KOSOVO: SERBIA ATTEMPTS TO HIJACK ELECTRICAL SERVICE AREA

UNCLAS SECTION 01 OF 02 PRISTINA 000541

SIPDIS
SENSITIVE

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

E.O. 12958: N/A
TAGS: ECON ENRG PGOV KV SR
SUBJECT: KOSOVO: SERBIA ATTEMPTS TO HIJACK ELECTRICAL SERVICE AREA
IN THE NORTH

REF: A) PRISTINA 522 AND PREVIOUS
B) BELGRADE 1314

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SENSITIVE BUT UNCLASSIFIED Q PLEASE PROTECT ACCORDINGLY


1. (SBU) SUMMARY: A dispute between Serbia and Kosovo over control
of the Valac substation and electricity distribution in the northern
part of Kosovo has escalated, with Serbian state-owned firms
unilaterally declaring new "service territories" covering Kosovo's
northern municipalities. This reassignment of power lines is
illegal under UNSCR 1244, as well as both a usurpation of property
and an implicit expropriation of the Ujmani hydro-electric plant
located in the north of Kosovo. Serbia's electricity transport
utility has also assigned an unlicensed entity as the "authorized"
power distributor in these new service areas. Claims by Serbian
state-owned firms that their actions were taken to avert a
humanitarian crisis ring false, as the Serbian side is yet to
respond to six weeks of requests by the Kosovo Energy Corporation
(KEK) to reconnect the North to additional power supply from Obilic.
Serbian entities also continue to ignore a proposed commercial
resolution to the dispute tabled six months ago. Regular monthly
meter reading by KEK at Valac could serve as a test case to reassert
KEK's access to its property, but Western powers should also
demarche Belgrade at the highest levels to underscore that
usurpation of property and partition are antithetical to Serbia's
aspirations for European and Euro-Atlantic integration, and will be
met with a determined response by the international community. END
SUMMARY

SERBIA DECLARES NEW SERVICE TERRITORY BOUNDARIES
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2. (SBU) On December 4, 2009, the Serbian state-owned electric power
transport company Elektromreza Srbije (EMS) sent a fax to Kosovo's
power transport firm KOSTT that effectively annexed the northern
part of Kosovo as its service territory. Though couched in
technical language, the letter essentially told Kosovo's power
distributor Kosovo Energy Corporation (KEK) and the Kosovo
Electricity Transmission System and Market Operator (KOSTT) that
there are new boundaries for electricity. According to the letter,
henceforth, lines connecting the south of Kosovo to Valac substation
in Zvecan are "external links" connecting Kosovo to Serbian service
territory, while a 110 kV line connecting Novi Pazar, Serbia with
Valac is internal to EMS's system. By extension, power lines within
Kosovo that are the exclusive property of KOSTT, have been declared
property of EMS. Additionally, while not explicitly mentioned, the
rearrangement of lines and the reassignment of service areas
implicitly require the expropriation of the Ujmani hydro-electric
plant, located in Zubin Potok.

POWER DISTRIBUTION VIA A DISPUTED, UNLICENSED ENTITY
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3. (SBU) In addition, EMS's December 4 letter also assigns "P.E.
Elektrokosmet Pristina" as the authorized power distributor for the
northern part of Kosovo. (Note: We forwarded a copy of the letter
to EUR/SCE and Embassy Belgrade on December 7. End Note)
Elektrokosmet does not hold a license for power distribution from
Kosovo's Energy Regulatory Office, a body established by UNMIK
regulation, and so such a designation is a violation of the law.
Moreover, Elektrokosmet was one of the precursor companies to KEK,
and its assets were explicitly assigned to KEK in December 2005 by
UNMIK and the Kosovo Trust Agency.

FALSE CLAIMS REGARDING NEOGTIATIONS
--------------


4. (SBU) The EMS letter further claims that "these steps were
provoked by non-selective load shedding of the households supplied
from SS Valac beyond any technical justification, and taken in order
to avoid a possible humanitarian disaster and to ensure the security
of supply for [the] winter season." Such claims fail to pass the
laugh test, since the Serbian side has ignored six weeks of offers

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by KEK to reconnect Valac (and the north of Kosovo) to power
generation capacity in Obilic, Central Kosovo that would
substantially increase supply to the north. Moreover, Serbian
Government ministries and state-owned firms have failed to offer a
substantive response to a potential commercial resolution of the
dispute (through a subcontracting agreement) that has been on offer
for six months.

MONTHLY METER READ A TEST CASE
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5. (SBU) EMS's letter escalates the dispute over Valac, but the
requirement for KEK to read the meters there could help KEK to
reestablish access to, and reassert control of, its asset. KEK
employees, with an escort by the Kosovo Police, have read the meters
on high voltage lines at Valac on a monthly basis for years. This
standard operating practice, which takes five minutes and was most
recently done in October, is part of an effort to account for
electricity received from and sent to Serbia from Kosovo. Since
KFOR and EULEX recently established perimeters around Valac (Ref A),
the Kosovo Police sent KEK's most recent request, for the December
read, to EULEX for action. By facilitation of KEK's request for
access to the station, EULEX and KFOR will establish that their
security cordons are not designed to freeze an illegal status quo in
place, but will be used to support freedom of movement and KEK's
heretofore undisputed claims to its property. COMKFOR has agreed to
support such a request; Yves de Kermabon, head of EULEX, has punted,
saying he requires guidance from Brussels.

COMMENT
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6. (SBU) We deem it highly unlikely that EMS's letter, a serious
action by a Serbian state-owned firm, was done without coordination
with official Belgrade; this dashes any hopes we harbored that this
dispute was simply the work of northern Kosovo hotheads. Likewise,
it is clear, in our view, that the commercial negotiations on an
electricity services company (ESCO) agreement for the northern part
of Kosovo have reached a dead end for now. The monthly meter read
by KEK provides an opportunity to reestablish access to Valac, and
by extension KEK's ownership of northern electricity assets, and to
demonstrate our resolve to defend KEK's rights (and by extension,
Kosovo's sovereignty in the north). We believe that a strong
response, supporting KEK's access on the ground, coupled with a
tough demarche in Belgrade is the best way to convince the GOS that
its current course of action will fail and thus to get them to
refocus on a commercial (ESCO) solution. We would recommend that
the demarche to Belgrade be delivered at the highest level and that
it emphasize 1) that blatant disregard for UNSCR 1244 and moves to
partition are illegal and inconsistent with Serbia's ambition for
European and Euro-Atlantic integration; and, 2) continuing down this
path will be met by a determined response from KFOR, EULEX and the
international community. Depending on the result of DAS Jones'
discussions in Brussels December 10, such a message could be
coordinated with Quint countries for increased effect.

DELL