was restructuring and the ministry was split in two.

Nebojša Bosnić, assistant to the minister for energy and mining at the Ministry of Industry, said that 65 firms have applied for concession licenses, but the ministry has established that only eight requests were founded.

In a 2009 report on concessions, the ministry said that five companies, including Granitmont, Gabro-lit and Jablanit, were in the final phase of compiling paperwork to apply for concession licenses. However, no licenses have been granted to them and Jablanit’s request was rejected.

Dragan Obradović, inspector general at the cantonal Ministry of Industry, said awarding concession fees takes a long time because some firms delay paying application fees – meanwhile continuing to exploit natural resources without authorization.

Granitmont’s machines were digging on Dec. 6, 2011, at its excavation site even though prohibited from doing so.
Photo by CIN

He said inspectors caught Granitmont doing this in July 2011, and filed a complaint against the firm. Granitmont pleaded guilty and last October the Municipality court in Konjicu let it go with the warning that if caught again it would be fined 5,000 KM.

The Center for Investigative Reporting in Sarajevo (CIN) photographed Granitmont’s machines digging in the site in December 2011. But Obradovic said no fine was levied because officials did not catch the firm illegally excavating in six months following the verdict.

Obradović says inspectors were authorized to fine firms for illegal exploitation only since the beginning of 2010 when the FBiH and cantonal Laws on Mining and Geological Investigations were passed.

Since then inspectors have issued 51 misdemeanor complaints and collected about 400,000 KM in fines, each of between 5,000 and 15,000 KM.

Long Pending Changes to the Law

Amil Babić, owner of Babić and president of the Cantonal Association of the Users of Natural Resources, says that the firms were not going to sign the concession agreements under the current circumstances, because the law set out fees that are too high.

The Association wants the one-time concession fee thrown out and they want the government to reimburse firms for half of exploration costs.

Babić has been exploiting natural resources without a license because he’s unable to obtain a zoning permit. His quarry is located within the confines of a natural reserve.

Dragan Obradović, Canotnal Inspector General, says that quarry owners are making millions of KM, but they did not want to pay its dues to the state.
Photo by CIN

The Centers for Civil Initiatives (CCI) monitored the cantonal assembly’s work from the beginning of 2007 to August 2010. In its report, this watchdog organization says that the government institutions have not done anything for years to collect concession fees and has not taken the matter seriously.

Ramiz Jelovac, the assembly president, said that there was no rational explanation for this.

The Ministry of Industry wrote CIN in December 2011 that the cantonal government was in the fast lane to change the Law on Concessions and to clear the obstacles stopping the Concession Committee – established in 2006 – from becoming operational.

In March 2012, the cantonal government banned public bodies from buying stone from firms illegally excavating, while mining and market inspectors were ordered to do more to curb illegal operations.

Nothing has yet been done so far to change the Law on Concessions despite government’s promise that this would happen sooner rather than later.