Byzantine Blog

Serbia to Sign Deal of a Century with Russia

“On January 25, Serbian government will sign a strategic agreement with Russia on cooperation in the energy sector,” Serbian Prime Minister Vojislav Kostunica announced in a Tuesday statement to Tanjug, adding that the agreement is quite obviously in Serbia's interest and in the interest of all Serbian citizens, as well as beneficial for Serbia's economic development.

The announcement came right after Serbian government adopted at its session the text of the agreement between Serbia and Russia on cooperation in the oil and gas industries.

The agreement enables conclusion of the contract between public gas company Srbijagas and Russia’s Gazprom Export for building a South Stream branch of a major prospective natural gas pipeline in Serbia, construction of an underground gas storage facility in Banatski Dvor and the contract between the Serbian government and Gazprom Neft on the sale and development of Serbian oil industry Naftna Industrija Srbija (NIS).

The government has authorized Minister of Infrastructure Velimir Ilic to sign the agreement on its behalf on January 25, Friday.

Who Can Say Serbs are Not Pragmatic? If EU Contract is Nearly As Good for Serbia, We'll Sign that One Too

On Wednesday, Premier Kostunica assessed that the Stabilization and Association Agreement (SAA) with the European Union [pushed by the greatest majority of EU member-states to be signed with Serbia on January 28] has to be in Serbia's interest in the same way the energy agreement with the Russian Government on cooperation in the oil and gas sector is in the interest of all Serbia's citizens and economy.

He said that as for the signing of the Stabilization and Association Agreement, the EU must choose whether it will sign the agreement with Serbia or illegally send a mission to fragment Serbia.

“If the agreement with the EU is to be in the interest of Serbia and its citizens, it has to be in line with the founding principles of international law, which is why the EU must give up on the attempt to send its mission and should unequivocally support Serbia's sovereignty and territorial integrity within its internationally recognized borders,” Kostunica stressed.

South Stream Turns Serbia into Regional Power

Under the terms of the agreement to be signed with Russian Federation, the two countries are to jointly reconstruct a Serbian underground gas storage facility and Gazprom Neft will buy a major stake in Naftna Industrija Srbije, or NIS.

NIS controls two oil refineries, an oil pipeline from Croatia, and most of the country's distribution networks for oil products and fuels.

Most importantly, the 900-kilometer (550-mile), €10 billion (US$15 billion) South Stream pipeline would run under the Black Sea from Russia across Bulgaria to Serbia, where it could branch off in several directions. The project undercuts the prospective U.S.- and EU-backed Nabucco pipeline designed to ease Europe's reliance on Russia.

Apart from Russia's Gazprom and LUKoil, competing for the lucrative purchase of Serbia's gas industry were also Austria's OMV, Poland's PKN Orlen, Hungary's MOL, and Romania's Rompetrol. However, the Russian proposal included the South Stream gas project, which would guarantee not only the country's gas supplies, but also clear advantages of becoming the hub for Russian energy and regional leader in gas and oil supply, modernizing Serbia's infrastructure, and significantly reducing the price Serbia is paying for its gas supplies now, highly taxed by the transit countries — Ukraine and Hungary.

Despite Western Grumbling, the Deal is Immensely Beneficial for Serbia

Despite all the grumbling in Washington and Brussels over Serbia's decision to sign the contract with Russia, Western experts, such as Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, can hardly overlook the advantages of the Russia-deal for Serbia:

“Currently, Serbia pays probably the highest price in Europe for Russian gas,” Stern said.

“What they are hoping is that with this direct line coming straight across the Black Sea and across Bulgaria their gas price will drop dramatically,” Stern said. "It basically cuts out a lot of the expensive transit costs that the country has to incur."

Although the EU reaction “would most likely be very negative, given the prevailing attitudes toward Gazprom and Serbia,” Stern said that further diversification of transit routes into Europe should be welcomed.

Agitprop Comrade Judy Dempsey, who penned the NY Times article quoted earlier, mentioned that “The office of EU Energy Commissioner Andris Piebalgs did not immediately respond to e-mailed questions about the deal Tuesday.”

Judging by the Western officials' sulkiness and dirty looks thrown Serbia's way over signing of the contract, it's safe to assume Mr. Piebalgs has difficulties unclenching his fists for long enough to be able to type less than vitriolic response to NY Times.

On the image above, the arrow points to the branch of Gazprom's South Stream pipeline on its path through Serbia (marked white).