Risk for Croatia: Millions for a Pipeline in Vain?

When the House of Representatives of the Parliament of the Federation of Bosnia and Herzegovina gave the green light for the Law on the South Interconnection, and Croatian Prime Minister Andrej Plenković and Chairwoman of the Council of Ministers of BiH Borjana Krišto signed an agreement in Dubrovnik with U.S. Secretary of Energy Chris Wright for the construction of a pipeline that will connect to the LNG terminal in Krk, it seemed like it was only a matter of days before the excavators would start digging. The project, valued between 1.5 billion and 1.8 billion dollars, quickly caught the eye of the Croatian construction industry, which hoped for significant engagements and an opportunity to substantially increase its revenues from such a massive infrastructure project.

Political Interest Boulders

However, the whole story has become complicated again, and where else but in the political turbulence of the hilly Balkans, where even a pipeline that should bring energy security and open millions of jobs cannot escape the well-known formula: the more important the project, the more political interests can hinder it. Currently, negotiations are ongoing regarding concessions, state property, and jurisdiction, which only means that the start of works has been delayed due to the well-known Balkan discipline: everyone is for the project, but each side wants to tailor it to its own interests.

And while that situation remains unresolved, it is worth noting that the only source of gas in the neighboring country is Russian, Gazprom gas, which comes through the Turkish Stream via Bulgaria and Serbia. Serbia is the least of the problems here. Bulgaria, as an EU member, must sever all ties with Moscow by the end of 2028, including gas transport to third parties, which will particularly endanger BiH.

The West has been warning for years that Moscow uses energy as a geopolitical weapon, so the decision for BiH to receive an alternative to Russian gas was made far from Sarajevo, in much larger geopolitical games. After Croatia built the LNG terminal, the solution seemed almost logical: a southern interconnection should be built to bring LNG gas from Croatia to BiH. Not only would the BiH market open up to new suppliers, but it would also reduce dependence on Russia. Washington naively counted on the fact that once a technical solution was found, the political part of the job would almost take care of itself. But in the Balkans, gas is never just gas.

The entire project would probably already be operational if it weren’t for political blockades. The Bosniak side demanded that the project be led by Sarajevo’s BH-Gas, while HDZ BiH insisted on establishing a new entity company based in Posušje. Milorad Dodik also played his part in the blockade, as no new pipeline from Croatia was in his interest, but he managed to negotiate his political rehabilitation.

Three Groups of American Lobbyists

How heated this topic has become in the neighborhood is best illustrated by the fact that all three sides have engaged American lobbyists in Washington to advocate for their interests. The conflict over who will control the pipeline and manage future revenues has thus become a battleground for political competition in BiH, and, as expected, the project has been significantly slowed down. A dramatic pressure from the U.S. followed, which is why the aforementioned law was eventually passed, which was somewhat acceptable to all three sides as it established a model in which each of the key actors in BiH achieves its strategic goals. The wolf is full, the sheep are counted – at least on paper.

While the story of the South Interconnection was politically untangling in the neighboring country, on the other side of the world, in the U.S. state of Wyoming, known for its extremely flexible tax framework and high level of protection for data on actual owners, another story was simultaneously emerging.

At the end of last year, a company named AAFS Infrastructure & Energy LLC was registered in that state, which, as American media increasingly note, has no references in building or managing energy infrastructure. And which received a job in BiH without any tender. And what a job: according to the passed law, the Americans will receive a concession for as long as fifty years for gas distribution in BiH, and this according to the BOT model (build – own – operate – transfer).

The concession agreement has not yet been signed, but the contours of the arrangement are already known. The future concessionaire would have to secure about 1.5 billion dollars from private capital and credit sources for the construction of the pipeline from Posušje to the interior of the Federation of BiH, and the pipeline would only be transferred to the state after fifty years. But American ambition, evidently, does not stop there.

Increased Concessionaire Appetite

The concessionaire is now counting on building thermal power plants in addition to the pipeline, which will be the main consumers of that energy source, which is quite a radical shift. That is not the only thing AAFS is counting on. There are indications that the investor is also seeking a thirty-year concession for managing airports in Sarajevo and Mostar, so it is not surprising that negotiations about the future of state property are ‘stuck’.

And who designed such a shift is no longer much of a secret. According to the American portal Oilprice and journalist Charles Kennedy, the company responsible for the Bosnian energy shift was created under the auspices of U.S. President Donald Trump himself, and behind it are people like his personal lawyer Jesse Binnall and Joseph Flynn, the brother of former National Security Advisor Michaela Flynna. Local support in Sarajevo was secured by the already well-known Bosnian entrepreneur Amer Bekan, who has been appointed director of the Sarajevo branch.

That the agility of the American administration on the ground serves exclusively the interests of a few individuals from circles close to the American president is also interpreted by political and security analyst from BiH Adnan Huskić.

– American LNG is part of a broader picture, but here, in my opinion, the concrete commercial interest of the actors involved in the project is more important. How everything will end depends on what will happen next with this project. I do not see that any of the domestic actors is a big winner; they seem to be secondary in the whole story. And who will benefit, we will see when the project implementation begins, but also if nothing comes of it, and we will pay millions after arbitrations to AAFS for not being brought into the job. And that is someone’s gain, Huskić believes.

Key Steps Awaited

Lider sent an inquiry to AAFS’s Sarajevo branch with many questions about the future of the South Interconnection project, and the answers, signed by the director Amer Bekan himself, were received within just a few hours of the inquiry. From them, it is clear that despite the big announcements, the key prerequisites for the start of the project have not yet been met.

– Before that (the tender for subcontractors, note) several key steps need to be completed: finalize and sign the concession agreement with the Government of the Federation of BiH, ratify the intergovernmental agreement between Bosnia and Herzegovina and the Republic of Croatia, and resolve issues of state property in BiH, which is a prerequisite for the realization of infrastructure projects of that kind, Bekan replied.

To our question of whether they have closed the financial structure, or with which financial institutions, investment funds, or banks they are currently negotiating, Bekan replied that the capital for the South Interconnection project has been secured.

– The capital for the realization of the project has been secured, originating from the U.S. For business reasons, we cannot disclose the names of specific banks or funds with which we are negotiating or cooperating, and that information remains confidential until the project financing is formally closed. Currently, the part of the financial structure related to gas power plants (CCGT), which is part of AAFS’s broader investment package, is being finalized, AAFS representatives confirmed, directly confirming that the investment does not stop at the pipeline but is also being expanded to include electricity production.

To the question of what AAFS’s strategic plan is for engaging local and regional construction and engineering companies on the section through FBiH and whether and under what conditions the participation of Croatian companies with experience in building high-pressure gas pipelines will be enabled, they stated that the main contractors on the project will still be American companies. But that does not mean that the doors are closed to the Croatian real sector.

Messages for Croatian Operations

American investors thus announce that they will collaborate on the project with local companies from BiH and the region, and the possibilities for including Croatian companies, as well as the conditions for their participation in construction and assembly works and equipment procurement, will only be known once public calls and tenders are announced. They also state that they intend to build the project in accordance with European Union regulations, but with the application of technical solutions and practices of American investors. The criteria for selecting future contractors and suppliers will be defined in the tender documentation. But when the tenders might be announced, AAFS does not want to speculate for now.

These are all important messages for the Croatian construction, engineering, and industrial operations: the positions of the main contractors will be entrusted to American companies, while companies from Bosnia and Herzegovina and the wider region will participate within subcontracting and regional cooperation models. Domestic contractors, who built the high-pressure network with Plinacro across Croatia, cannot participate in tenders as main contract holders, but they will be able to collaborate on the project in partnership with American engineering giants. The good news is that the project will be designed and built in accordance with European Union regulations and standards, which means that the European technical certificates and reference lists held by Croatian companies will be valid entry criteria.

For the Croatian business community, an important message is that the American investor sees the Croatian gas transmission system operator Plinacro as a future partner at the interconnection junction near Imotski and Posušje. This is a company that manages the Croatian gas transmission network and should therefore play a key role in the technical and operational connection of the two systems. However, more concrete cooperation will evidently have to wait. AAFS representatives state that operational coordination will intensify only after they complete the main project and obtain all necessary construction permits for the Bosnian section.

A similar message is sent by Plinacro, with the caveat that it will only enter the project if the investment is economically justified and if its realization does not lead to an increase in gas transport tariffs for users of the transport system in the Republic of Croatia. And therein lies one of the key risks of the whole story. The American investor does not want to talk about deadlines for now, and the ball has been returned to the field of Bosnian politics and bureaucracy. Until concessions, state property, and other prerequisites are resolved in BiH, the Croatian side cannot do much either.

Dalmatian Lesson

Therefore, domestic energy experts warn that Croatia should not prematurely take on the risk of its own investments. Energy analyst Zdeslav Matić believes that the construction of the Croatian branch, which is 74 kilometers long, could become a serious financial problem if the leasing conditions are not firmly agreed upon beforehand. The worst-case scenario, he warns, would be for Plinacro to build the pipeline to the border, only for the project on the other side of the border to get stuck again due to political conflicts. Croatia would then end up with an expensive pipe that ends in a plug. And the bill could ultimately be paid by domestic users of the transport system as part of the tariffs.

Matić also raises the question of actual market demand in BiH, drawing a parallel with the so-called Dalmatian lesson. With gas prices on European exchanges exceeding 60 euros per megawatt-hour, it is a big question of who in BiH can even afford that energy source. A similar outcome has already occurred in Dalmatia, where a main gas pipeline was built, but the local distribution network remained underdeveloped, and consumption minimal.

– In BiH, the population mostly heats with wood or heating oil, and people generally do not have the money for the expensive conversion of heating systems. Even a scenario in which gas would be used for new gas power plants carries enormous risk as the delivery of turbines takes about six years. For the entire investment to pay off with those gas and equipment prices, the electricity produced would not be affordable for that market. Who would then pay that high price? These are all open questions that need to be considered, Matić believes, concluding that the story of the gasification of Dalmatia must serve as a clear lesson that one should not enter a project without solid commercial guarantees.

Plinacro Ready for the Construction of the Croatian Section

While political and legal knots are just being untangled in Bosnia and Herzegovina, the Croatian gas transmission system operator Plinacro has brought its part of the South Interconnection project to the very end of the pre-investment phase.

The Croatian part of the project consists of two key sections with a total length of 74 kilometers: the pipeline from Dugopolje to Zagvozd (52 km) and the section from Zagvozd to Imotski – the border with BiH (22 km), both with an operating pressure of 75 bar.

– Construction permits have been obtained for both sections, thus fulfilling key spatial planning, environmental, and administrative legal prerequisites. After securing the necessary investment funds, further activities aimed at construction can be initiated, they say at Plinacro.

However, the initiation of public procurement procedures for the procurement of pipes, equipment, execution of works, and expert supervision is on hold ‘until the final investment decisions are made and the sources of project financing are secured’.

– Therefore, at this moment, it is not possible to prejudge specific deadlines for the initiation of individual public procurement procedures, the company stated.

They remind that the total estimated value of the investment on Croatian territory at the beginning of 2026 was 180 million euros and explicitly emphasize that final investment decisions and the start of works depend on securing an economically sustainable financing model that will not burden Croatian consumers.

– The level of leasing should be such that the investment is economically justified and that its realization does not cause an increase in gas transport tariffs for users of the transport system in the Republic of Croatia. The Croatian side will begin work on the project after securing a minimum lease of capacity, i.e., when contracts for gas transport with users at the interconnection are concluded in a scope that ensures the economic justification of the project. In the event that market interest and expected gas consumption in Bosnia and Herzegovina are not sufficient to secure the necessary long-term lease of capacity, one of the options is to secure non-repayable financing from other sources, the company stated.

Plinacro has thus brought the preparation of the Croatian part of the project to a high level of readiness, so the further pace of implementation will depend primarily on establishing an appropriate institutional framework on the Bosnian side, agreement among the relevant project holders, and securing an economically sustainable financing model. As for the American investor, operational coordination with Plinacro will be intensified, the Sarajevo branch stated, only at the moment when AAFS completes the main project and obtains all necessary construction permits for the Bosnian section.