(Refiles to correct day in intro to Wednesday)
(Adds Bosnian Serb energy ministry reaction in para 7-9)
By Olja Stanic
BANJA LUKA, Bosnia, Jan 28 (Reuters) - Czech power company CEZ <>
said it will withdraw from a 1.4 billion euro ($1.85 bln) power project after
blaming its joint-venture partner, the Bosnian Serb government, for breaches of
contract on Wednesday.
"We have informed the government that we aim to sell our 51 percent stake in
the joint venture because of contractual breaches," Aleksandar Obradovic,
general manager of the joint venture Nove Elektrane RS, told a news conference.
CEZ and Bosnian Serb power utility EPRS signed the deal in 2007 to include
the construction of a coal-fired power plant of up to 700 megawatts, development
of a mine and reconstruction of an existing power plant in the southeast town of
Gacko. At the time, it was the largest-ever investment in the Serb Republic.
Srdjan Blagovcanin, of the Bosnian branch of the Transparency International
anti-corruption watchdog, said the CEZ announcement will damage the reputation
of the Serb Republic as an investment destination.
"This will send a catastrophic signal to investors who may have intended to
invest in the Serb Republic and will also hurt the bourse," he told Reuters.
Bohdan Urban, the project manager of the RITE Gacko power plant, said the
government failed to register property in a timely manner, issue concessions,
expropriate land for the mine, and put forward to parliament a 2006 feasibility
study.
The Serb Republic energy ministry said it would review in detail the CEZ
motion and decide on its future activities.
"The power utility EPRS had some objections to the feasibility study and has
engaged experts to offer alternative solutions in the interest of both parties,"
the ministry said in a statement.
It also said "both parties have the right to seek compensation regardless of
the outcome of the dispute."
Investors, activists, financial market analysts and media said the
government conducted negotiations with secrecy, failed to provide timely and
accurate accounts, and had agreed to terms that hurt the interests of small
shareholders.
Critics also said the government failed to get a fair price by evaluating
RITE Gacko at 204 million euros at a time when its market value was 390 million
euros.
At the same time, small shareholders, who owned 20 percent in the firm
through a post-war share compensation scheme, complained they ended up losing
part of their savings without being consulted.
Under the deal, CEZ holds a 51 stake of Nove Elektrane RS, while the
reminder belongs to the regional power company EPRS and small shareholders.
(Additional reporting by Maja Zuvela; Editing by Adam Tanner and Andrew
Macdonald)
