Bosnia's BH Gas state-owned gas distributor signed a grant agreement with the European Bank for Reconstruction and Development (EBRD) and the US Agency for International Development (USAID) on Wednesday for a project to connect the gas grid of Bosnia to neighbouring Croatia.

BH Gas, which is owned by the Federation entity (FBiH) of Bosnian and is the largest gas provider and distributor in Bosnia and Herzegovina, said in a press release on that the agreement would activate funds earmarked for environmental impact and feasibility studies for the so-called South Gas Interconnection project.

The project involves building a gas pipeline from Zagvozd in southern Croatia toward the Bosnian town of Posusje and on to Travnik in Bosnia and Herzegovina, with an additional pipeline section branching off towards the city of Mostar.

Once completed, the project would secure an additional gas supply route for Bosnia and Herzegovina, which is otherwise entirely dependent on Russian gas imports via a trunk pipeline that passes through Serbia.

The project was launched as an alternative to the shortest and cheapest route to connect the two countries’ gas networks from Slavonski Brod in Croatia to Bosanski Brod in Bosnia, two cities which lie across the border from each other, as authorities of the Republika Srpska (RS) entity in Bosnia, which control the territory where Bosanski Brod is located, refuse to agree to the plan.

Instead, the Serb-dominated RS wants to build a new pipeline which would pass only through RS territory within Bosnia, connected to Serbia's gas network, in order to supply northern areas of Bosnia and Herzegovina located in its territory.

USAID will provide $500,000 for the South Gas Interconnection project, while the remaining costs will be covered by the EU. BH Gas expects that the detailed plans and documents required for the project could be completed by the end of 2020.