KOSOVO: KEK READY TO SUPPLY POWER TO NORTH, WAITING FOR

UNCLAS SECTION 01 OF 03 PRISTINA 000471

SENSITIVE
SIPDIS

DEPT FOR EUR/SCE, EUR/PGI, INL, DRL, PRM, USAID

E.O. 12958: N/A
TAGS: ECON ENRG PGOV KV SR
SUBJECT: KOSOVO: KEK READY TO SUPPLY POWER TO NORTH, WAITING FOR
SERBIAN COOPERATION

REF: PRISTINA 465

PRISTINA 00000471 001.2 OF 003


SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY


1. (SBU) SUMMARY: Following a nine-day outage due to weather and
line maintenance (Reftel),the Kosovo Energy Corporation (KEK) is
prepared to reestablish electrical power supply to northern Kosovo
without insisting on collecting for energy use at this time. In an
attempt to meet the power needs of Kosovo north of the Ibar during
the disruption, the Serbian electric utility EPS has provided power
from Novi Pazar, Serbia. However, the amount and quality of
electricity transferred over the Novi Pazar line has fallen short of
demand. Though KEK has notified the Serbian transmission utility
EMS that it is ready to resume supplying power to the north, EMS and
EPS have refused to allow KEK to do so. Since the outages began,
Belgrade officials have publicly acknowledged that all customers
receiving electricity must pay for the service, and have announced
plans for EPS to register and meter customers in northern Kosovo by
November 1. Representatives from the Serbian Ministry for Kosovo
have indicated to us that registering and metering are steps toward
an Energy Service Company (ESCO) Memorandum of Understanding (MOU)
with KEK to allow an EPS subsidiary to provide services as a KEK
sub-contractor north of the Ibar. That said, the slow pace of
negotiations and lack of a positive response to KEK's request to
reconnect could be an attempt to play for time, and a sign that
hardliners who would like to use this episode to separate the
northern part of Kosovo from the rest of Kosovo's energy network
have the upper hand. If Belgrade remains intransigent, KEK will
need to consider options for securing control of the Valac
sub-station. END SUMMARY

SERBIAN UTILITY SEEKS TO FILL POWER GAP IRRESPONSIBLY
-------------- --------------


2. (SBU) Rolling blackouts continued in northern Kosovo over the
last week, as KEK worked to complete maintenance on two of three
110kV lines that normally carry power to the north. KEK cut power
to northern Kosovo on October 19 after unseasonably cold weather
caused a dangerous spike in demand beyond the capacity of the single
functioning line and after employees at the Valac sub-station, also
in northern Kosovo, refused to implement necessary safety
precautions. Instead, Valac employees, who are also employed by the
Serbian electric utility EPS, took unilateral steps to supply power
to northern Kosovo through a 110kV line from Novi Pazar, Serbia. In
order to allow power to enter Kosovo on this line, EPS employees
manipulated the sub-station at Valac without consulting KEK. The
line has supplied 25-30MW of power per day on average to the north,
but it has not been enough to meet demand, and the quality has been
poor (low voltage).

KEK MAINTENANCE COMPLETE; READY TO RESTORE POWER
-------------- ---


3. (SBU) As a goodwill gesture, KEK has supplied additional 30MW of
power to the north during peak demand hours from the Ujmani
hydropower station in the northern municipality of Zvecan. In the
meantime, the weather has warmed (in fact, it is now unseasonably
warm),and KEK has completed maintenance on the two 110kV lines that
were down on October 17-18 when the demand for power in the north
spiked. On the morning of October 26, two of the three 110kV lines
running from the south to the Valac sub-station were available, but
an unplanned outage due to a boiler leak in one of Kosovo A's
generating units sidelined one of these lines. KEK expects to
complete repair of the generating unit by October 29. However,
actual restoration of power to the north will require active
cooperation from EPS employees at the Valac sub-station, who must
disconnect the Novi Pazar line, allowing electricity to flow from
the south to Valac and the rest of northern Kosovo.

VALAC'S SERBIAN EMPLOYEES REFUSE KEK'S OFFER
--------------


4. (SBU) On October 27, KEK notified EPS operators at Valac in
writing that the company had completed maintenance and was ready to
resume delivery of power north of the Ibar. A written response was
requested in order to coordinate disconnection of the Novi Pazar
line and reconnection of power from the south. EPS employees at

PRISTINA 00000471 002.2 OF 003


Valac have not provided an official response, but they told Kosovo's
distribution utility, KOSTT, by phone on October 27 that they could
not take any action until they received instructions from "their
superiors." The Managing Director of KOSTT told us on the same day
that Serbia's transmission utility, EMS, informed him by phone that
there was no objection to activating the available 110kV lines from
the south, but that EMS did not intend to disconnect the Novi Pazar
line. KEK officials explained to us that it is technically
impossible to reconnect their 110kV lines to Valac, if Valac
continues to draw power from the Novi Pazar line because the power
from the different lines is not in phase, something our KEK contacts
believe EMS officials fully understand.

COMMON GROUND UNCOVERED
--------------


5. (SBU) KEK's October 20 power outage was not related to its plans
to regularize non-paying electricity customers in the north.
Nonetheless, KEK has continued discussions -- begun in May -- with
officials from EPS, the Serbian Ministry of Energy, and the Serbian
Ministry for Kosovo about creating a Kosovo-registered, but
Serbian-operated, energy services company (ESCO) to provide
metering, billing, collections and operational services north of the
Ibar. Over the course of the last week, Serbian government
officials have publicly announced that paying for electricity was
not optional, and that steps would be taken to register and meter
customers north of the Ibar who received power from the Novi Pazar
line by November 1. In other words, Serbian pronouncements about
paying for power have implicitly endorsed KEK's position that bill
payment in the north is a commercial, not a political, issue.

SOME SERBS URGE CONTINUED POWER CUT-OFF
--------------


6. (SBU) On October 25, KEK officials met with the Serbian Deputy
Assistant Minister for Kosovo Dragan Petkovic to review its plans to
reconnect power to the north. Petkovic shared what he said was
Minster Bogdanovic's view that power not/not be reconnected from the
south, unless or until the weather turned cold. According to
Petkovic, any serious attempt at bill collection in the north could
only be attempted after customers had seen that Serbia was unable to
supply power north of the Ibar, as was demonstrated over the last
week. The request not to reconnect the north was reiterated by
Petkovic to KEK on October 27, who pointed out that it would be
"...very risky to put the power back without an (ESCO) agreement
being finalized." Petkovic claimed that he did not foresee any
serious problem in Belgrade with moving forward with the ESCO
agreement. Petkovic told us separately on October 26 that he and
Minister Bogdanovic viewed customer registration and bill collection
in the north by November 1 as a step toward an ESCO agreement with
KEK.

HARDLINE VISIONS OF ELECTRICAL INDEPENDENCE
--------------


7. (SBU) While Petkovic sees the unexpected KEK power cut-off as a
serendipitous route to resolving the long-festering bill collection
issue in the north, hardliners appear to have a different agenda.
They have moved quickly to politicize the cut-off. Though it is
well-known that the power cuts were the result of weather and
technical problems, Oliver Ivanovic, State Secretary of Serbia's
Ministry of Kosovo claimed on October 26 that the blackouts were
politically motivated and should not have happened. Ivanovic also
warned that conflict could erupt in northern Kosovo if the
politicization of electricity continues. This followed statements
of Radenko Nedeljkovic, chief of Serbia's parallel administration
for the North Kosovo district, who stated that the Serbs in northern
Kosovo would use any means to prevent KEK from assuming control of
the Valac sub-station and were considering countermeasures for what
he considered a disconnection of power for political reasons. These
comments, and the refusal of EPS employees to allow KEK to reconnect
power, have prompted speculation that hardliners see the power cuts
as an opportunity to connect north solely to Serbia's electric grid,
whatever its shortcomings.

COMMENT
--------------

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8. (SBU) While conducting scheduled maintenance, KEK has made every
effort to supply northern Kosovo with power while protecting the
integrity of the overall system. The confluence of unplanned events
has allowed serious discussion with EPS and Serbian government
officials about an ESCO MOU to resume, which is welcome. However,
events have also highlighted that not all elements of the Serbian
government desire a practical solution with KEK, as evidenced by
comments of Serbian hardliners encouraging direct connection of
Kosovo's three northern municipalities with the Serbian electrical
grid. Now that the technical line faults have been repaired and
official notification given to EPS and EMS that KEK is ready to
provide power to northern Kosovo again, it is up to KEK's Serbian
counterparts and Belgrade officials to reciprocate KEK's good faith
efforts to restore the status quo. In the event that EMS and EPS
refuse KEK's requests, KEK will have to consider appropriate action
to secure control of the Valac sub-station, the common entry point
to the north for both the Novi Pazar and the KEK lines, in order to
restore and regularize service to customers in the north.

DELL