Serbia Oil Company Buying Oil Directly From Producer Gazprom Neft

Text of report by Serbian privately-owned tabloid Glas javnosti, on 1 February

[Report by V. Spasic: "NIS Buying Oil From Gazprom Neft"]

Belgrade – Cooperation between Gazprom Neft, Gazprom’s daughter company, and Naftna Industrija Srbije [NIS - Serbian oil company], of which the Russian company will soon become the owner, has already begun, to the sorrow of numerous oil traders. Gazprom Neft will be delivering 800,000 tons of crude oil to NIS in the period from February to July of this year, which is the first purchase of the “black gold” from a producer rather than a trader in years and the first positive effect of the interstate agreement on cooperation with Russia in the area of oil and gas.

Buying directly from the producer will be cheaper, which will save NIS money, but the question remains unanswered as to why business had not been done this way before and who is responsible for this. After the October 2000 regime change, trading companies such as Moil Coal and Glencore were given the brunt of the contracts, because NIS could not obtain bank guarantees for paying for the purchases, which discouraged the big companies such as Russian and UK producers.

Selling crude oil to NIS since the October 2000 regime change was one of the most lucrative deals, because the average purchase cost from about 120m dollars in 2001 to more than 450m dollars, depending on the price of oil on the market. Profit to the trader from a deal came to several million dollars. Competitions for oil delivery contracts had caused a number of scandals, the biggest of which had to do with an emergency import of 80,000 tons of so-called “Syrian oil” in 2004; these contracts were even investigated by a fact- finding mission appointed by the assembly.

The Russian company which, under the recently signed agreement on cooperation with Russia in the area of oil and gas, should be acquiring 51 per cent of NIS by the end of the year, won the contract in a repeat tendering procedure for supplying the Serbian market with derivatives in the first half of this year. Incidentally, both tenders were highly controversial. The deadline for tendering in the first competition was 10 days and in the second, 18 days, which was too short a time for all interested companies to submit their tenders, as well as coming too late, since deliveries were to begin in January and February, respectively. In the first competition, there were two bidders – Moil Coal and Glencore – but no decision was made. According to some reports, tenders were invited a second time because neither of the two lobbies had been successful in the Democratic Party of Serbia; according to others, it was because negotiations were in progress with the prospective buyer of NIS to make an offer. However, even after the future owner of NIS had made an offer, the decision about the choice of the oil importer was delayed until it had become certain that the agreement on interstate cooperation in the area of oil and gas would be signed.

[Box] Negotiation About Guarantees

At NIS they say that the contract was signed with Gazprom Neft under “the most favourable commercial and financial conditions on the basis of an offer tendered in a timely fashion, which is the first direct purchase of oil without an intermediary in many years.” It is not immediately clear how the problem of guarantees was solved, since the Russians, too, had asked for bank guarantees. A solution was negotiated between representatives of Gazprom Neft and NIS Managing Director Srdjan Bosnjakovic a few days before the interstate agreement was signed in Moscow. Although there was a risk of an oil shortage in January because the original contract had been for making deliveries during the January to June period, while the second tendering procedure was for a contract to deliver oil during the February to July period, at NIS they say that there will be no problem. However, according to some reports, NIS will nevertheless be forced to resort to some emergency import.

Originally published by Glas javnosti, Belgrade, in Serbian 1 Feb 08.

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