Serbia: DPM Djelic Outlines a European Economic Future

UNCLAS SECTION 01 OF 02 BELGRADE 000088 SIPDIS SENSITIVE SIPDIS USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH E.O. 12958: N/A TAGS: ECON EINV ENRG SR SUBJECT: Serbia: DPM Djelic Outlines a European Economic Future BELGRADE 00000088 001.2 OF 002 Summary -------------- ¶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 -------------- ¶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 -------------- ¶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 -------------- -------------- ¶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 -------------- ¶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 -------------- ¶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 BELGRADE 00000088 002.2 OF 002 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