Russia offers Serbia inclusion in South Stream gas pipeline

12/12/2007

A deal proposed by Russia, paving the way for Serbia's inclusion in the South Stream gas pipeline project, will make the Balkan country a regional energy leader, a senior Belgrade official said on Tuesday.

(Reuters, B92, Serbian government - 11/12/07; AP, RIA Novosti - 22/11/07)

According to the agreement, a Russian firm would take control of Serbian oil monopoly NIS, officials said on Tuesday (December 11th). [File]

Serbia would be included in the South Stream natural gas pipeline project under a draft energy co-operation agreement Russia offered Belgrade on Tuesday (December 11th).

The deal was proposed about two months after a delegation, led by Russian oil and gas monopoly Gazprom CEO Alexei Miller, visited Serbia to discuss co-operation in the energy sector. During talks with Serbian leaders, the Russian delegation expressed an interest in the privatisation of some of the country's key companies, including the Naftne Industrije Srbije (NIS) oil refining monopoly.

Russian Ambassador to Belgrade Aleksandar Alekseyev, who delivered the draft agreement to Serbian Energy Minister Aleksandar Popovic on Tuesday, said it would affect the energy security of the whole region and would mark an important event in bilateral relations.

"This agreement foresees construction of the transit South Stream pipeline through Serbia, construction of gas storage facilities and a strategic partnership in the modernisation of NIS," Popovic said at a joint news conference with the Russian ambassador. "I will forward it to the government, then a working group will work on the details. After that parliament will ratify it."

Reports about Miller's visit in October suggested that Gazprom would consider bidding for NIS only as part of a package that would also allow it to use Serbian territory for the construction of a stretch of the South Stream natural gas pipeline and to build new gas storage facilities.

About three weeks ago, Gazprom and Italy's Eni SPA signed an agreement on construction of the nearly 7 billion euro South Stream pipeline, including the establishment of a 50-50 joint venture to develop a marketing and feasibility study for the project. The proposed 900km pipeline would run under the Black Sea via Bulgaria, delivering 30 billion cubic meters of Russian natural gas annually to Austria, Slovenia and Italy.

While Gazprom and Eni SPA are to jointly finance, own and operate the project, which is expected to be completed in 2013, transit countries would likely be offered minority stakes.

If Serbia accepts and ratifies the proposed deal, it would make it the regional leader in the energy sector, Popovic told reporters Tuesday.

But linking the Russian proposal to Moscow's strong support for Belgrade's position on the Kosovo status issue, many analysts view the offered agreement as politically motivated. Some also are concerned about one company controlling both the pipeline and gas storage facilities.

"Any extension of this onto NIS would be damaging," Free Market Centre think tank analyst Miroslav Prokopijevic told Reuters. "Politically it could be used as an instrument of pressure. Economically it would be damaging as Russian firms are not known for their sophisticated technology. It would be an expansion of monopoly in the oil, gas and derivatives market."

Others voiced concern that the deal could discourage other potential foreign investors.

NIS's privatisation has been under discussion since 2005, with initial plans envisioning offering a 25% stake in the monopoly for about 204m euros. The buyer also would be required to commit to an additional 170m euro investment. The current ruling three-way coalition is reportedly split on whether to stick to that plan.