KOSOVO: LACK OF MOVEMENT BY BELGRADE ON ENERGY IN NORTHERN

UNCLAS SECTION 01 OF 03 PRISTINA 000481 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: LACK OF MOVEMENT BY BELGRADE ON ENERGY IN NORTHERN KOSOVO RISKS POLITICAL CONFLICT REF: A) PRISTINA 471 B) PRISTINA 465 PRISTINA 00000481 001.2 OF 003 SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY ¶1. (SBU) SUMMARY: More than a week ago, the Kosovo Energy Corporation (KEK) finished repairs on two power lines that supply electricity to northern Kosovo, and informed the Valac sub-station operators that it is ready to restore power disconnected on October 18 for technical reasons. At the same time, KEK has made repeated approaches to Serbian government officials about moving forward with an Energy Service Company (ESCO) agreement, which would allow KEK to regularize non-paying customers in the north. Despite these good faith efforts, employees of the Serbian utility company EPS have refused to reconnect power to the north. Instead, EPS has begun to take steps that KEK and GOK officials believe are designed to establish itself as the only electricity provider, which would violate Kosovo law and undermine Kosovo's sovereignty there. In effect, it appears EPS, with support from Serbian parallel structures in the north and certain quarters in Belgrade, are prepared to transform a technical/commercial issue into a political dispute. Allowing the current electricity stalemate to continue threatens to strengthen the perception that northern Kosovo can be partitioned. The GOK is prepared to accept our guidance as to the best way forward, but there is growing discontent within the Kosovo government about yet another element of the northern municipalities slipping away from Kosovo's control. We believe it is important to press the more practical elements within the Serbian government to move quickly to conclude an ESCO agreement before severe winter weather sets in. If Belgrade refuses, we should be prepared to counter efforts to separate northern Kosovo from Kosovo's electrical grid. END SUMMARY NORTHERN KOSOVO STILL WITHOUT ADEQUATE POWER -------------- ¶2. (SBU)KEK has completed all maintenance and repairs necessary to ensure operation of all three 110 kV power lines from the south to Valac sub-station in northern Kosovo, including repair of a boiler leak in one of the generating units Kosovo A Power Plant (Ref A). Nonetheless, northern Kosovo remains without a reliable 24/7 power supply despite repeated efforts by KEK's Managing Director (MD) and employees to reconnect it to Kosovo's electrical grid. The reason: EPS employees at the Valac sub-station have consistently refused to cooperate with KEK. According to KEK, since October 16 EPS employees at Valac sub-station have rebuffed attempts by KEK to constructively address the power situation in the north on at least 10 occasions. KEK has also told us that Valac sub-station operators have become increasingly rude in their responses to KEK's entreaties, refusing to recognize KEK as having any role in northern Kosovo. FROM UNCOOPERATIVE TO INDEPENDENT -------------- ¶3. (SBU) Shortly after KEK cut power to the north on October 18 for technical and weather-related reasons, EPS employees at Valac reconfigured the sub-station to allow it to route limited electricity to the north via a 110 kV line from Novi Pazar, Serbia (Ref B). At the time, this was justified as an emergency measure designed to meet "humanitarian" needs given the absence of power from the south. KFOR had told us that the north has been subject to a "2 on and 4 off" blackout schedule on the little power that has been made available through the Novi Pazar line as well as from KEK's Ujmani hydro station in Zubin Potok. With KEK now able to supply power to the north, there is no longer a "humanitarian" justification for Valac's reconfiguration and the north's connection to the Serbian electrical grid. ¶4. (SBU) Increasingly, KEK and senior GOK officials interpret the lack of cooperation from EPS employees at Valac as a Belgrade-orchestrated attempt to obtain "electrical sovereignty" over the north. Ministry of Economy and Finance Shala expressed such concerns to the Ambassador on October 23. President Sejdiu echoed them in an October 30 exchange with the Ambassador, highlighting the inconsistency between criticisms from Serbian parallel structures and Serbian Ministry of Kosovo officials over PRISTINA 00000481 002.2 OF 003 KEK's failure to provide 24/7 power to the north and their apparent willingness to receive inadequate power from Serbia. KEK's suspicions have also been aroused by statements from EPS employees at Valac, who have told KEK directly that they will not cooperate without explicit orders from Belgrade to do so. EPS: ACTING LIKE A PRIMARY PROVIDER -------------- ¶5. (SBU) Although EPS is unable to supply adequate power to customers in northern Kosovo, the utility is actively and aggressively urging energy efficient practices to reduce usage, including disconnecting illegal and wasteful kiosks and cutting out smaller villages from receiving any power at all. There is also an effort by a Serbian government-controlled public enterprise to reactivate a steam-powered central heating facility in north Mitrovica, which would greatly reduce the demand for power once the pull of electric heating is removed from the system. These actions not only reduce demand, they also erode the perception that there is a power deficit north of the Ibar. Combined with the continued disconnection of northern Kosovo from KEK's services, they reinforce the impression EPS appears to be promoting to customers that it will replace KEK as the utility provider in the north. WAITING FOR THE NEXT SHOE TO DROP -------------- ¶6. (SBU) We understand EPS has begun advertising in local Serbian-language media that it will soon begin billing and collection will in north, and there have been reports that EPS employees are now visiting homes and reading meters. As far as we know, EPS has not yet attempted to actually collect money for electricity, but if EPS did so it would be in direct violation of Kosovo law. Per UNMIK Regulation 2004/22, KEK is the sole licensed distribution system operator and public supplier of electricity within Kosovo. To date, no other entity has been licensed to perform these activities. The refusal to reconfigure Valac coupled with actual bill collection in the north by EPS would certainly reinforce concerns within KEK and the GOK that EPS, with Belgrade's backing, is seeking to establish itself as the sole electricity provider in the north. ¶7. (SBU) As part of its ongoing negotiations with EPS about regularizing bill collection in the north, KEK has proposed that a Serbian-based company register in Kosovo as an Energy Service Company (ESCO) to provide metering, bill collection, and other services on behalf of KEK. Such an arrangement would be legal and facilitate successful resolution of the final phase of KEK's efforts to ensure all its customers pay for the electricity they receive. (Note: It is something we have quietly encouraged for months. End Note) While there have been declarations of interest by Belgrade government officials in such an agreement, since October 18 talks with KEK have been repeatedly delayed, raising questions about the sincerity of those calling for an agreement. KEK officials are now scheduled to meet with Serbian Assistant Minister for Kosovo Dragan Petkovic and Ministry of Energy State Secretary Nikola Rajakovic in North Mitrovica on November 4 to discuss the ESCO agreement. FROM A COMMERCIAL TO A POLITICAL DISPUTE -------------- ¶8. (SBU) The continued refusal of EPS employees to reconnect power from the south, actions by EPS that appear designed to establish itself as the only electricity provider, and further delays establishing an ESCO agreement all undermine Kosovo's sovereignty. It increasingly appears that Serb parallel structures, with the support of some in Belgrade, appear intent on turning a technical and a commercial issue into a political dispute designed to add electricity to a growing list of areas (e.g., customs, courthouses, hospitals, schools) where GOK is unable to assert its control, and hence sovereignty, in northern Kosovo. If this is what Belgrade and parallel structures are up to, it will reinforce perceptions north of the Ibar that partition is a viable option. The Prime Minister has told us he would rely on our advice to navigate Kosovo through the current situation, but his concerns and those expressed by Sejdiu and Shala highlight a growing concern throughout the GOK that PRISTINA 00000481 003.2 OF 003 the north is slipping away as Serbia, brick-by-brick, builds institutional walls between the north and the rest of Kosovo. THREE SCENARIOS -------------- ¶9. (SBU) From our perspective, the current electricity stalemate could play itself out in one of three ways. -- First, Belgrade could enter into genuine negotiations with KEK and move quickly to conclude an ESCO agreement before severe winter weather sets in while EPS refrains from taking illegal actions designed to establish itself as an electrical service provider in the north. -- Second, increasingly cold weather and rolling blackouts in the north could lead to a genuine humanitarian crisis. Such a crisis could force EPS/Serbian Ministry of Energy officials back to the negotiating table to facilitate the reconnection of power lines from the south and signing of an ESCO agreement. It might also prompt European handwringing and pressure on KEK and the GOK to cede effective control over electricity in the north. -- Third, Serbian hardliners could ignore the stress placed on the population by rolling blackouts of increasing duration, refuse to reconnect the lines from the south, decline an ESCO agreement, and attempt to wait out the winter until the bitter end. They would emerge in the spring having, in effect, added energy to the list of services in the north that are "disconnected" from Kosovo and its institutions. COMMENT -------------- ¶10. (SBU) Either of the second two scenarios involve serious political and security risks. Only the first is consistent with our long-term objectives in Kosovo. This argues that we must press the more practical members of the Serbian government to resist the urge to illegally collect fees for energy in the northern part of Kosovo. Moreover, we must urge them to move on an ESCO agreement that has been on the table for months, and to instruct EPS to facilitate the reconnection power from the south. At the same time, if Belgrade refuses to engage KEK constructively, we must be prepared to resist efforts to separate the north from Kosovo's electrical grid. This may require countenancing an effort by KEK to regain control over the Valac sub-station (the hub of power lines in the north, including the Novi Pazar feeder),an action likely to spark a confrontation. But if we allow the situation to drift, retaking Valac sub-station will quickly become the only viable solution to maintaining Kosovo's electrical sovereignty over the north. DELL