Report on South Stream project in Serbia: Discussions about the law for “South Stream”, different opinions and conflicts

11. March 2013. / News Serbia Energy

Ministry of Finance show negative attitude to the request of industrial society recapitalization where 51% is owned by Gasprom and 49% by Srbijagas.

Construction of “South Stream” is national project for Serbia. Although this project was discussed in Parliament on expedited basis last month and the most of parties announced support, Parliament seems not to be harmonized about project details that have national significance.

Srbijagas, which is the main partner to Gasprom in “South Stream” construction work, has sent a letter to the Government for 15 million dollars recapitalization of industrial society “South Stream AG” the jointly registered company by Gasprom and Srbijagas as a company that will realize the construction of this pipeline through Serbia.

Common project company

We should remind that international agreement for “South Stream” project was signed in January 2008 and for the “Banatski dvor” project in 2009. Common projective company “South Stream Serbia AG” was registered afterwards in Cug town in Switzerland. 51% of ownership belongs to Russian Gasprom and 49% to Serbian Srbijagas.

Acts’ adoption have also preceded to the establishment of common company besides signing the international agreement between Serbia and Russia, commercial negotiations of Srbijagas and Gasprom, confirmation of Government and final harmonization during visit of Russian President Medvedev to Serbia in October 2009.

The common company, registered in Switzerland, respects continental laws and the process of license issuance and pipeline construction would require establishment of subsidiary company in Serbia.

Industrial society with limited responsibility for “South Stream” seated in Novi Sad, as a subsidiary company, is directly responsible and included in terrain work i.e. in the construction of the pipeline that passes through Serbia and license issuance. Ratio of ownership is still the same like in firm registered in Switzerland in 2009- 51% to 49% in advantage of Gasprom.

The construction of pipeline through Serbia is being done with project financing and credit indebtedness of “Srbijagas” and “Gasprom” so the question of industrial society “South Stream” recapitalization justification occurs.

Director of Srbijagas Dusan Bajatovic said that directors of all companies were at meeting and discussions visited by bankers who intend to invest in pipeline and this makes request for recapitalization even more confusing.

“Possibilities for “South Stream” pipeline construction exist in all countries, as well as provided assets “, Bajatovic said on the opening of “South Stream” construction work in Russia on 7 Decembar where the all Russian and Serbian leaders participated in.

“South Stream” is significant project for Serbia. This construction makes our country regional player in the transport, distribution, trade and especially storage of gas considering that Serbia can storage 5 to 7 billion cubic meters of gas on our territory. Serbia will doubtlessly become the energy node in this part of Europe when it comes to gas, oil and electricity. The question of ownership ratio still occurs because Serbia is the only country that signed contract with Russia without 50:50 percent of partnership ratio.

Zorana Mihajlovic has recently said that Ministry will try to place Serbia better through negotiations in the agreement with Russia.

The feasibility study of “South Stream” construction, the general project and spatial plan of the area for special needs have been done so far.

Lex specialis

Serbian Parliament had urgent discussion about proposal of the new law for “South Stream” so called “lex specialis” last month. Expropriation acceleration and collecting the documentation for international pipeline were predicted with this proposal.

The project “South Stream” should enable Serbia energy safety increase. Serbia is supplied with gas from only one direction at the moment and it makes our country unstable. On the other side, Serbia decided for gasification and gas consumption in larger amounts than earlier- it is stated in the law proposal.

Conditions for certain licenses’ issuance are being made with this law, as well as parts of this main pipeline through Serbia, 450 km long and where 1,7 billion EUR will be invested in.

This project is significant, not only because of Serbian industrial development but also regional development- it was stated in explanation of this law.

Around 6 billion EUR will be invested in International Pipeline “South Stream”. It will bring Russian gas with underground pipes below Black Sea, over Bulgaria, Serbia, Hungary, Slovenia and Italy to consumers in EU, Central and South East Europe.

Special rules are being determined with this law proposal for full land expropriation on pipeline track which includes about 10.000 parcels.

The law predicts payment of compensation and taxes to the owners of parcels that are placed on pipeline track at a price that cannot be lower than market prices with deadline determination for payment of prescribed taxes and compensations.

Managing Director of “Srbijagas”, Dusan Bajatovic, has stated that assets for land expropriation are provided, as well as assets for construction of this pipeline.

“The money for expropriation is provided. 4.000 of 10.000 parcels were already visited by “Srbijagas” workers. Over 4.000 owners have already agreed to compensation for fair expropriation prices”, Bajatovic stated.

He underlined that land price depends on many factors and it will be determined by Tax Administration.

Bajatovic stressed that money for construction is provided and that Russian banks are interested in financing, but he also added that offers from other banks are being considered, too.

What does law predict?

The law for “South Stream” predicts that temporary immobility occupation, which is required for pipeline construction, can last 5 years, the longest. Serbian government will establish temporary working body consisted of representatives from ministries of Energy, Finance, Construction and Spatial Planning in order to follow pipeline construction, after the law enforcement.

The law for “South Stream” will be supported by most of parties in Parliament, except LDP, LSV and DS. Democratic Party conditioned accepting the law with land expropriation and the law solutions for construction licenses harmonized with constitution.

LDP’s attitude is much clearer. “South Stream” represents mega-giga project to someone, while for citizens the land is being taken away from this project represents the new 1945 or 1948- they emphasized on Parliament Discussion.

The pipeline in Serbia should be 450km long and to have 40 billion cubic meter of gas capacity on annual plan. The pipes, 15 billion cubic meters long will be set in the first phase.

The full capacity of “South Stream” is projected to 63 billion cubic meters and it should be reached gradually with construction of 4 pipelines. One branch should go to Croatia and Republika Srpska from Serbia and the innovation is that one branch will follow the part of highway from Nis to Kosovo in order to supply Kosovo and Macedonia, too.

Source Akter/Serbia Energy

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