Jan 1, 2007

Gasification of Serbia


Gazprom has been granted the key role in gasification of Serbia
CLOUDY BLUE STREAM


Except for the pre-election purposes, the media storm about signing the Memorandum on construction of the gas pipeline through Serbia is used for hiding the fact that Serbia has given the big job of supplying gas and the country gasification to the Russian Gazprom.

The key event regarding the issue took place at the beginning of 2006, when the Ministry of Energy and the Serbian Government assigned control over Yugorosgaz to Gazprom, which owns now 75% of Yugorosgaz shares, while Srbijagas has only a quarter.

The company Yugorosgaz was founded in 1996, and 50% of its shares were owned by the Russian Gazprom, while the owners of the other half were the Serbian companies – NIS, Sartid, Progres, Progress Gas Trading and Beobanka. On its establishment, the company was given a concession for the following 25 years – for constructing gas pipelines, sale and transit of gas from Pojate to the South of Serbia, which included construction of the gas pipeline Nis-Dimitrovgrad, through which the country should be connected to the Bulgarian gas pipeline.

NIS has gradually purchased the shares of Sartid and Beobanka in the company, and on May 13th 2005 it made a decision to purchase 25% of the shares owned by Progress Gas Trading in order to keep the equal ownership in Yugorosgaz. However, NIS wasn’t given permission by the Ministry of Mining and Energy and the Government to realize the idea.

Therefore, Gazprom took advantage of the situation and, in January this year, purchased the shares owned by Progress Gas Trading for 4.6 million euros, becoming the majority owner of Yugorosgaz. Srbijagas lost the chance to operate in the south of Serbia, because the concession for gasification of the Southern part of the country was assigned to Gazprom.

The current Assistant Minister of Energy for gas, Milutin Prodanovic, who was director of Energogas when the Management Board of NIS made the decision, announced for “Politika” in February that “NIS cannot be guilty for missing the deadline for purchasing the shares owned by Progress Gas Trading and overtaking the majority ownership by Gazprom”. This leads to a conclusion that the Ministry of Energy and the Serbian Government are responsible, because they didn’t react to the decision of the Management Board of NIS.

Immediately after overtaking Yugorosgaz, Alexander Medvedev, the Deputy Director of Gazprom, came to Serbia on January 27th to meet president Tadic, Prime Minister Vojislav Kostunica and the then Deputy Prime Minister Miroljub Labus. According to the Gazprom’s announcement, they agreed to continue strengthening participation of the joint company Yugorosgaz in construction of the underground gas storage in Banatski Dvor and the gas pipeline Nis-Dimitrovgrad, towards Bulgaria. On that occasion, Gazprom reminded the Serbian authorities that the debt of Srbijagas, for the gas delivered from 1995 to 2000, amounted to 235.3 million dollars.

It seems that Gazprom’s delegation came to Serbia in order to make clear that the job referring to Yugorosgaz had been finished and that Gazprom overtook the control – in compliance to the Law, which was the fact. But it is also the fact that the situation could have been different.

The Russian side started working immediately, which was confirmed by the fact that the Russian Ambassador, Alexander Alexeyev, had a meeting with Kosovo Prime Minister, Kosumi, in Pristina, on February 9th, and the members of the Russian delegation were also the Chief of the Russian Embassy Office in Pristina, Sergey Bazdnik, and director of Yugorosgaz, Sergey Struk. Since Gazprom, through Yugorosgaz, was given the right of constructing the 123 kilometers long gas pipeline Nis-Prokuplje-Dimitrovgrad, the participants in the talks agreed that there were good possibilities for economic and trade cooperation between Russia and Kosovo, i.e. for sale of the Russian gas in Kosovo.

When it finishes construction of the gas pipeline Nis-Dimitrovgrad, which costs 60 million dollars, Gazprom will directly supply gas to the consumers in the southern part of Serbia, Kosovo and Montenegro, and Srbijagas will be forced to purchase gas from Yugorosgaz if it wants to gasify the central part of Serbia, because the possibility of importing gas from the north is limited and it covers only the needs of the existing consumers in Vojvodina.

If the country had invested 60 million dollars in construction of the gas pipeline Nis-Dimitrovgrad, which was one of the main proclaimed priorities of the Ministry of Mining and Energy, Srbijagas, and not Yugorosgaz, would have controlled gasification of Serbia today.

Although Srbijagas doesn’t have funds needed for the independent realization of the job, the state could have announced a tender for a strategic partner in the big business and kept the right of control in its own hands. And there were many companies interested in the investment – from the Hungarian MOL, to Italian Enel. The investment would have been payable to many companies, especially with the European gas prices which will be used by the Russian company, too. The mistake (?) of the Serbian authorities allowed Gazprom to obtain all those rights for less than five million euros, which it paid for the additional share in Yugorosgaz.

According to the Law, for giving a concession to a foreign company, such as Gazprom, a procedure in compliance to the Law on concessions must be carried out with a compulsory tender.

The loudly announced revenues from transit taxes – from 50 to even 200 million dollars annually – if they come true, will be mostly owned by Gazprom (75%). i.e. its company Yugorosgaz.

The fact that the Government was trying hard to protect Gazprom’s interests is confirmed by a part of the official announcement on the occasion of signing the agreement in Moscow: “The gas pipeline construction will also benefit the Russian Gazprom, due to the expansion and diversification of gas transporting routes towards Europe, better and more stable approach to the Serbian market and consumption increase in Serbia”.

With this investment, the Serbian citizens will obtain the European gas prices – which Gazprom delivers to all of its consumers. The former Soviet Republics and East Europe countries have obtained the new gas prices, and this is how it looks like: In 2006 Belarus purchased gas from Gazprom at the price of 47 dollars for a thousand cubic meters, and for 2007 Gazprom “proposed” the price of even 200 dollars for a thousand cubic meters. After negotiations that lasted one and a half year, Bulgaria managed to start paying the market gas price, which is 40% higher than the current price, gradually, by 2012. Two increases in gas price during next year have already been announced to the Bulgarian consumers.

Alexey Miller, president of Gazprom, announced that the strategy of Gazprom was to obtain direct approach to the ultimate consumers, which would increase efficiency of the Russian gas export. He also said that the gas prices would be the market ones and that the principle would continue in future.

Regarding continuation of the construction of the Blue Stream gas pipeline, as far back as 2005 Gazprom announced extension of the existing route from Russia, under the Black Sea, to Turkey, and further on across Greece and Bulgaria, to West Europe. Up to now, people from the Russian company have been refusing to give any comment on the issue, mentioning that no routes or gas quantities to be transported have been determined yet.

Regarding the route of the future extension of the Blue Stream gas pipeline, many activities have been carried out in Hungary this year: the president of Russia, Vladimir Putin, during his official visit to Budapest at the end of February, brought a surprise in the form of apology for subduing the Hungarian rebellion in 1956 – and a collection of rare books brought to Russia by members of the Red Army during the Second World War, and after that he continued to favor Gazprom. He suggested Hungary to think about the Gazprom’s plan for constructing the second route of the Blue Stream – from Hungary and further on to the South East Europe. After the Putin’s visit, in June this year president of Gazprom, Alexey Miller, came to Budapest and signed an agreement with MOL on establishing a joint enterprise – SEP Company, which should inspect extension of the Blue Stream gas pipeline through the Balkans, to the west of Hungary.




Which route of the Blue Stream extension will be the final – we will know in the middle of next year, and the decision will be made by Gazprom exclusively.


Banatski dvor


Serbia still hasn’t got a storage for natural gas, but construction of the storage with the capacity of 25-30% of the annual gas consumption in Serbia has started at the location of Banatski Dvor. A special advantage of the storage Banatski Dvor, in comparison to all other locations, is that the existing planned capacity of 800 million cubic meters might be almost doubled – by connecting the storage with the neighboring gas deposits. For this reason, many potential strategic investors have shown interest for the completion of the facility construction, which will cost 200 million dollars, and among them are Gazprom, the Hungarian MOL, Austrian OMV and other companies.

Up to now, the Serbian Government has been refusing to announce a tender for a strategic partner, which would accelerate the construction of Banatski Dvor. Completion of its first stage is announced for the end of 2007.

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