Zee Beam News

January 22, 2008 International Herald Tribune - by Judy Dempsey - BERLIN: Russia added Serbia's oil monopoly to its recent string of energy acquisitions Tuesday in a deal that will also allow Moscow to send more gas to Europe through its South Stream pipeline. Four days after signing a major pipeline deal with Bulgaria, the agreement to take a 51 percent stake in NIS, the state-owned oil company, was yet another blow to the European Union's ambitions to build its own 3,300-kilometer, or 5,300-mile, pipeline to bring gas to Europe from Iran and Azerbaijan via Turkey, analysts said. The EU's Nabucco pipeline project was conceived to allow Europe to reduce its dependence on Russia, which already supplies a quarter of the bloc's natural gas. Nabucco has been dogged by logistical delays, lack of political will and disputes over financing, the analysts said. "As regards the deal between Russia and Serbia, we can blame the EU for some of this," said Borut Grgic, an energy expert and director of the Institute for Strategic Studies in Ljubljana, Slovenia. "There is a big political dimension to this," he added. "In all its negotiations with Serbia when dealing with the future status of Kosovo, the EU never brought up with Serbia the issue of energy security and how Serbia could play an important role for Europe." Gazprom, Russia's state-owned monopoly, has taken advantage of the disarray inside the EU by forging ahead with its own contracts with Italy, Bulgaria, Hungary and now Serbia, as it consolidates its presence in southeastern Europe. Under the terms of the provisional agreement, endorsed Tuesday by Serbia's cabinet, Gazprom has offered to pay about €400 million, or $600 million, for a 51 percent stake in NIS, with pledges to turn Serbia into a hub for Russian energy. The contract is to be signed Friday in Moscow. Gazprom will also commit investments of about €500 million toward modernizing Serbia's energy infrastructure. In addition, a spur from the South Stream pipeline under the Black Sea will be directed into Serbia, enhancing its role as a transit point for Russian gas. OMV, Austria's biggest energy company, said that it had wanted to make a bid for NIS when it was put up for sale last year but that there was no official tender process. "OMV has always stated that it would be interested in NIS," the Austrian company said. "But to be able to decide, an official tender process would be needed, which did not happen." The European Commission had criticized the tender process but had little influence because the Serbian government resents what it sees as the EU's interference in its political affairs. The Serbian government had been divided over the terms of the deal. Vojislav Kostunica, the nationalist prime minister, had accepted the price, first negotiated last month, but members of the pro-European Democratic Party had challenged it, saying it was below market value. Analysts said Tuesday that the price represented only a fifth of the company's market value and that the terms of the sale were not transparent. Kostunica brushed aside the criticisms. During a cabinet meeting in which the deal was endorsed, he said the "strategic" deal with Russia would give Serbia a reliable supply of energy for decades. "This is Serbia's biggest economic undertaking, and this agreement will guarantee our country's huge economic development," he said. Vuk Jeremic, the pro-Western foreign minister, said the deal would guarantee "secure energy supplies to Serbia and the rest of the Western Balkans." The Russian deal coincides with a fiercely contested presidential election that has focused on plans by the United States and the EU to recognize the independence of Kosovo despite opposition from most Serbian political parties and Russia - regarded by Kostunica as Serbia's closest ally on this issue. The ultranationalist candidate, Tomislav Nikolic, won the most votes during the first round of voting on Sunday but not enough to secure outright victory. He has rejected Serbia's bid to join the EU. His pro-Western challenger, Boris Tadic, also opposes Kosovo's independence but has refused to support sanctions against countries that recognize Kosovo's statehood. The two candidates face a run-off in two weeks. Given the political context, analysts said, there was a linkage between the energy deal and the presidential elections. "If a pro-Western candidate were to win the election, the deal with Russia might not be signed," said an EU energy expert who spoke on the condition of anonymity because of the sensitivity of the issue. "There was no need to rush through the NIS deal, but the cabinet did it Tuesday." Kosovo is still legally part of Serbia but has been under United Nations administration since 1999, when NATO forces intervened to end Serbian forces' ethnic cleansing of Kosovo Albanians. Regardless of the outcome, Secretary of State Condoleezza Rice, who was in Berlin on Tuesday to attend talks about Iran, said a decision on Kosovo could not be postponed indefinitely. "At a point," she said, "we're going to have to take tough decisions, and putting off tough decisions doesn't make tough decisions easier."