Serbian Minister Discusses Energy Sector Cooperation With Russia

Text of report by Serbian privately-owned tabloid Glas javnosti, on 11 March

[Interview with Aleksandar Popovic, minister of mining and energy, by V. Spasic in Belgrade; date not given: "New Parliament Will Also Ratify Agreement"]

Belgrade — Hungary’s decision to agree to having the South Stream gas pipeline go across its territory has increased the chances for Serbia to get a much bigger capacity than the 10 billion cubic meters of gas a year that are guaranteed under the Agreement on Cooperation between Serbia and Russia in the oil and natural gas industries. “According to the now available information, the capacity might reach 20 billion cubic meters,” Aleksandar Popovic, the minister of mining and energy, has told Glas. The Agreement envisages that the gas pipeline for the supplying of Italy and other countries of Europe goes from Russia, via the Black Sea, and across our territory; investments in the Banatski Dvor gas storage [in Vojvodina] and the selling of the Oil Industry of Serbia [NIS] to Gazprom Neft, the oil arm of Gazprom.

[Spasic] Has the Agreement been invalidated by the fall of the government?

[Popovic] It is quite obvious that the parties that support the Agreement will make up a convincing majority in the next parliament too, so that I have no doubts that the Agreement will be ratified.

[Spasic] Why is the agreement between Hungary and Russia so important? News agencies have reported that the gas pipeline is sure to go in two directions from Serbia, west and north.

[Popovic] It is almost certain that the pipeline will go to the Baumgarten storage in Austria. There were several options for which way the pipeline would go from Bulgaria. Now that, after Bulgaria and Serbia, Hungary has also joined the project, the forecasts that the pipeline would follow just one route from Russia to Western Europe and go via Serbia are coming true. But let us not speculate too much about it. Everything will depend on a study that Gazprom is working on.

[Spasic] When will the route be decided?

[Popovic] It was initially announced that it would be made public in July but it is now being said that that will be done by the end of the year. It is quite clear that the trunk of the pipeline will go from Bulgaria, via Serbia, to Hungary. The route from Hungary on is more or less clear. It remains for precise calculations to be made about the quantities of gas and to see whether the pipeline will have branches going to some states.

[Spasic] How will the Agreement be further concretized?

[Popovic] Talks are under way on three concrete contracts on the setting up of two joint companies — for the management of the gas pipeline and the storage — and the defining of the whole transaction involving NIS. There are many legal matters that need to be done. The timetable for the gas pipeline is known: a joint enterprise is to be created by 25 May; a feasibility study to be completed 18 months later at the latest; and the building of the pipeline is to begin in 24 months at the latest.

[Spasic] Will gas start being transported via Serbia on 1 January, 2014?

[Popovic] That is hard to say. A big project is in question, but I believe that the deadline is realistic.

[Spasic] What will the route across our country be?

[Popovic] The answer to that question will be given by the feasibility study, but being that the pipeline goes from Bulgaria to Hungary, I think that river valleys are the predictable route.

[Spasic] What will our country gain from cooperation with Russia [in the energy sector]?

[Popovic] A reliable and practically unlimited gas supply, a cheap fuel, tax revenues, and we will indirectly also ease the pressure on the electricity system through a stepped-up expansion of the gas-distribution network and the use of gas in the winter months. A greater use of gas in our economy will also be made possible, as well as the development of new industries. The storage will bring revenues because the stored gas will be sold when the demand is the highest and the storage will be filled when the price of gas is the lowest. The Banatski Dvor storage’s maximum capacity will be 800 million cubic meters, although a minimum of 300 million cubic meters is envisaged under the Agreement for the start. However, according to some evaluations, there are several other potential locations for the building of gas storages of a capacity of 3-4 billion cubic meters of gas.

[Spasic] Is Gazprom interested in that?

[Popovic] I do not see why it would be against it. If they are not interested we will turn to other co-investors.

[Spasic] The Agreement has been criticized quite a bit. What, for instance, do you think now about the price that we got for NIS?

[Popovic] I suggest to all the critics that they read the Agreement carefully at least once again. I think that many things will be much clearer when all the accompanying agreements are signed and it will then be possible to either praise or criticize the whole package. At this time I am both against excessive criticism, as well as excessive praise.

[Spasic] Is there a plan for how to reach a price [of electricity] that would make it possible for EPS [Power Industry of Serbia] to cover its operating costs and possibly invest in the greatly needed new power plants and coal excavation sites?

[Popovic] The price of electricity depends on NIS investments and we know how much it needs for new power plans, excavation sites, ecology…. If and when EPS determines that it needs a different income it has first to ask the Energy Agency for its opinion about the new prices. I, as minister, will support the Agency’s position and will not interfere in the price policy. That is no longer the Ministry’s job.

[Spasic] The electricity consumption is steadily rising and threatens drastically to increase the import of electricity, which the consumers will pay for in the end. Why has EPS been waiting for a year and a half to invite tenders for the two new power plants?

[Popovic] We expect to have the final decision sometime in the next few weeks. The proposal for the power plants to be built on the basis of strategic partnership with foreign companies has been approved by the relevant government committee but there is yet no full agreement in the government on how that is to be done.

[Spasic] Is the dilemma still whether to build one or two power plants by inviting tenders for a strategic partner?

[Popovic] A decision must be made, because the power plants must be built. Either both will be built on the basis of strategic partnership or one will be built with domestic capital. Personally I am for the former concept.

[Spasic] The first new power plant in Serbia in 20 years will obviously be built on the Drina.

[Popovic] June is the deadline for the completion of the study on the Drina’s potential that is being prepared by experts of Serbia and Republic Srpska [Bosnian Serb entity, RS]. The study will say what ought to be built and how, because there are different plans. I expect that Serbia and the RS will start building the first of a series of power plants on the Drina in the autumn of 2009.

[Box] Stable Oil Supply, Lower Prices

[Spasic] What will Serbia and NIS gain from cooperation with Gazprom Neft?

[Popovic] A modernization of NIS and a stable oil supply by a company that has its own reserves and does not depend on high prices on the world commodity markets, so that it can bring down the prices of the fuel at the gasoline stations, for the Army, the heating plants….

[Box] Responsibility, Party Affiliation

[Spasic] Quite a few people who are not experts — from those who have nothing to do with energy, to students — have been appointed to important positions in companies in the energy sector.

[Popovic] I did not take part in choosing leading personnel in companies in the energy sector. The government’s personnel commission has done that. I have shown with my work in the previous and this Ministry what I think: it is essential that a person does one’s job responsibly and honestly and political affiliation is absolutely of secondary importance.

[Box] Resignation

[Spasic] You have promised to resign if the gas storage is not completed by next winter?

[Popovic] And I will resign if it is not completed. But it will be ready so that we make up for all the shortages that we have to cover with imports, in addition to our domestic and Russian gas, and we will ensure a regular supply.

There are several options. The question of the financing of the storage’s completion will be resolved in a week or two. It is quite possible that we see a concretization of the Agreement and first investments at work in the case of the storage.

[Box] State Intervention

[Spasic] The heating plants have obtained heating oil more cheaply, because NIS sells it under the normal price?

[Popovic] Due to the rise in oil prices we found ourselves in a situation that the money the heating plants get for their service covers only the cost of the heating oil. It is why we were compelled to have NIS sell the heating oil to the heating plants practically under the normal price so that the heating plants would not have drastically to hike their prices, but for that reason NIS will put less into the [state] budget. It is the grossest form of state intervention and is something that should not be done but we had no choice — either a high increase in the heating bills or bankruptcy of the heating plants in the middle of the heating season.

Originally published by Glas javnosti, Belgrade, in Serbian 11 Mar 08, p9.

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