Serbia exclusive report: NIS and Gazprom – privatization, expansion across the region, power generation

, News Serbia Energy

Oil Industry of Serbia company NIS has been the largest and the most profitable company in Serbia meeting 75% of market demand for petroleum products and provides, on average, around 12% of the Republic budget. NIS has been among the biggest vertically integrated energy companies in the southeastern Europe. Retail network of the company includes over 500 service stations, fuel filling points and oil depots located in the Balkan countries. In addition to Serbia, NIS is doing business in Bosnia and Herzegovina, Hungary, Bulgaria, Romania, Turkmenistan, Angola, Belgium and Russia. Main business branches include research, production and processing of oil and gas, as well as petroleum products sales. However, in 2011, NIS formed a new organizational sector –Unit “Energy“, and a year later, the first steps were taken: the Wind power plant – “Plandište“ will be the first Wind Farm in Serbia, producing over 230 Gwh of electricity annually. Transformation of NIS from a national company into a regional energy holding company represents a part of the company development strategy until 2020.

Let us remind of the fact that representatives of Russia and Serbia, in December 2008, signed the Agreement on selling NIS Company for 400 million euros and non-mandatory documents on construction of the gas pipeline South Stream and completing the gas storage in Banatski dvor.

Long expected gas storage, Banatski dvor was opened in 2011. This project was 11 million euros worth. The construction of the section of the South Stream in Serbia officially started on 24th November 2013, and it was planned to be finished in two years, when Serbia could get the other supply line of Russian gas. The value of this part of the project is 1, 9 billion euros, and it will be implemented by the company South Stream Serbia (Južni tok Srbija), with 51% shares owned by Gazprom, and Srbijagas 49%.

Gazpromnjeft (daughter company of the gas giant Gazprom) owns 56, 15 % of authorized share capital of NIS, while 29, 88 % of shares are owned by the Republic of Serbia. The rest of shares belongs to citizens, employees, ex-employees and other minority shareholders, so the company currently has around 2,3 million shareholders (as of 31.12.2013). NIS shares are being traded in the Belgrade stock exchange. NIS share price increased by 26% in 2013. NIS has paid out the dividends to the shareholders this year in the amount of 25% net profit, which is 13, 08 billion RSD, i.e. 80, 22 RSD per share. Today, NIS is the company that pays out dividends to its shareholders and also has the greatest profit in the region as far as dividends are concerned. NIS has become a stable source of profit not only to minority shareholders, but also to majority shareholders.

Mr. Kiril Kravčenko, managing director of NIS has recently announced that Gazpromnjeft has invested two billion euros in NIS over the past five years, and that in the following three years, at least 1,5 billion euros will be invested. As he says, NIS has started power production business when gas and electricity market comparative analysis was made and when it turned out that exploited gas utilization for the power generation was much more lucrative then to sell gas through the pipelines. At that moment it was decided to monetize gas which NIS produces and use it for electricity production.

Several projects were made. One of them involves 14 power plants, and it was announced that they would have been built by the end of 2014, and the other project includes two thermal power plants – heating plants for a Greenfield factory for 200MW power generation in Pančevo. In September, last year, NIS and Gazprom Energoholding signed a memorandum on construction of steam-gas thermal power plant in Pančevo. It is envisaged for the group Gazprom Energoholding to have 51% of authorized share capital of the new company to build TP, and 49% of shares to be owned by NIS. Gazprom Energoholding is the daughter company of the Russian Gazprom. Electric and heating power to be produced in the gas-powered power plant will primarily supply electricity to NIS refinery in Pančevo and petrochemistry refinery HIP Petrohemija where NIS is a strategic partner. It has been planned to launch the remaining electricity to the energy market of Serbia which will be soon liberalized.

Mr. Kravčenko pointed out that this year the investments would be made and added that the results of oil research in Romania, Hungary or Bulgaria were expected by the end of May or in early June, and the start of the production by the end of 2014. NIS has many potential research projects in the regional countries, and activities of three projects are already being conducted in Romania, two in Hungary and one in Bosnia and Herzegovina. Other projects are being additionally analyzed, not only in Montenegro, but also in other countries of the region.

The Balkan region is of strategic import to Gazpromnjeft. One of the potential projects is entering the Croatian market. The common interest of both Serbian and Russian side is to strengthen the influence of NIS in the region.
In the recent visit to Moscow, the Minister of Energy, Mr. Aleksandar Antić has stated that there are serious NIS and Gazpromnjeft development plans. Gazpromnjeft, being primarily a gas-oil company, is ready to enter certain energy production projects, if the interests of Serbia, as a partner, are such that NIS should become an energy producing company. This would be of huge interest for Serbia and the energy stability in general.

Since NIS was privatized, it has been doing business successfully, proving that every year. The most important investments made in NIS are those which in five year went up five times, and in 2013 they increased by nine percent compared to previous year and they amounted to 55,6 billion RSD. NIS has significantly increased the payment of tax in the last year, so that the budget revenue inflow of this company is 14%. Over the past couple of years much has been invested in modernization of the plants and staff training.