Serbia: South Stream cancellation, effects for Serbia-Russia relations

10. December 2014. / News Serbia Energy

Whatever the reason for the project suspension is, Serbia will be found in big trouble like no other partner in the project. Specifically, our country made famous oil-gas arrangementin 2008th, related agreement by which we sold NIS and half of the gas storage in Banatski Dvor toGazprom Neft.We gave the Russians a very good oil exploitation rights in Vojvodina and concessions in Angola.

In return, we get 400 million dollars forNIS, and the company took a loan for modernization of refineries in proportion to the state and Gazprom Neft share. However, what if there is no South Stream?

In this case, Serbia could allege in front of the competent arbitrationon the non-execution of the agreement which could be terminated then.

– It is time that Serbia faces it, even to the extent in which the Russians have already done it. It is clear that South Stream is a political pipeline, rather than an economic project from the first day, but since the European Union does not allow the construction of a gas pipeline which is not according to the regulations from Brussels, it is difficult to believe that the pipeline will ever be built.

Serbia should have to repay 400 million dollars to Gazprom Neft from the sale of NIS and to take back the company, and also to terminate the oil and gas arrangement.

Foreign investment consultant Milan Kovacevic points out for our newspaper that the main problem with the Russians was made at the start and all the consequences arising shall be borne by Serbia.

The contract was poorly written. We crammed into it also Banatski Dvor and NIS and the exploitation and the South Stream, so we later complemented it. This contract is great for the Russian side, and disastrous for Serbian. However, despite everything Serbia has good arguments to initiate arbitration in the event that there is no South Stream or if the project be indefinitely postponed – Kovacevic said.

This arbitration would slow the state, and not the company, said Kovacevic, because it is a bilateral agreement.

– We can seek redress. But you know, the agreement with the Russian side negotiated experts, and politicians from the Serbian, so no wonder it is such. After all, our politicians and current and former government asserted that it was a deal that it was not only economically but also politically, but I doubt that someone had the courage to confront Moscow – adds Kovacevic.

Working Group for conflicts

Relations between Serbia and Russia, when it comes to the energy, are not shiny. Russia has recently decreased gas supplies to Serbia by one-third due to debt of 200 MEUR.

Prime Minister Vucic was wangled with Putin to pay half of the debt immediately, and the rest in rates. That something is seriously wrong shows the fact that the Police Minister Nebojsa Stefanovic formed a working group on August 11ththis year to review the circumstances under which it was conducted NIS privatization, which Vucic previously marked as disputable. There are no results yet. The Russian side did not hide her anger and disappointment that in this way Serbia has started to review the agreements with Moscow.

State on seesaw

Diplomats agree that Serbia found itself in an awkward situation because as a candidate for membership in the EU must follow the policies of Brussels and at the same time tries to find a balance in relations with Russia.

– Serbia is now in such a serious financial crisis that can no longer afford not to initiate contentious issues in relations with other countries, and the issue of energy is undoubtedly a source of tension between Belgrade and Moscow – said Dusan Lazic, former Serbian ambassador to Ukraine.

And what if Brussels is guilty?

Economic analyst and main chief editor of NIN Milan Culibrk believes that initially Serbia did not well protect their interests with the Russians, and that it will be very difficult to defend them if there is no South Stream.

– We do not know exactly which documents defined it and I do not want to speculate. However, even if there is a scenario of abandoned building, it may be asked why it was abandoned. If this is due to a dispute between Russia and the EU, then it is not a question of the contract default from the Russian or Serbian side. It is the job for top experts of international economic law – says Culibrk.

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