November 29, 2018 | by Edo Omercevic Print

Consumer rights represent the basic ground for functional market institutions and without the right to terminate contracts with service suppliers, non-egalitarian laws are introduced and the market suffers intense violation of freedom of contract and contract equalities are deteriorated. History cannot be eradicated and our institutions are some kind of depositors of our collective memory. As a result, many institutions in Bosnia and Herzegovina (“B&H”) are still based on a socialist institutional legacy, a legacy that we started to leave behind since the early 90’s of the last century. One example of such transformational resistance is the institution of a central heating service that is very common in the country. 

In fact, it is so widespread that living in B&H and being an owner of an apartment means inevitably that you will need to provide your property with central heating energy. Generally, the central heating system has a good infrastructure, so as the owner you will not have any problems to satisfy your need for central heating services that are of much use during the period of cold winter days. But if you, as a beneficiary, decide to end your private contract with the supplier of central heating energy, you will be informed about two existing possibilities for contract termination, i.e. temporary and permanent termination of contract. While a termination on a permanent basis means that you will stop receiving central heating services and in return your payment obligations cease to exist as well, a temporary termination means that you will stop receiving the service, but you are obliged to pay a fixed “retainer” fee to the supplier. So far, so good. However, a problem emerges when your individual rights are linked to collective decision making.

You on your own cannot cease to pay for a service

Informed by the local citizens that they are not able to terminate their contracts on a permanent basis, members of the Center for Advancement of Free Enterprise (“CAFE”) decided to analyze the mechanisms of the central heating services and tackle the incomplete information that exists in the market. The inability of the beneficiaries to fully exit from the contractual relationship was explained by the central heating supplier with the argument that permanent exclusion is not possible for individual beneficiary because it is linked to the apartment building as a unity which means that permanent contract termination is possible just in one scenario, one in which all beneficiaries decide as a collective group not to be supplied with central heating energy.

In this case, if you are the owner of one apartment in the building unit and you decide for any reason to end the contract with the central heating supplier with explanation that you are not using that apartment, or simply that you wish to use other alternatives for heating, the supplier will deny your customer right to end the contract permanently and offer you only the possibility to terminate the contract on temporary basis with the condition that you will continue to pay a “retainer” fee which amounts from 10% to 40% (depending in which municipality you own the apartment) of the ordinary invoice value you were paying. Local suppliers of heating energy justified this limitation by classifying the pipes that go through the private apartments in the building (and the apartment of the person who wants to stop receiving the service) as part of the building unit, and as such to be a public good or in a collective ownership. Consequently, each individual owner, even if they decide to stop receiving the service, need to pay fees for maintaining pipes and the benefit of spillover heat that is a collateral cost that exists due to the fact that pipes go throughout the whole building.

It is just a case of imperfect information

In reality there is no law collisions except that suppliers of heating energy were and still are using derogated law from the Yugoslavian period, which stated that heating pipes are a public good and therefore pipes’ maintenance needs to be paid by tenants and even if a beneficiary decides to end the contract with the supplier he/she cannot do that on permanent basis because as a tenant he needs to pay for pipes’ maintenance as long as the whole collective in form of an apartment building does not collectively decide to stop the service. Modern laws regarding the customer rights in B&H are very clear that heating pipes are not a public good but the ownership of the supplier and that every service that can be measured, defined and individually charged must be treated as individual service. The Institution of Human Rights Ombudsman in B&H concluded in their answer that law is very clear on this topic so there is no room for any gap and need for extrinsic interpretations of the law when the intrinsic cognitive meaning of the law is very precise, and one in which differentiation between individual and communal utilities are clearly recognizable.

In 2009, The Institution of Human Rights Ombudsman in B&H, received an appeal regarding the problem of impossibility of contract termination with the supplier of heating energy. Namely, the beneficiary complained that he had repeatedly addressed the central heating supplier in Tuzla with a request to terminate the supply of heat energy and to free him from paying the fixed “retainer” fee amounting to 30% of the price for heat energy. Central heating service in Tuzla responded with a negative answer arguing that they as a supplier do not have internal normative acts allowing the contract termination with the beneficiary even in the situation when the apartment is empty and not in use. The Ombudsman's view was categorical: Central heating service in Tuzla neglects the right of the individual as a consumer, thereby violating the legal obligation of equality of all consumers bearing in mind that beneficiary rights in this scenario were violated. The Municipal assembly of the city Čelinac decided that users of heat energy can be excluded from the heating system, but they are obliged to pay a fee of 30% of the total heating price after the temporary contract termination. The Constitutional Court ruled that the obligation to pay a fee after the contract was terminated was not prescribed by the law and that the Assembly of Čelinac exceeded its constitutional and legal authority. We also witnessed a similar case in the city Travnik, in which the Consumer Association of Central Bosnia Travnik, had a dispute with the legal entity Unis Energetika Sarajevo. Travnik Municipality awarded Unis Energetika a monopoly position, forcing anyone who is within the pipeline grid of the company to pay a “retainer” fee even in the case the users opted to stop using the service. Unis Energetika defended their position by already mentioned arguments that the fixed amount was obligatory payment for the heating pipes maintenance. However, the Council of Competition of B&H rejected those arguments made by Unis Energetika as an illegal act not recognized under the utility laws of the canton and in violation of the very specific laws regarding the autonomy of consumers and their right to terminate contracts with suppliers of any kind of utility services.

CAFE and the elimination of the “retainer” fee in Zenica

Given that the same situation was present in the city Zenica as well, in which CAFE is headquartered, its members decided to tackle this issue and pressure their local politicians to rectify and update the law to the market-based standards. The foundation was laid down with their policy paper written by two members, Assist. Prof. Ajdin Huseinspahić & MA Dženan Smajić, contributing to the debate about violation of the utility laws and consumer rights. By questioning the basis of the above mentioned argumentation over the pipes’ ownership and the resulting conclusion that the central heating service are a communal utility and a public good, CAFE clarified that such a practice is in violation of the current legal framework and that the fixed monthly “retainer” fees are illegal costs and a burden on the citizens. The ownership problem was dealt with in the policy paper by highlighting the boundaries between private or public ownership and the public good. Reading the very precise laws in their original meaning it was declared that heating pipes are not a public utility and that the tenants living in the building units are not obligated to pay maintenance of those pipes because the heating pipes are not their ownership from which it is derived that beneficiaries are only obligated to pay for the used heating services. Following the conclusion that the ownership boundaries in the building units are very precise and clear, individual consumers do have the right to terminate the contract with central heating suppliers without a communal support for such a decision.

As part of their strategy to create public pressure, the policy paper was distributed to all members of the Municipal assembly of the city Zenica and a public statement was provided to the local news agencies. Once a political party was found that was willing to support CAFE‘s case, a public debate was organized and covered in the local news channel.

After the pressure was built, the topic was brought forward to the Municipal assembly and with a unanimous vote it was decided to abolish the “retainer” fee and allow citizens of the city of Zenica to permanently terminate their contracts, on individual basis, with the Central heating service of the city of Zenica.

The project lasted more than a year, and was followed by the media and political parties, fortunately ending with the Constitutional Court decision as a final word on this discussion with a conclusion that B&H as a state respects the market rules of equal protection of all consumers. This was a huge legal victory for the consumer rights and CAFE as a non-government organization which stands for market and social liberties and having it as a part of this story is astonishing and great legacy for their further work.

Edo Omercevic portrait
Edo Omercevic is the Co-Founder and President of the Center for Advancement of Free Enterprise and was a lecturer at American University in Bosnia and Herzegovina. Learn More about Edo Omercevic >