Serbian government split over gas deal

30/12/2008

Despite being hailed as the deal of the century for Serbia, the energy agreement with Russia and the sale of Petroleum Industry of Serbia (NIS) to Russia's Gazprom are causing huge controversy in Belgrade and serious cracks in the Serbian government.

By Igor Jovanovic for Southeast European Times in Belgrade – 30/12/08

Russian President Dmitry Medvedev (right) shakes hands with Serbian President Boris Tadic in the Kremlin on December 24th. [Getty Images]

After months of negotiations and controversy, the Russian gas company Gazprom purchased Petroleum Industry of Serbia (NIS) for 400m euros on December 24th, pledging to invest at least 500m more in the Serbian company.

The same day, Serbian President Boris Tadic and Russian counterpart Dmitry Medvedev signed political agreements on the construction of the South Stream gas pipeline through Serbia and the reconstruction of the Serbian gas storage depot of Banatski Dvor.

Despite being presented as the deal of the century for Serbia, the energy agreement with Russia has divided members of the Serbian government, because some parties see the deal as damaging to their country.

Deputy Prime Minister and G17 Plus party leader Mladjan Dinkic said Gazprom snapped up the oil company for much less than its real value, contending the country could have gotten up to 800m euros from the sale. Dinkic, who says Serbia has not received firm guarantees the gas pipeline would traverse its territory, also hinted at the possibility of his party withdrawing from the government over disagreements with ruling coalition partners.

However, Tadic said that the decline in the global price of oil had conspicuously reduced the value of oil companies, including that of NIS. Tadic also believes the document he signed with his Russian counterpart was guarantee enough that the Russians will build a gas pipeline that could completely change Serbia's economy.

The South Stream gas pipeline "is extremely important for the two countries, as well as for the entire Balkans, and will turn Serbia into a strategic destination for foreign investment and a central point for regional gas supplies", Foreign Minister Vuk Jeremic noted.

However, according to the agreements, whether the gas pipeline will stretch through Serbia will not be known until September 2009. Because of the global economic crisis, some analysts doubt the Russians can afford to build the South Stream at all.

"The passage of the gas pipeline is a very positive thing for Serbia. … It strengthens the country's geostrategic position and it will bring annual revenues … If Serbia gets the pipeline, then it is worth the sacrifice regarding the oil industry," French Ambassador to Belgrade Jean-Francois Terral said.

Serbia also expects natural gas prices to fall if Russia indeed builds the South Stream pipeline. Belgrade is now paying substantial amounts for natural gas deliveries via Hungary. If the new pipeline runs through Serbia, it also stands to earn money from gas distribution.