Macedonia Suffers Minimal Effects from Russian Gas Cutoff

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TAGS: ENRG PGOV PREL UP RS MK
SUBJECT: Macedonia Suffers Minimal Effects from Russian Gas Cutoff

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1. (SBU) Summary: As a minor consumer of natural gas, Macedonia has
been affected only minimally by the cutoff of natural gas from
Russia through Ukraine. Residential heating quickly transitioned
to fuel oil and the greatest impact to date has been felt by two
industrial users -- a steel producer and a pipe maker -- which
together have placed about 2,000 employees on forced leave. The GoM
has responded by promising to provide fuel oil to those companies
that can switch from natural gas, and seeking an active
international role. End Summary.

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Limited reliance on gas
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2. (SBU) Natural gas has never been a critical energy source for
Macedonia. The country is served by one natural gas pipeline, the
GA-MA (operated by Gasifikacija-Makedonija),which brings product
originating from Russia, and transferred -- through Ukraine,
Moldova, Romania and Bulgaria -- to Skopje. The pipeline entered
into service in September 1998. Although the pipeline has a
throughput capacity of 800 million cubic meters of gas per year,
current use is only about ten percent of capacity. In a country
primarily reliant on electrical power, natural gas is not yet used
to generate electricity, a task left primarily to coal and fuel oil,
which accounts for about 70 percent of power generation, and
hydro-electric, which accounts for another ten percent. The
remaining electrical needs are satisfied with imported power. With
such slight exposure, some GA-MA officials have said that the
cutoff's impact on Macedonia will be minimal.

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Immediate effects of the cutoff
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3. (SBU) Natural gas consumption in Macedonia is primarily
industrial. Twenty-six businesses rely on gas delivered through the
GA-MA pipeline. However, only two of these businesses, Skopje steel
producer Makstil and pipe maker 11 October, located in Kumanovo, are
unable to switch to alternative sources such as fuel oil to continue
operating. As a result, these two businesses have been forced to
reduce operations, sending about 2,000 employees home on forced
leave. (Note: Makstil had already been facing difficult times as a
result of the global economic crisis, and as early as November
executives had discussed sending employees home on forced leave
during January holiday season. End Note.) Both companies have
stated that they have no intention to lay off any employees as a
result of this closure. The remaining consumers of natural gas are
industrial users such as Toplifikacija, the private producer of city
heating in Skopje. We understand they have switched to the use of
fuel oil to satisfy energy needs previously met with natural gas.
There is some anecdotal evidence that the transition has put some
strain on equipment, but we do not know of people being in the
cold.

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GoM Response
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4. (SBU) Still, the GoM engaged businesses quickly after the
cutoff. On January 6, Prime Minister Gruevski, Deputy Prime
Minister Stavreski, and Minister of Economy Besimi met with several
representatives of country's Energy Regulatory Commission and
industrial users. Also present was Vlatko Cingoski, Chairman of
Board of Directors of the state-owned electricity producer ELEM
(Elektrani na Makedonija),who is widely seen as a trusted adviser
to the PM on energy issues. At that meeting, Stavreski offered to
provide fuel oil from government reserves to companies as needed and
said that Macedonia would closely follow developments and coordinate
with other affected countries in the region.


5. (SBU) The GoM also has sought an active international role. On
January 8, Foreign Minister Milososki met separately with the
Ambassadors of Russia and Ukraine to express GoM dissatisfaction at
the cutoff and to urge resolution. Speaking to the press, Milososki
said that Europe's "energy security, including that of Macedonia,
must not be brought into question due to a bilateral dispute. In

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this context, we are faced with a serious diplomatic activity. We
are in regular contact with the Czech EU Presidency and regional
countries." In fact, DPM Stavreski had by then already discussed
the issue with the Czech MFA, arranging the participation of
Minister for European Integration Ivica Boceski and two "energy
experts" at a planned EU-Russia-Ukraine meeting in Brussels on
January 9.


6. (SBU) Comment: We agree with the assessment that the impact on
Macedonia of the gas cutoff will be minimal. An extended closure
could have serious effects on steel producer Makstil and the 11
October pipe factory, and even the temporary loss of 2,000 jobs is
significant in this small economy with high (33 percent, officially)
unemployment. However, the effects of the cutoff in Macedonia are
not nearly as dramatic as those felt elsewhere. We have received no
reports of disruptions in residential heating, and most industrial
gas users have successfully transitioned to fuel oil, a product for
which Macedonia has sufficient refining capacity fed by crude oil
pipeline from the Greek port of Thessaloniki. End Comment.

REEKER