Serbia: DPM Djelic Outlines a European Economic Future

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

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TAGS: ECON EINV ENRG SR
SUBJECT: Serbia: DPM Djelic Outlines a European Economic Future


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Summary
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1. (SBU) During a January 22 meeting with the Ambassador, Deputy
Prime Minister Djelic (DS) outlined the government's vision of a
European economic future for Serbia. Djelic focused on Serbia's
preparations for EU negotiations and hopes to sign an SAA as soon as
January 28. Djelic admitted that the energy agreement with Russia
just approved by the government was politically driven. After the
elections the Serbian government plans to move on a number of high
proile privatizations that they hope will attract signficant
interest from Western firms. End Summary

Preparing for EU Candidate Status
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2. (SBU) Djelic told th Ambassador in a January 22 meeting that
the Serian Government is working to complete by this summe a
national plan for EU accession that will outlne all of the steps
required to bring the countr into compliance with the EU's aquis
communitaire. Djelic highlighted Serbia's readiness to sign an SAA
as soon as possibl, hopefully on January 28, in order to solidify
erbia's European path ahead of the second round ofthe presidential
elections on February 3.

Enery Deal a Necessary Compromise
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3. (SBU) Turning to the energydeal with Russia, Djelic confirmed
that the govenment had approved earlier in that morning an enery
framework agreement with Russia including sale f the state oil
company NIS, operation of the naural gas storage facility at
Banatski Dvor, and onstruction of a branch of the South Stream
pipeine across Serbia. Djelic said that the deal was he price of
being in a coalition government. He tried to minimize the
significance of selling NISwithout a tender by pointing to other
untendereddeals with Russia by Serbia's neighbors, including Greek
purchases of military equipment, and Bulgaria's agreement on
construction of a nuclear power plant.


4. (SBU) Djelic said that while he held his nose when he voted to
support the framework agreement, there had been improvements in the
document, and there were still many things to be negotiated with the
Russians. He claimed that the agreement adopted by the government
took out references to NIS's monopoly on production of refined
products in Serbia, and included mention of EU environmental
standards. The price paid for NIS was still the subject of
negotiations along with other details and many of these would be
sorted out later, once some of the political pressure of the
Presidential elections had passed.

Friday Signing in Moscow with Former Rival Candidate
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5. (SBU) According to Djelic, the energy framework will be signed
on Friday in Moscow with President Tadic and Prime Minister
Kostunica present, but with Infrastructure Minister and third place
presidential candidate Ilic signing the agreement. While Djelic
did not offer a reason why Ilic, not the Energy Minister, would sign
the agreement, he made clear that DS projections showed the second
round of the Presidential elections could be decided by as little as
50,000 votes. The implication of Djelic's comments was that the
photos of President Tadic alongside the PM and Ilic with Russian
leaders on Friday would demonstrate support and unity among Tadic,
Ilic and Kostunica.

Privatization Will Accelerate
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6. (SBU) Looking beyond the presidential elections, Djelic said the
government would accelerate the privatization of larger companies,
including the airline JAT, tour bus operator Lasta, car manufacturer
Zastava, trading conglomerate Genex, and bus manufacturer Ikarbus.
Djelic hoped that all these companies would attract Western firms.
In addition, the initial public offerings for several state firms
would happen later this year with a tender for advisors to the
government on this process coming soon. Djelic added that despite
the energy deal with Russia on oil and gas, the government was
seeking Western participation in energy and would now be targeting
the electricity sector for partnerships with major European firms.


Comment
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7. (SBU) Djelic was clear in his commitment to move Serbia toward
the EU in the wake of a planned election win by President Tadic.
His was not a false bravado -- it was clear that he believed Tadic

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would prevail in a tight contest. He was also frank in admitting
that the Russian energy deal was politically motivated, pointing to
the economic cost of a Tadic loss in the Presidential elections as
the potential price of not agreeing to the deal. Djelic tried to
downplay the damage of selling NIS without a tender, suggesting that
the details are not yet final and so Serbia can still negotiate a
better deal once the political pressure of the elections is over.
On energy, the DS is acting tactically to shore up President Tadic's
support, but Djelic is thinking strategically about the EU and
international investment. End Comment.

MUNTER