Russia, Serbia sign natural gas pipeline deal

Feb. 25, 2008
Russia has signed several agreements for oil and gas with Serbia, largely aimed at underscoring its political support for the Balkan country.

Eric Watkins
Senior Correspondent

LOS ANGELES, Feb. 25 -- Russia has signed several agreements for oil and gas with Serbia, largely aimed at underscoring its political support for the Balkan country.

In the main development, Russia and Serbia signed an agreement to create a joint company that will build the Serbian stretch of the South Stream gas pipeline.

According to Dmitry Medvedev, the apparent successor to Russian President Vladimir Putin, the South Stream pipeline deal, valued at some $1.5 billion, will "form the foundation of energy stability for all of Europe in the future."

The statement, alluding to the European need for such gas, followed the decision by the US and several member states of the European Union to recognize the declaration of independence made by the former Serbian state of Kosovo.

Russia sided with Serbia and said it will block Kosovo from joining the United Nations or other international organizations.

Russia's Putin said Kosovo's declaration represented "a terrifying precedent," and he warned the West that the decision would "come back to knock them on the head."

On his visit to Belgrade, Medvedev said Kosovo's declaration of independence violated international law "absolutely," and he insisted, "Serbia needs support now."

That view was rejected by the US Department of State, which said Kosovo will never be part of Serbia again, but that Washington would keep working on the issue with Belgrade and its ally Russia, both of which oppose Kosovo's independence.

"We are going to continue to try to work with both the Russians and the Serbs on this but I think that it ought to be clear to everybody at this point that Kosovo is never going to be a part of Serbia again," said DOS spokesman Tom Casey after Medvedev's visit to Belgrade.

Regarding the South Stream agreement signed by OAO Gazprom Chief Executive Alexei Miller and his Srbijagas counterpart, Sasa Ilic, the new company would draft all details for the pipeline over the next 18 months, including the rights and obligations of the Russian-Serbian enterprise.

"We allocate 3 months for the creation of the company, and another 18 months for the feasibility study," said Gazprom spokesman Sergei Kupriyanov. "We expect construction to start no later than 24 months after the feasibility study has been completed," he said.

Kupriyanov said it is important to negotiate with all the countries participating in the pipeline project—Russia, Italy, Bulgaria, and Serbia, with Bosnia and Greece as possible partners—"so that the feasibility study is integrated."

The $14.65 billion South Stream project by Gazprom and Italy's Eni SPA is designed to carry Siberian gas to Western Europe at a capacity of at least 10 billion cu m/year.

Russia also will invest a further €900 million in Serbia's energy industry, said Medvedev during a visit to a major Serbian oil refinery in Pancevo. He did not detail the expenditures.

However, refinery general director Serzan Bosnjakovic told Medvedev that a facility would be built at the refinery with Russian help by 2010 that "will cost about €500 million" and "meet top modern standards."

"We hope that, with your help, the capacity of the refinery will grow to 7 million tonnes of oil a year," said Bosnjakovic. The refinery currently processes 5 million tonnes/year of oil.

In another apparent allusion to the political situation developing over Kosovo, Medvedev said the planned Russian investment in the refinery "is in our shared interests and the interests of those who live and work here, the interests of Serbia, and, for that matter, the interests of the entire Europe."

He said all the documents on the investment plan had been drafted and would be signed "very soon."

Contact Eric Watkins at [email protected].