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Serbia mulls Russian energy deal

Proposed sale of state oil company to Gazprom Neft would expose Serbia to interests at the heart of Russian power politics. - tink-tank by Dragan Gmizic.

2007 was the year Russia’s state interests were again reasserted as a defining factor in the future of Serbia’s breakaway province, Kosovo. 2008 could be the year Russia’s state interests become a defining factor in the future of Serbia’s state oil company, Naftna Industrija Srbija (NIS). Members of the Serbian parliament presently await a report from a senior governmental working group, formed to help determine Belgrade’s response to the proposed purchase of NIS by Gazprom Neft, the oil arm of Gazprom, Russia’s state natural gas monopoly.

If schedules hold, MPs could receive the working group’s report and vote its conclusions up or down in one of their first parliamentary sessions next year. The importance of such a vote, whenever it comes, will be immense. It will determine the ownership of NIS, one of Serbia’s largest companies, with consequences for energy markets in Serbia and around the Balkans. It will also invite political reaction from Russia, already regarded as an indispensable ally by Serbian politicians who aim to block Kosovo from gaining recognised independence despite US and European Union support for such a move.

Looking further ahead, a vote to sell NIS to Gazprom Neft could ultimately slow down Serbia’s integration progress with the EU, according to analysts such as Vladimir Harak, economic commentator for Dnevnik, daily newspaper in Novi Sad. „In economic terms, this is a good offer which would turn Serbia into a regional energy sector leader, but in case of such a large public company’s privatization, political interests cannot be neglected,” Harak says. The proposed deal unveiled last week in Belgrade by Aleksandr Alexeyev, the Russian ambassador, foresees Gazprom Neft taking a 51% stake in NIS, with obligations to modernise Serbia’s refineries and complete construction of a natural gas storage facility at Banatski Dvor. The deal would also would give Gazprom rights to install on Serbian territory a section of its massive South Stream natural gas pipeline, planned to run underwater from Beregovaya on the Russian Black Sea coast to Bulgaria before continuing overland to Italy. Two other routes, bypassing Serbia to the north or south, are also under consideration, so a parliamentary vote against the Russian offer would not block the South Stream project; however it could limit options on the Russian side. Although ostensibly a proposal regarding energy supplies, and nothing more, Russia’s offer undoubtedly packs a political punch.

Gazprom under the Russian presidency of Vladimir Putin has become both a powerful instrument of international influence for the Russian state. The company supplies a quarter of the natural gas used in Europe and a fifth globally. Putin’s proposed successor as president, Dmitry Medvedev, is Gazprom’s chairman. The Serbian governmental working group formed to study the Russian offer draws its members not merely from senior staff but from top elected officials. Vojislav Kostunica, the prime minister, heads the panel, and others on board include Bozidar Djelic, the deputy prime minister, and other ministers focussed on economic and energy policy. Aleksandar Popovic, the energy minister, is so far the only working group member to have spoken publicly about the offer. He called it „more than good” in an interview with Politika, the Belgrade daily newspaper. „I think we have a very good offer. Through talks with our Russian counterparts, we should seek to clarify individual aspects of the agreement and its implementation,” Popovic said. The comments by Popovic, a senior member of Kostunica’s Democratic Party of Serbia, DSS, may suggest that acceptance of the Russian offer is likely. But with working group members and NIS officials keeping mum, the result remains far from certain.

Some analysts question the dynamic of the proposed arrangement, in which the state would strike a deal with a single bidder on one of the country’s largest enterprises. „The energy sector is a revenue source for all governments. Those who fill the budget are best positioned to influence and shape government’s policies. This is the catch. Serbia has secured no alternative to the Russian offer,” says Sijka Pistolova, editor of Energy Observer, a Belgrade-based trade online publication. Such a deal could cause discomfort amongst economic reformers including Djelic and others in the Democratic Party, DS of Boris Tadic, the Serbian president, which has thus far avoided taking a public stance on the offer. The DS is represented in the working group by both Djelic and Cvetkovic.

Dnevnik, in an article citing unnamed senior sources in the DS, reported that the party had agreed it would consent to the offer in a deal already struck with the DSS and other parties. But with Serbia’s presidential election scheduled to take place next month, a grand bargain with the Russians could become an important issue of public debate. MPs, who asked not to be named because of the sensitivity of the issue and its unresolved status, cited three possible scenarios. The first would be a comprehensive deal on NIS, the refineries, gas storage and South Stream, much as Russian officials propose. Second, the DS could withhold support. Were this to happen, Kostunica might still be able to sign an energy deal with Russia, drawing on support from Serbian Radical Party MPs. Otherwise, failure to agree to a deal could split the DSS, DS and other parties in Serbia’s governing coalition, necessitating early general elections and placing NIS’s future on hold. (


Dragan Gmizic is a freelance journalist in Novi Sad, Serbia. Balkan Insight is BIRN’s online publication.