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Serbia, Russia Jockeying for Positions Prior to Gas Pipeline Talks – Daily

September 17, 2008

Text of report by Serbian newspaper Politika website on 12 September

[Report by Jasna Petrovic: "Sparks Flying Around South Stream"]

The statement by Yuriy Buligin, a representative of the Russian chamber of commerce, that the ratification of the natural gas and oil agreement by the Serbian Assembly does not also mean that the construction of South Stream will begin has once more raised the question of what the actual future is of that alternative gas pipeline, which is supposed to be an energy link between Russia and Europe. Buligin’s position is interpreted as an effort to occupy a better starting position on the eve of the resumption of Serbia’s negotiations with Gazprom concerning the construction of South Stream and the sale of a 51 per cent share of NIS [Naftna Industrija Srbije; Petroleum Industry of Serbia] to Gazpromneft.

Andrey Khripunov, the head of the Russian chamber of commerce, told Politika yesterday [11 September] that he is a little surprised by the statement by his colleague Yuriy Buligin and he emphasized that when the two sides sign the interstate agreement they will be obligated to abide by the terms of that document.

“The negotiations on the technical details of the oil and natural gas deal remain to be conducted. However, the price for NIS is stipulated under the agreement, and that must be honoured,” Khripunov stressed.

He believes that there is plenty of pressure on both sides, noting that the natural gas and oil agreement was signed in Moscow on the highest state level and that the obligations from the agreement relate both to NIS and to South Stream.

Nervousness between Belgrade and Moscow arose when the Serbian Government asked an auditing firm to prepare an appraisal of the market value of NIS, whereupon its capital was appraised at 2.2 billion euros, which was interpreted as an attempt by some ministers in the government to increase the originally agreed price of 400 million euros. The strongest objections to the price of 400 million euros that will accrue to the state came from the deputy prime minister and minister of economy, Mladjan Dinkic.

If, however, the entire deal were to end up falling through because of the increasing criticism being voiced by some experts who say that the natural gas arrangement with Russia is harmful to the Serbian economy, then major Serbian cities such as Uzice, Cacak, and Nis would have problems with their natural gas supply this winter and the price of that fuel would be significantly higher, says Sasa Ilic, the managing director of the public enterprise Srbijagas, who signed an agreement in Belgrade with Dmitriy Medvedev on establishing a joint venture for construction of the gas pipeline.

When asked to comment on Yuriy Buligin’s statements, Ilic says that he believes that the Russian representative said that because of the problems that some Russian companies have after they arrive in Serbia, and not because he thinks that that deal will come to naught. On the contrary, it is a fact that there has been much heavier investment of Russian capital in Serbia in recent years than capital coming from the West.

“With the signing of the interstate agreement and the ratification of the agreement not only with Serbia, but also with all the other countries through which South Stream will pass, Russia has made it clear who its priorities are in this deal, and so I doubt that Gazprom will now back away from this big deal, Ilic says categorically, adding that there is no truth to allegations that Russia is being given NIS as a gift in exchange for South Stream, because the feasibility study on the course of the gas pipeline is not yet complete.

Ilic, who is in almost daily contact with the Russian side, emphasizes that the next meetings will be an opportunity to define the route of the pipeline, its capacity, and the pace for completing the work, emphasizing that a South Stream route through Romania is not part of the plan.

“The public should know that the capacity of the gas pipeline does not depend on the Serbian negotiations, but rather on how much natural gas is needed by Hungary, Italy, Slovenia, Austria, and any other countries that will consume that gas. It is illogical for the Russian partner to say that the capacity of the gas pipeline passing through Serbia will be 30 billion cubic meters without there being an end consumer for that commodity,” the Srbijagas head explains.

It is realistic to expect that the capacity of the gas pipeline crossing Serbia will be greater than that of the one that crosses Greece to reach Italy, because the consumption of natural gas is much greater in the route that crosses Serbia. The agreement does mention at least 10 billion cubic meters of gas, which is five times more than current Serbian needs, Ilic notes.

In his opinion, what should be insisted on in the coming negotiations with Russia is that assurances be provided of a permanent, regular supply of all types of energy.

Zorana Mihajlovic-Milanovic, an energy adviser to former Deputy Prime Minister Miroljub Labus, agrees that the statements coming from both the Serbian and the Russian side are a way of fighting for the best terms achievable. The Russian side’s interest, she adds, is in there being no changes in the agreement, and they will try to achieve that any way they can. On the other hand, Serbia has realized that it can get more but that it can also lose, and now it should finally define its platform. The bad thing for both sides, however, is that messages are being sent to public opinion and the domestic political scene through the media.

She says that she does not believe that the deal might fall through after ratification, because it is in Serbia’s interest to have alternative routes for the supply of natural gas, but also technologically and environmentally modern refineries, which is an issue of energy security and development for at least the next two decades.

One thing that she regards as a certain obstacle and source of resistance is the way in which NIS is being privatized, because this is not a public procedure or a competitive bidding process through which the Russians are buying the Serbian fuel factory, she says.

[Box by "J.P.-D.S."] Skundric: Russians Could Have Bypassed Serbia

The natural gas and oil deal ratified by the Assembly early in the week is an interstate agreement on a strategic partnership between Serbia and the Russian Federation from which everyone — both Serbia and Russia — benefits. The realization of that project gives Serbia a secure alternative route for the supply of natural gas for the next 40 to 50 years, Minister of Mining and Energy Petar Skundric said in an appearance at the Politika Business Club.

“If you look at this deal and compare only Serbia and Bulgaria, with which Russia has also signed an agreement on construction, you must not forget that the Russians had no other choice but to build the gas pipeline across Bulgaria, but they also could have bypassed Serbia and they decided in favour of our country,” says Minister Skundric (the entire interview will be published in the Sunday edition).

Since the Russians are insisting on a package deal, and thus the construction of the South Stream pipeline, the privatization of 51 per cent of NIS, and completion of the underground storage facility in Banatski Dvor, there is no way that the purchase agreement for the oil company can be signed without Serbia getting adequate guarantees that a gas pipeline of corresponding capacity will pass through Serbia.

Asked to comment on Yuriy Buligin’s statement that ratification of the agreement does not also mean that South Stream will be built, as well as suggestions by the LDP [Liberal Democratic Party] that the entire natural gas and oil deal should be re-examined by the Constitutional Court, Minister Skundric says that whenever certain interpretations are voiced, that is done with a specific goal and intention. But, he adds, this is something completely different, namely an interstate agreement that is to both side’s benefit. This agreement opens up new possibilities for Serbia in relation to the countries of the European Union, namely in the strategic sense.

He emphasized yesterday [11 September] that the price of electric energy will certainly not go up by the end of this year, noting that the price of electricity is not set by the Ministry of Mining and Energy, but rather by the Energy Agency.

[Box] American Warnings to Hungary

The American ambassador in Budapest, April Foley, said yesterday that Hungary should consider the possibility of discontinuing negotiations with Russia over the South Stream gas pipeline, adding that it would be beneficial to Hungary to think about the possibility of suspending negotiations with Moscow.

Hungary’s deputy minister of economy, Abel Garamhegyi, said that Budapest has no intention of suspending negotiations with Russia over that agreement, under which part of the South Stream natural gas pipeline would pass through Hungary.

Originally published by Politika website, Belgrade, in Serbian 12 Sep 08.

(c) 2008 BBC Monitoring European. Provided by ProQuest LLC. All rights Reserved.