Is life really worth living under King Babo?: It's all gone horribly wrong for Fikret Abdic, the Bosnian Muslim tycoon at war with the Sarajevo government, writes Emma Daly

VELIKA KLADUSA - In the heart of the fiefdom run by Fikret Abdic, the Bosnian Muslim businessman at war with the government in Sarajevo, the buildings remain unscarred. But at the only bar still in business in Velika Kladusa as many as 20 per cent of the customers are walking wounded. The Balkan business king is in his castle, watching his world go horribly wrong.

The soft green hills of 'Zapadna Bosna' - the tiny self-declared Autonomous Province of Western Bosnia - cannot deaden the sound of shells falling at the front, 6 miles south of Velika Kladusa. And the stone walls of the old castle cannot hold up the crumbling Abdic empire. Less than a year after declaring independence from Sarajevo, Mr Abdic, or 'Babo' (daddy) as he is known to his subjects, has seen Kladusa sink almost as far into the slough of despond as the rest of Bosnia.

It wasn't meant to be this way. When Mr Abdic, boss of Agrokomerc and its 13,000 Yugoslav employees, signed a deal with the Bosnian Serbs 10 months ago, he promised peace and prosperity. Bihac, perched precariously between the Krajina Serbs in Croatia and the Bosnian Serbs, could not afford a war with its predatory neighbours to the south and east, he said. Perhaps he was right, but the fruit of his truce with Radovan Karadzic was bitter: a vicious inter-Muslim conflict with government forces in southern Bihac that pits brother against brother.

The Abdic empire, built around Agrokomerc, depends on a dangerous and delicate web of trade links, involving Croatia (which gave Mr Abdic a free port in Rijeka), its Serbian enemies in Knin, the Bosnian Serb army besieging fellow Muslims in the Bihac pocket, and Belgrade. In happier times, the Abdic commercial convoys travelled through Croatia and its Serb- held areas to Zapadna Bosna, enriching everyone along the route and supplying Agrokomerc with raw materials and Kladusa with goods. For a price - pounds 125 - citizens could travel by bus to Croatia. But Zagreb is now locked into an alliance with Sarajevo, and it has regretfully sacrificed Mr Abdic - and his cash. None of his buses and lorries have crossed to Kladusa since 5 July, and a Bosnian government offensive, launched from southern Bihac on 10 June, has drawn Agrokomerc workers to the front line.

During an interview in his comfortable castle, Mr Abdic raged against the doom merchants who say Croatia has abandoned him ('No one has told me'), and raved about the 'fundamentalists' in the south - he paints the people led by his old political rival, President Alija Izetbegovic, as mad mujaedin opposed to the civilised, European Muslims of Kladusa. Sarajevo returns the compliment: to the government there, Mr Abdic is a traitor who sold out to the Serbs butchering his fellow Muslims. Foreigners who know Mr Abdic well describe him as 'a sort of 19th century industrialist', arrogant, paternalistic, oppressive, cunning and rich.

He can be spiteful: the UN says he has paid Serb militiamen in Croatia to block aid convoys bound for the south since 30 May. 'His policy is to starve out Bihac,' said Monique Tuffelli, a UN worker in the pocket. His policy, Mr Abdic said, is to wait until the people of the south realise how much better life is under Babo.

But not all he thinks about his people is good; the UN has found at least 300 civilians imprisoned in Zapadna Bosna, accused of aiding the other side, sometimes by dint of having family members there.

Mr Abdic and his officials were enraged by the UN report; one described Tadeusz Mazowiecki, the UN human rights envoy, as 'a criminal' in the pay of Sarajevo. They did not deny the claims, but argued only that the other side is worse. he prison camps - set up since the 10 June offensive - are a sign of the fear and paranoia enveloping the Abdic regime; so are the constant allegations that French peace-keepers are smuggling arms to the other side.

'Security' is paramount; 'Babo' sees Kladusa only through the windows of a Mercedes speeding through the town, and his castle is protected by a modern drawbridge. There is even a modern moat, a defensive ring marked by warning signs around the castle: 'MINE'. A few months ago they might have read 'ALL MINE' - but perhaps not for much longer.