BALKANS: Serbia Signs Controversial Energy Deal with Russia

By Vesna Peric Zimonjic Reprint | | Print |

Vesna Peric Zimonjic

BELGRADE, Jan 26 2008 (IPS) - Russia and Serbia signed a "strategic" energy deal Friday.

"Serbia will become a key hub in the prospective network of Russian energy supplies to southern Europe," Russian President Vladimir Putin said after the signing ceremony in Moscow.

Serbian President Boris Tadic and Prime Minister Vojislav Kostunica, who both attended the ceremony, said the deal is of strategic importance to Serbia.

"It (the deal) will strengthen Serbia's strategic position in south-eastern Europe, since it will serve as a transit point for gas supplies to the EU's southern flank," Tadic said.

Apart from building a branch of a natural gas pipeline from Russia via Bulgaria, Serbia and Italy to Europe (the so-called South Stream), Serbia will see construction of a giant gas storage near the town Novi Sad. It will also get supplies for its strongly growing industry.

The deal included sale of Serbia's jewellery and its oil and gas giant, the Oil Industry of Serbia (NIS), to the Russian company Gazprom for 600 million dollars, with another 750 million dollars to be invested until 2012. Gazprom is to have a 51 percent stake in NIS.

This part of the deal has raised protests in Serbia, where experts and independent institutions put the price of monopolist NIS at between 2.25 and 3.75 billion dollars. The company was due to be sold by tender, and the government has been much criticised for its non-transparent negotiations.

NIS was priced only 90 million dollars higher than Department Stores Belgrade, a retail giant of former Yugoslavia with dozens of outlets. The property and size of the two companies defies comparison.

"Despite all the talk of covering the growing need for gas in Serbia, this deal has another side," analyst Misa Brkic told IPS. "Serbia has surrendered its energy independence to Russia. It has also opened the door for the political influence of Russia."

Belgrade is strongly backed by Moscow in its refusal to accept independence of Kosovo, the ethnic Albanian populated southern province. Kosovo has been run by the United Nations (UN) since 1999. With the imminent proclamation of Kosovo independence, Belgrade has turned to Russia, its lone powerful ally.

"Russia is categorically against a unilateral declaration of independence for Kosovo," Putin reiterated at the talks with Tadic and Kostunica ahead of the signing of the Gazprom-NIS deal. "It could seriously damage the system of international law and have negative consequences for the Balkans, and affect stability in other regions."

Government officials tried to play down criticism of the deal. "The deal provides long-term energy stability and sustainability of Serbia and the Balkans," foreign minister Vuk Jeremic said in Moscow.

Nenad Popovic, a businessman with strong ties with Russia, and head of Serbia's government economy team for Kosovo, told the Blic daily that Serbia only stands to gain from the deal. "We'll become the major energy player, because just the transit taxes will bring 200 million dollars annually."

The South Stream is an 880 km and 15 billion dollars project aimed at countering the U.S. and European Union backed Nabucco pipeline that aims to reduce Europe's dependence on Russian gas. The planned Nabucco pipeline will transport natural gas from Turkey to Austria via Bulgaria, Romania and Hungary.

Serbia is deeply divided over the role of Russia in its affairs. The two nations share the same Orthodox religion and a Slav origin, but they were far apart in times of communism.

Economist Stojan Stamenkovic dubbed the deal "a catastrophe" and the "worst ever" in seven years of privatisation. Analyst Miroslav Prokopijevic told Belgrade B92 radio that the deal "turns Serbia into a hostage of Russia; that never happened in the past."