Serbia, report: South Stream – Who is the weakest link ?

11. March 2014. / News Serbia Energy

Five different statements given by five officials about issue in what phase is the realization of the South Stream project through Serbia opened the question of what is actually happening.  Firstly Prime Minister in resignation, Ivica Dacic, opened the topic specifying that there is a problem with the South Stream in relation with the provision of the government guarantees for its realization. According to his statements, it was agreed that the Russians are financing the construction, and that Serbia pays for its part from the profit gain, in other words from the collection of fees for the passage of gas once it becomes fully functional.

The Gordian Knot seems to be resolved by Aleksandar Vucic, First Deputy Prime Minister of Serbia in his resignation, primarily, with his authority and his political weight who stated that there would not be problems with the construction of the South Stream pipeline through Serbia and that the state will meet its obligations. “There will be no problem with The “South Stream”, Vucic said. “The government will fulfill its all obligations, if some ministers think otherwise/ oppose, that is not my concern. Serbia is a much more focused and organized country than what some people who work for the government , actually want it to become,” said Vucic

However, as he explained, Serbia should provide government guarantees for the founding contribution of 75 million Euros of the joint venture, so that if Serbia does not have the enough money for it and Russia has financed and covered Serbian part of the deal, the Russian partners would get some kind of guarantee that the Serbian partners will repay them at some stage.

The issue of funding has been the main topic of the lengthy negotiations, which is now confirmed by a Finance Minister in resignation, Lazar Krstic, who emphasized the need for a precise and clear financial plan and how the investments will be repaid.

“This is enormous amount of money, potentially more than two billion euros, and we must have full transparency of its flow. We must know where the money will come from, who will provide it, who is going to pay it off and which guarantees will be offered taken in account the entire financial structure”, said Krstic, adding that negotiations were held at the highest state levels at the end of December, which then were continued in Sochi, Russia.

“I’m sure we will come to an agreement which will be acceptable to all parties,” said Krstic and stressed that the South Stream is perhaps one of  the most important strategic projects for our country.

The Ministry of Energy confirmed Dacic’s statements explained the problem of providing the government guarantees for the “South Stream” has been delayed because of restructuring process of  Srbijagas company. It is expected that the issues of financing the project will be resolved in the dialogue between Serbian government institutions and Gasprom company.

The Ministry states that the state guarantee for a loan company Srbijagas, a full amount of 75 million euros, is intended to cover the initial part in the ” South Stream Serbia “, and was included in the proposed budget for the 2013 year, however it was not realized due to the restrictive policies of the Ministry of Finance that regulate government borrowing.

As stated, the proposal of the Ministry of Energy, Development and Environmental Protection was that the same guarantee is to be found in the budget of 2014 year, but the Ministry of Finance has not included that provision is in the Draft Law of the Republic of Serbia in 2014. which was adopted by the National Assembly.

The ball is thus thrown back to the terrain of the Ministry of Finance and Srbijagas, from which the director Dušan Bajatovic firmly replied that he really doesn’t  know who thought that the problem lies in this public company, considering the fact that company`s restructuring has not even started.

According to Bajatovic, the country does not give any guarantees for Srbijagas to build The “South Stream”, but has already been agreed with Gazprom to get a loan that will be repaid from dividends of the project at an interest rate of 4.25 percent per annum.

As he explained during the final review of the contract, that there are other three risks that should be addressed .

If the project is to delayed , the lessee of 100 percent capacity – Gazprom Export will pay loan charges that Srbijagas has taken to recapitalize the project.

Another risk is – what happens if we build an energy facilitities , and Hungarian or Slovenian for example haven’t been finished, or if we can not rely on 100 percent of the capacity lease, would the Russian party take the risk of it

The third risk, as Director of Serbiagas  said,  if  the financial restructuring Srbijagas doesn’t complete , but had already started, and if we fail to bind the dividend income that would go at the expense of Srbijagas and can we be assured that the proceeds would still go to pay off the loan.

The epilogue of the whole enigma really impedes expected only after the establishment of the new Government of Serbia and the constitution of the new parliament, which is, to be sure, the only body that can grant state guarantees.

International gas pipeline the South Stream, a project initiated by the Russian state company Gazprom, is worth more than 16 billion euros and will bring Russian gas pipes under the Black Sea and overland through Bulgaria, Serbia and Hungary to consumers in Southeast and Western Europe. Construction of the section of South Stream in Serbia officially started on 24 November 2013 and should be completed in two years, by that time Serbia will get a second route  of Russian gas supplies. It was supposed to work to be intensified in March of 2014. The value of this part of the project is 1.9 billion, and is implemented by the company South Stream Serbia, in which Russian Gazprom holds 51 per cent and 49 per cent is owned by Srbijagas.

Source; Serbian Energy

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