Is Republika Srpska (RS) selling the arms industry of this Bosnian-Herzegovinian (BiH) entity to Serbia?
This question arose after the Prime Minister of RS, Radovan Viskovic, stated on February 7th that “Kosmos” from Banja Luka, “Orao” from Bijeljina, and the Special Purpose Motor Factory in Pale, which is currently in bankruptcy, “cannot operate in the future without being closely connected to Serbia”.
“Kosmos” and “Orao,” arms industry factories founded in the former Yugoslavia, already have close cooperation with the Ministry of Defense of Serbia. Another pre-war company in this sector located in RS, “Zrak” from Teslic in central BiH, has been majority-owned by Serbia since restructuring in 2016.
BiH media did not receive a response from the Ministry of Defense of Serbia regarding this cooperation.
The Ministry of Defense of BiH stated that “the arms industry is not under the jurisdiction” of that ministry, while the Ministry of Foreign Trade and Economic Relations of BiH, within which operates the Department for Regulating Arms Production, did not respond to inquiries by the time of writing.
However, Aleksandar Radic, a security analyst from Belgrade, emphasized that there is a legal basis in RS for Serbia to take over the military equipment factories in that BiH entity, thanks to the Law on Arms and Military Equipment Production.
This law was adopted at the end of last year in the National Assembly of RS (NARS). According to the law, a foreign legal or natural person cannot have more than a 50% stake in a company producing weapons or military equipment – unless the Government decides otherwise.
In practice, this means that the decision to sell a majority stake to foreigners, in the case of the arms industry, is always made by the Government. The Law on Arms and Military Equipment Production of BiH from 2004 does not mention foreign ownership in this area.
Raising cooperation to ‘a higher level’
“We want to strengthen cooperation between Serbia and the arms industry of RS through these companies, and Serbia is interested,” said Vojin Mitrovic, Minister of Economy and Entrepreneurship of RS.
Regarding the possible sale of this industry to Serbia – Mitrovic said that “at this moment, he does not want to discuss it.” He emphasized that the Ministry of Defense of Serbia and the representatives of the companies will discuss how to proceed.
“Representatives of Serbia and representatives of RS, and these companies, are forming a team that will analyze the situation, what is available, the condition of the equipment, the financial condition, and in that part, we will further discuss how and in what way to cooperate,” added Mitrovic.
Furthermore, he said that both RS and Serbia want to “raise cooperation to a higher level.”
“To expand the range of products, in the case of the ‘Orao,’ to increase the number of engines undergoing overhaul, to overhaul other types of engines, to adopt certain licenses, if it concerns the Special Purpose Motor Factory, to produce engine parts needed for the Serbian Army,” emphasized the minister.
‘Kosmos’ needs ‘strategic partnerships’
When asked what he thinks about the possible sale of the company to Serbia, Dusan Vjestica, director of “Kosmos”, said that the company needs a strategic partnership.
“We have achieved a certain level of growth that we can achieve under certain circumstances, but we need a strategic partner, we need fresh capital, and we need new technologies. We need partnerships with companies that play a significant market role in global markets,” Vjestica said.
He emphasized that Serbia is their biggest export market, but they also export to the European Union (EU) market. He said they do not cooperate with the Ministry of Defense of BiH.
“It is probably not planned, and in terms of the Air Defense resources, the Armed Forces have those resources. For years, we have not received inquiries, we do not receive them because the Ministry probably does not plan financial resources, maintenance funds,” Vjestica said.
He stressed that they would like the Armed Forces of BiH (AFBiH) to be their base, because their job would be much easier, due to the complex customs procedures during export.
Furthermore, he said that since 2017, when the financial restructuring was completed, “Kosmos” has been making a constant profit.
Why does the RS arms industry rely on Serbia?
A military analyst from Serbia and editor of the Balkan Security Network portal, Aleksandar Radic, pointed out that there were previous ideas to “put all arms industries in RS that are not private under the control of some Serbian companies.”
“Earlier, a very unusual public company was formed in Serbia, the “Directorate KS”. It was a wonder of a company with only one person, the only public enterprise that was supposed to encompass part of the factories from RS under its control, and that somehow remained in the past,” explains Radic.
He added that “Orao” has been involved in engine overhauls for a long time because the Serbian Air Force still uses their engines from the pre-war period.
“Probably now the idea has matured again that something could be done again, and it is less of a legal problem than a financial problem. That is, how much money some companies in Serbia need to invest to ensure continuous production,” Radic emphasized.
According to him, nothing concrete has been done so far regarding resolving ownership issues, but with the recently adopted law in RS, there is a “legal basis” for such actions.
He said that in the context of tensions in the region, there should not be a dramatic atmosphere because these factories are “known for their specific production.”
“They do not produce finished products that are immediately usable in the armed forces. They are part of one chain, primarily maintenance support for combat systems that the Serbian Army has,” Radic explained.
He said that Serbia has a plan to modernize airplanes and use them until 2040, in which “Orao” could participate, while the factory in Pale could help modernize the M84 tank.
Furthermore, he stressed that without recognizing the needs of the Serbian Army, these factories have no purpose, and without relying on them, it would be difficult for them to survive in the global market – and that there is “no market” in BiH.
“In the AFBiH, the aviation that had Rolls-Royce Viper engines was grounded in 2006. The Orlovi (Eagles), Galeb 4, and Jastreb (Hawk) aircraft are grounded, with no prospect of ever flying again,” he said.
How do these companies operate?
The Aeronautical Institute “Orao” from Bijeljina in the northeast of BiH deals with the overhaul of aircraft engines.
According to data from the Agency for Mediation, Information, and Financial Services (APIF), which keeps records of companies in RS, “Orao” is over 80% owned by RS, while the rest is held by several public entity funds.
The Institute signed a contract with the Ministry of Defense of Serbia in February 2021 for the overhaul of engines for the Air Force and Air Defense, worth 3.7 million euros.
The Banja Luka Aeronautical Institute “Kosmos,” 100% owned by RS, is engaged in overhauls in the field of Air Defense.
The director of this company, the former leader in the overhaul of radar and missile systems, Dusan Vjestica, said that they “last year conducted business worth several million euros with Serbia.”
“Orao” and “Kosmos” operate positively, according to financial reports available on the APIF website. Unlike them, the factory in Pale has been in bankruptcy since 2019.
However, the Minister of Economy and Entrepreneurship of RS, Vojin Mitrovic, pointed out that it is not far from restarting production.
”The equipment is there, the space is there, spare parts and certain raw materials, when I say raw materials, these are raw engine blocks that need to be processed, which would be ready for installation in tanks,” Mitrovic concluded.
Photo ©️ Mauricio Campino / U.S. Air Force