Identifier
Created
Classification
Origin
07BELGRADE133
2007-01-29 15:19:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

UPDATE ON ENERGY ISSUES FROM SERBIA

Tags:  ENRG ECON EFIN PGOV EIND SR 
pdf how-to read a cable
VZCZCXYZ0000
RR RUEHWEB

DE RUEHBW #0133/01 0291519
ZNR UUUUU ZZH
R 291519Z JAN 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0158
INFO RUEHSF/AMEMBASSY SOFIA 0825
RUEHVB/AMEMBASSY ZAGREB 1397
RUEHMO/AMEMBASSY MOSCOW 0187
RUEHBM/AMEMBASSY BUCHAREST 0240
RUEHAK/AMEMBASSY ANKARA 0047
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
UNCLAS BELGRADE 000133 

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EFIN PGOV EIND SR
SUBJECT: UPDATE ON ENERGY ISSUES FROM SERBIA

REF: Belgrade 2062

SUMMARY
-------
UNCLAS BELGRADE 000133

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ENRG ECON EFIN PGOV EIND SR
SUBJECT: UPDATE ON ENERGY ISSUES FROM SERBIA

REF: Belgrade 2062

SUMMARY
--------------

1. (SBU)Several major energy issues are still on the front burner
as Serbia's democratic parties work to assemble a new government.
Srbijagas's general director recently announced that Gazprom is
likely to be Srbijagas's strategic partner in providing natural gas
for the underground storage facility in Banatski Qor. This comes
on the heels of the December 21 signing of a Memorandum of
Understanding for a possible extension of the Blue Stream gas
pipeline through Serbia, as well as the signing of a new gas supply
deal with Yugorosgaz, a shady Gazprom-linked company with its origin
in the Milosevic era (reftel). However, Slobodan Sokolovic,
assistant minister for energy, downplayed the significance of these
developments in a January 18 meeting, asserting that only a new
government can take action on such major issues. End Summary

STRATEGIC PARTNER(S) FOR BANATSKI DVOR
--------------

2. (U) Milos Milankovic, general director of state-owned gas company
Srbijagas, said on January 10 that Srbijagas would first talk with
its "strategic partner," Gazprom, on the possible filling of the
Banatski Dvor gas storage facility. Milankovic said with Srbijagas
completing the first phase of construction, time and money is
critical. To use the gas storage during the 2007/08 winter season,
Srbijagas needs USD 50 million to pump in around one million cubic
meters of gas per day in the period April-October 2007 to provide
the needed cushion gas. However, Milankovic said that Srbijagas
also is ready to work with other potential partners who may have
interest in using gas from Banatski Dvor, such as city authorities,
district heating power plants, or companies that are major consumers
of gas (such as U.S. Steel). (Note: Milankovic stood as a
Parliamentary candidate on the G17 list; given the practice of
dividing key jobs at major state-owned companies among coalition
parties, he may well be out of the job soon.)


3. (SBU)Slobodan Sokolovic, assistant minister for gas and oil,
told econ chief on January 18 that Srbijagas, as a state-owned

company, must have the permission of the Ministry of Energy and
Mining for any major action. According to Sokolovic, long-term
plans call for doubling the capacity of Banatski Dvor in Serbia (the
maximum capacity is 850 million cubic meters) and negotiating with
Romania and Bulgaria on managing such storage in accordance with
European energy security policy. Sokolovic noted that Serbia's
storage capacity could supply gas not only to the domestic market
but to the region as well. (Note: Some sources estimate that Serbia
could store as much as 7 billion cubic meters in underground gas
storage.)


4. (SBU) Milankovic, in a later conversation following up on his
public remarks, said that, in theory, a tender would be the best
option to find a partner on the gas storage project, but Serbia's
dependence on Gazprom also must be taken into consideration.
Sokolovic confirmed that a tender was an option but also mentioned
the need to form a strategic partnership with potential suppliers
and major consumers, as well. He welcomed any proposal on how to
accomplish such a goal.


5. (SBU) Gazprom's interest in the gas storage was confirmed by
Vladimir Koldin, director of Yugorosgaz, in a January 12 meeting.
Koldin, a Russian, was notably close-mouthed in discussing
Yugorosgaz activites, but he did express interest in the gas storage
project, noting that such storage offers the ability to balance
between the peaks and valleys of winter-summer consumption.

NIS-DIMITROGRAD GAS PIPELINE
--------------

6. (U) Milutin Prodanovic, assistant minister for public
enterprises at the energy ministry, said in an early January press
interview that that Srbijagas would begin construction of a gas
pipeline on the Nis-Dimitrovgrad route to provide Serbia with an
alternative gas source via Bulgaria. Such a project is a high
priority, both to provide additional security via an alternative to
the MOL pipeline, and to give Serbia leverage in negotiations with
the Hungarians over transmission fees. However, Prodanovic did not
predict when construction could begin.


7. (U) However, the Memorandum of Understanding (MOU) recently
signed between Srbijagas and Gazprom projects using the same route
to extend the Blue Stream gas pipeline through Serbia, raising the
question of which pipeline will be built, and when. Sokolovic said
that Serbia had a MOU with Bulgaria for connection of the two gas
systems, but it has not been decided yet whether to proceed with a
local pipeline of 3 billion cubic meters capacity, a transit
pipeline of more than 20 billion cubic meters, or even parallel
pipelines.


8. (SBU) Sokolovic emphasized that the gas transit MOU with Gazprom
is only an expression of interest among the three parties. A joint
working group - the leader of which will be Gazprom - will analyze
the feasibility of all aspects of the project and submit a report by
July 2007. Sokolovic declined to provide a copy of the MOU,
claiming that he cannot release it without the permission of all
parties.

YUGOROSGAZ INTERMEDIATES GAS SUPPLY
--------------

9. (SBU) Koldin, of Yugorosgaz, a joint venture of Gazprom and
Srbijagas controlled by Gazprom, confirmed that Yugorosgaz is a
party to the transit MOU, but declined to be more specific. He also
confirmed that Yugorosgas is now the supplier of gas to Serbia for

2007. Koldin would only say that the price is similar to Serbia's
past pricing, but other sources told us it is USD 256 per thousand
cubic meters. Sokolovic said that it is a one-year contract.


10. (SBU) Yugorosgaz has been active in building pipelines in
southern Serbia. It already has constructed a 60-mile pipeline
south from Paracin to Nis, and it has announced an agreement to
extend the pipeline to Vranje. Koldin told us that they are in
talks with Philip Morris in Nis to provide the cigarette
manufacturer with gas. On January 17, ministry official Prodanovic
said that Yugorosgaz has an obligation to build all the main gas
pipelines in Serbia south of Nis through 2021, in accordance with
the two agreements between former Federal Republic of Yugoslavia and
Russia from 1996.


11. (SBU) In the January 18 meeting, econ chief asked Sokolovic why
Srbijagas had elected to sign a deal with Yugorosgaz, as opposed to
Gazprom. Sokolovic said that Gazprom had dictated that Yugorosgaz
be the supplier and also had insisted on signing the deal before
signature of the MOU on a potential gas transit pipeline.

NIS PRIVATIZATION
--------------

12. (SBU) Sokolovic dismissed press reports that the GOS is
negotiating with Russian Rosneft about recapitalization of oil
company Naftna Industrije Serbije (NIS); to the contrary, Sokolovic
said, Rosneft is in the middle of an IPO and had shown no interest.
He also denied press speculation that the NIS privatization tender
would be restarted before a new government is formed, explaining
that most likely the new government will take up the privatization.
At the same time, he said that both he and Minister Naumov would
like to see the tender re-opened as soon as possible using the
approach already laid down by the previous government.


13. (SBU) COMMENT: The Yugorosgaz - or Gazprom - interest in
Serbia's gas storage is not surprising. Gas storage can serve
consumers' interests by allowing them to stockpile off-peak gas and
provide a margin of security against disruption in the transit
system. At the same time, such storage could serve Gazprom's
interest by permitting it to stockpile gas nearer consumers, to
offset the danger of supply disruption as gas transits through third
countries. Sokolovic clearly favors a transparent system in which
both consumers and producers have a stake; we hope to see Serbia's
energy ministry steer policy in this direction under a new
government. End Comment.
POLT