April 10, 2010 -
PRLog -- Strabag's decision in late April to delay the start of construction on major highway project the Banja Luka-Doboj highway - part of a larger EUR3bn scheme - is a disappointing development for the country's infrastructure sector. The highway project would have been a key thrust behind value generation for Bosnia's infrastructure sector in 2009 and its delay will send shock waves throughout the sector, re-affirming our forecast of a sharp contraction of industry value real growth for 2009. In BMI's Q309 Bosnia Infrastructure Report we forecast that the industry value real growth will fall into negative territory for 2009 - in line with the contraction of the wider economic activity - to -8 % and industry value will fall to BAM1.12bn (US$764mn), from an estimated BAM1.18bn (US$865mn) in 2008. Bosnia's low score in the Business Environment rating is symptomatic of this very low industry value - below US$1bn. But more importantly, it is symptomatic of structural deficiencies in the overall investment climate and institutional infrastructure. These deficiencies are much more worrisome hurdles for the development of Bosnia's infrastructure than the low industry value and sector growth scores, and will therefore be much more detrimental on Bosnia's business environment score over the long term. In BMI's Project Finance Ratings for Central and Eastern Europe, Bosnia ranks in 16th place out of 16 countries. Bosnia's score has seen the most significant decline (along with the Baltics) this quarter, reflective of the deteriorating expectations for financial and exchange rate stability that in turn jeopardize the long term value of revenues of a project. Though the initial phases of design and construction contain great levels of risk for sponsors and investors, Bosnia presents a remarkably low score for the commissioning and operating phase of a project, indicating long-term risks, ranging from price risk due to weak regulatory oversight and demand risk arising in turn from high vulnerability to external financial and economic shocks. The weaknesses highlighted above became pronounced with the withdrawal of potentially one of the country's largest foreign investors. The Czech Republic's energy major CEZ announced in January 2009 that it is pulling out of a US$1.4bn joint venture (JV) with the Republika Srpska [RS] utility EPRS because 'the Bosnian Serb partners failed to register property in a timely manner, issue concessions, expropriate land and put forward to parliament a feasibility study in 2006', Reuters quoted the CEZ project manager saying. Turning attention to the prevailing macroeconomic conditions, BMI's expects the deterioration of Bosnia's external environment, including tighter regional credit markets, to weigh heavily on the country's growth in 2009. BMI has revised down Bosnia's real GDP growth forecast for 2009, now expected to contract by -3%, down from previous a forecast that saw growth of 0.5%.
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