Energy deal with Russia splits Serbian government

12/12/2008

Serbian Economy Minister Mladjan Dinkic and his team left the working group negotiating an energy agreement with Russia on Thursday, after the government rejected his proposals, aimed at ensuring Serbia's interests will be protected.

(Blic 12/12/08; AP, RIA Novosti, Beta, B92, Serbian Government - 11/12/08; AFP, Reuters - 05/12/08)

Economy Minister Mladjan Dinkic offered to resign from Serbia's negotiating team with the Russians on Thursday (December 11th) to protest the proposed deal. [Getty Images]

Serbian Economy Minister Mladjan Dinkic resigned as head of the team negotiating an energy agreement with Russia on Thursday (December 11th) after the government rejected some of his proposals.

Under a preliminary accord ratified by parliament in September, Serbia agreed to sell 51% of its Naftne Industrije Srbije (NIS) oil refining monopoly to Russia's Gazprom. In exchange, Russia would construct a stretch of the South Stream gas pipeline through Serbia, as well as an underground gas storage facility in Banatski Dvor.

Dinkic, who heads the G17 Plus party that is part of the three-way coalition government, said he left the working group because Serbia's inclusion in the South Stream project was not guaranteed, as Russia is ready to sign only the NIS sale agreement immediately. Three of his associates also left the group after the government rejected his proposal that Serbia should insist on the signing of three binding agreements: on NIS, on South Stream and on Banatski Dvor, respectively.

"The Russians accept to sign one binding agreement only, the one concerning NIS," Dinkic wrote in an open letter, quoted by Belgrade-based Blic daily on Friday. "They say that in two years, they shall know if the gas pipeline is going to be constructed at all … Thus if we sign the agreement for the sale of NIS, Serbia gets no guarantees that the remaining two projects will be realised … Just to remind that the complete energy deal was signed in order that Serbia gets the gas pipeline."

Dinkic also proposed on Thursday that only 25% of the oil monopoly's shares be sold to Gazprom initially and the remaining 26% once a binding South Stream construction contract is signed.

The majority of the ministers attending the cabinet meeting rejected this, "insisting that NIS be sold to Gazprom without any guarantees," Belgrade-based B92 reported.

Dinkic has been one of the harshest critics of the NIS part of the preliminary comprehensive energy co-operation deal with Russia, viewing it as disadvantageous for his country.

Gazprom would obtain a majority stake in the Serbian oil company for 400m euros. Under the preliminary agreement, the Russians would also invest an additional 500m euros until 2012.

According to Blic, however, that investment pledge has been eventually replaced by an offer for a Russian credit to NIS at an annual interest rate of 6%, but as variable and only during the first year of repayment. Under a previous proposal, Serbia would be repaying the credit at an annual interest rate of 9%.

Dinkic says that the Russians also want the monopoly over the sale of oil products in Serbia to remain in force until 2014, despite a commitment made by Belgrade to the EU that this will be scrapped by the end of 2010. According to the minister, there are no guarantees, either, that the EU environmental measures would be implemented.

The government, however, accepted Dinkic's proposal that the NIS sale contract be ratified by parliament in the event it is signed before those on South Stream and the Banatski Dvor.

The working group on the negotiations with Russia will now be headed by Prime Minister Mirko Cvetkovic.