Investments in Serbian Energy sector

EU Market - Special Edition - Energy

ONLY ANNOUNCEMENTS OF BIG BUSINESSES

Petroleum Industry of Serbia (NIS) will initiate privatization process in 2006. Underground storage is being built at the location of Banatski Dvor. Over 95 percent of total coal production is used for production of electric power

According to the forecast by the renowned foreign and domestic institutions, the power supply sector in the region of the South-East Europe will be a real El Dorado for the investors and capital investments in the following decade. This favourable investment decade has already started in the region. Large joint projects of the world’s rich men are in sight. Even the power supply companies, the greatest competitors on the European Union market and other worldwide markets are joining forces in order to make the highest possible profit. In Serbia, however, nothing significant has been happening, apart from the announcements of spectacular investment operations, but it is still uncertain whether any investments will be directed at the recovery of the existing power supply facilities and the construction of the new ones, by whom and when.

Oil sector includes the exploitation of the domestic oil reserves, importing, transport and crude oil processing, as well as the distribution and sales/export of oil derivatives. In the area of domestic oil and gas research and exploitation, a constant decrease in the production of oil and gas has been present as a consequence of low level of investment in maintenance of the existing production, and a low intensity of research due to the lack of own resources. Transport of crude oil is mostly done via the main oil pipeline (JANAF) from Omisalj in Croatia to the refineries in Pancevo and Novi Sad. The total installed processing capacity of the domestic refineries is 7.8 million tons per year (4.8 million tons in Pancevo and three million in Novi Sad), with the current operational capacity reduced to 6.6 million tons (4.8 in the Pancevo refinery and 1.8 million tons in Novi Sad).

Serbian oil industry (NIS), whose privatization process is due to begin in 2006, is the exclusive or dominant factor in the oil industry field. The stock company NIS consists of the following four profit centers:

• NIS Naftagas, without competition in research and exploration of oil and natural gas in Serbia;

• NIS Petrol, consisting of petrol stations (around 500) and refineries in Pancevo and Novi Sad, which have recently started to operate on the principle “one refinery, two locations” and as a combined entity. The share in the turnover of oil derivatives on the Serbian market varies between 78 and 80 percent, while the market share in the retail segment varies between 50-60 percent;

• NIS TNG, for the production and distribution of liquified natural gas with the head-office in Elemir, controlling 70 percent of the LNG market in the country. The remaining participants on the market are the “Eurogas” from Subotica, the “Express gas” from Novi Sad, the “Atako” and the “Intergas” from Belgrade, and the “Sponit” from Cacak;

• NIS Catering and Tourism is part of the company with the integrated catering facilities to be privatized in 2006. These consist of four hotels in Montenegro, three facilities in Serbia (recreation center and hotel in Zlatibor and the “Jelen” hotel in Crni Vrh, which has not been completed and will require an investment of around 10 million EUR). Recreation center in Fruska Gora, in Turija, restaurant in Zrenjanin, motel “Adasevci” on the higway Belgrade-Zagreb, as well as travel agent “Follow Me” will also be on sale.

Within the oil sector restructuring process, the state has also formed the public company “Transnafta” for the transport of oil via oil pipelines and the transport of oil derivatives via derivatives pipelines. The company is state owned with the head-office in Pancevo. The most important strategic activity within its business operations is participation in development of Pan- European Oil pipeline (PEOP).

Natural gas sector consist of exporting and exploitation of own natural gas reserves, primary processing, collection, transport and distribution. A large number of distribution networks supplying the consumers with natural gas are connected to the main, 400 km long gas pipeline, stretching from the Hungarian border to Nis. In Serbia, 155.000 households and around 1.000 industrial consumers are supplied with gas through the distribution network whose largest part was constructed on the territory of Vojvodina, i.e. the northern Serbian region.

It has been planned that by 2015 the number of consumers will increase to 400.000 new consumers, and that 23 more cities will be connected to the gas network. The main protagonist in the natural gas sector is the state owned public company “Srbijagas”: its operations consisting of importing, transport and distribution of natural gas on the Serbian territory. Furthermore, there are 32 small companies for gas distribution on the market (of which 26 are located in Vojvodina).

Serbia does not have natural gas storage yet, but has started a construction of storage in Banatski Dvor, with the capacity of 25-30 percent of the annual consumption of gas in Serbia. Particular advantage of the storage in Banatski Dvor in relation to all other locations is the possibility of almost doubling its existing capacity of 800 million cubic meters. With the surrounding deposits that could be used as accessory-satellite storages, this storage might become a large regional storage. This fact might explain the interest that many potential strategic investors showed in the completion of this facility. The natural gas underground storage in Banatski Dvor is presently part of the “Srbijagas”. However, Government has announced that it will soon become a daughter company, i.e. dependent company, which will be followed by a public tender invitation to all interested strategic partners to invest in the completion of the storage construction. The first phase of Banatski Dvor could be completed in six to seven months, which would result in a depot of a 300 million cubic meters gas capacity, with the investment of around 400 million EUR.

Electric power sector consist of:

• Electric power generation include power plants with the installed power of 7.120 MW – 3.936 MW in thermal power plants using lignite, 2.831 MW in hydro power plants and 353 MW in CCGT

• Electric power transmission system with around 10.200 km long power transmission lines of 400, 220 and 110 kV and around 27 GVA installed in power substations, via which transmission of electric power produced in the country is conducted, as well as exchange with neighbouring countries;

• Electric power distribution is located in consumer centers delivering electric power to final consumers in energy consumption sectors.

Electric power industry is functionally divided into two state owned companies, for the production and distribution of electric power within the Power Industry of Serbia – EPS, and transmission within public company “Serbian Electric Network” – EMS (which is also market operator).

EPS produced around 34.000 GWh of electricity and 34 million tons of coal in the year 2005, which was mostly spent in its own electric power plants. EPS also distributes the electric power to around 3,3 million consumers.

Serbian power industry – EPS – is planning to find strategic partner in 2006, in order to continue construction of thermal power plant Kolubara B. Investment of 550 million EUR is needed for its completion, as well as strategic partner for reconstruction of “Panonske elektrane” that consist of three CCGT plants for the combined production of electric power, thermal power and technological vapor in Novi Sad, Zrenjanin and Sremska Mitrovica – with total installed power of 353 MW.

According to the provisions of the current Energy Law, around 12 % of the electricity market has recently been opened – liberalized. Since Serbia joined Energy Community in October last year, made a commitment to liberalize market for all commercial consumers by 1st January 2008, while in 2015 all households will be able to select supplier.

Coal sector consist of coal exploitation and processing from open pit mines, located in two mining basins – Kolubara and Kostolac. Over 95 percent of total coal production amounting to around 34 million tons per year is used for the production of electricity. Coal from eight underground mines where pit coal and brown coal mining, as well as quality lignite mining is done for final consumption.

District heating system exists in 50 Serbian cities, consists of decentralized thermal sources, with the installed power of around 6.500 MJ/s, and corresponding distribution network. System is used for heating of residential and business premises, with a volume of around 500.000 equivalent apartments (of 60 square meters each).

Industrial energy system consists of heating sources with around 6.300 MJ/s installed in several hundreds industrial companies in Serbia. They are used for the production of technological vapor and thermal power for the needs of production processes and heating of work areas. In around 30 industrial companies, there are power stations that enable joint production of thermal and electric power (capacity of around 250 MW). However, majority have not been in operation for a long time.