ENERGY MINISTER POPOVIC TELLS AMBASSADOR SERBIA NEEDS MORE

UNCLAS SECTION 01 OF 02 BELGRADE 001376

SIPDIS

SENSITIVE
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USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH

E.O. 12958: N/A
TAGS: ECON ENRG SR
SUBJECT: ENERGY MINISTER POPOVIC TELLS AMBASSADOR SERBIA NEEDS MORE
ENERGY


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


1. (U) Serbian Energy Minister Popovic told the Ambassador on
October 4 that Serbia's single source of gas from Hungary, and
domestic electricity production could not meet peak demand during
winter cold snaps. Popovic compared Serbia's energy relationship
with Russia as "business, not friends." In response to the
Ambassador's question, Popovic said he walked out of the Southeast
Europe Energy Community (SEEC) meeting in Athens on September 28,
because the UNMIK delegation presented itself as the "Government of
Kosovo" delegation. Serbia wanted, he said, to cooperate with
Kosovo on energy, but not when the delegation caused an unnecessary
provocation. End Summary.


Gas Storage and Pipelines Primary Challenge
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2. (U) During the first part of the meeting, Popovic highlighted the
natural gas import capacity limitations of having only one pipeline
from Hungary to support all of Serbia's gas needs as well as transit
gas to Bosnia-Herzegovina. Serbia is constructing a gas storage
facility, Banatski Dvor, and plans to have the facility operational
before next winter. This facility will allow Serbia to avoid gas
shortages when cold winter weather (below -5 Celsius) spikes demand
to 12.5 million cubic meters (MCM),well above the 10 MCM capacity
of the import pipeline. According to Popovic, Serbia would like to
build a gas pipeline connection to either Croatia or Romania, but
which connection, and how large the pipe would be is dependent on
the future of the Nabucco and South Stream pipeline projects. In
this context, the Minister noted that Serbia was an observer in the
Nabucco project, but did not have a significant role in influencing
the possible gas pipelines that were being proposed to cross the
region. Serbia would like to be a transit country and the country
could benefit from transit revenue.


3. (SBU) Popovic did not comment on how Serbia would pay for the gas
required to fill the Banatski Dvor facility and indicated that
Serbia would look to purchase gas from anyone willing to deliver it
to Serbia. In an October 5 discussion, the head of Srbijagas, told
Econoff that Serbia had been unsuccessful in finding suppliers who
could deliver gas due to restrictions by Gazprom and MOL, the owner
of the pipeline connection to Serbia. The Vice Chairman of Gazprom,
Alexei Miller, arrives in Serbia October 9 for discussions with the
Serbian government to discuss gas issues, including storage and
transit pipelines, and the privatization of NIS, the state-owned oil
company. Popovic did not mention the Gazprom visit, during the
meeting with the Ambassador, and just a few days before the visit,
the director of Srbijagas only warned to watch for activity on gas
issues in the coming week, but was unwilling to divulge the fact
that Miller would visit Serbia. In response to a question about the
nature of the energy relationship with Russia, Popovic replied that
the relationship was, "business, just business, not friends." In
response to DCM's question about eventually buying gas directly from
Turkmenistan, rather than Russia, Popovic waved his hand
dismissively saying something about not dealing with that
"Turkmenbashy guy."

Privatization of NIS and Winter Electricity
--------------


4. (U) Turning to oil and electricity, Popovic expressed optimism
that the NIS (state-owned oil company) privatization of a minority
share in the company would move ahead in the coming months, but he
said that the process was awaiting political agreement at the
highest levels. With regard to electricity he outlined his goal to
release a tender before the end of the year for strategic partners
to join in constructing two 700 MW coal-fired power plants. A law
must be passed in parliament for the tender process, but Popovic
expressed optimism that the project tenders would move ahead
quickly. Serbia had sufficient electricity production for most
needs, but required electricity imports during the coldest days of
the year. Continuing on electricity, he raised the issue of
supplying electricity for Kosovo Serbs. Popovic said that Serbia
would again offer to donate power to Kosovo Serbs and expressed hope
that an agreement could be reached this year with UNMIK. During a

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later discussion, a senior UNMIK official in Belgrade told Econoff
that he expected a deal on power donations this winter could be
reached, but would require some flexibility as UNMIK and KEK
(Kosovo's electric utility) could not meet Belgrade's requirement to
only support Serb enclaves as some of the enclaves were on small
spur lines serving both ethnic Serb and Albanian communities.

SEEC Meeting in Greece - Reaction to Provocation
-------------- ---


5. (SBU) Prompted by a question from the Ambassador about the
September 28 SEEC meeting in Athens where Popovic walked out in a
dispute over the presentation by the representative from Kosovo,
Popovic said that he did not have a problem with UNMIK participation
at the meeting. Although he had been impressively sane and rational
throughout the first part of the meeting, he resorted to a "crazed
Serb" analogy, asking if the United States would allow Al-Queda to
represent Liberia at a multilateral meeting. Returning to logic, he
then outlined the Serbian government's position that did he object
to a "so-called minister" from a "so-called ministry" representing
UNMIK. He said he was compelled to walk out, when the
representative from Kosovo opened his power-point presentation with
a slide that including the title "Government of Kosovo". Popovic
expressed his desire to continue working in the SEEC process, but
that he needed to work with the EU to come up with clearer
guidelines for discussions involving UNMIK and Kosovo. He
emphasized that the EU mediator had acted entirely correctly during
the meeting.

Comment
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6. (SBU) Popovic's outline of Serbia's energy situation covered the
significant issues - access to gas, electricity production - but
left out key details about the relationship with Russia. The fact
that he did not mention the planned visit from Gazprom, less than a
week before the visit, is one indication of the back-room nature of
the energy relationship with Russia. While the Serbs say that they
are looking for ways to enhance their energy security, and diversify
their energy partners, Gazprom is working to more firmly entrench
itself. Any of the three prospective Gazprom scenarios purchase of
NIS, construction of a pipeline through Serbia, or partnership in
the Banatski Dvor gas storage facility mostly would serve to cut off
Serbia's leverage to integrate more into a European energy network,
possibly supplied with gas not originating in Russia. End Comment.


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