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23 Jan, 2008 22:56

Belgrade gives Gazprom the green light

Belgrade gives Gazprom the green light

The Serbian government has approved a major deal with Gazprom on co-operation in the oil and gas sector. Under the draft agreement, Gazprom will buy a 51% stake in the Naftna Industrija Srbije (NIS) oil monopoly and run the South Stream gas pipeline throu

With NIS' monopoly on the Serbian gas distribution market and its 4/5 control of the country’s petroleum retail market, the Russian giant is set for years of economic domination there.

Meanwhile for Gazprom Serbia may be more valuable as a transit point than as an end point.

“It's a part of an overall strategy of the Russian government, and Gazprom as a part of that government, I would say, to bypass some unstable and unpredictable territories that Gazprom has to use now to transport its gas to European customers – I mean Ukraine,” commented political analyst Mikhail Krutikhin.

The multi-billion dollar South Stream pipeline will allow Gazprom to carry more gas towards Western Europe, where it can sell it to consumers on its own. It will bring more profit to the company than just selling the gas at the Russian border.

Serbia has been a staunch Russian ally, both under the rule of Slobodan Milosevic and since his overthrow.

Now, its economy should benefit from cheaper Russian fuel, and Serbia will receive a transit fee for each cubic metre of gas that passes through its territory.

There are some worries that such strong connections with Russia could jeopardise the future of Serbia's European integration.

Though some analysts believe that becoming a major energy hub will only strengthen Serbia’s position in Europe.

“People in Europe might be unhappy now but when the pipeline is finished, the situation will change because Serbia will become a major energy hub. The European countries will be interested in ensuring that it remains politically stable at all times, and will treat it with respect,” said political analyst Milovan Dretsun.

Meanwhile, the Serbian Foreign Minister Vuk Jeremic said this deal will positively effect the economy of Serbia.

“We are very eager to complete negotiations and to be able to sign this important energy deal between Serbia and the Russian Federation this coming Friday. We believe that making sure that there is full energy supply stability in Serbia is going to have a tremendously positive effect on the future prospects and develop the Serbian economy,” he said.

The Serbian Prime Minister has high hopes for the deal.

“The government of Serbia has adopted the draft agreement with the Russian government on co-operation in the energy and gas sectors.  This is Serbia's biggest economic project, and this agreement will guarantee great economic growth.  Serbia will secure a stable and reliable energy supply for the coming decades as well as economic benefits and stability for our citizens,” stated Serbian Prime Minister Vojislav Kostunica

Although Serbia is taking a certain risk selling its strategic assets into foreign ownership, it will undoubtedly benefit from the deal in the next few years.

As for Gazprom, even though it may have to invest heavily before it reaps any major rewards, it is definitely another step in its European master plan.