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25 Jan, 2008 04:13

Price of Gazprom's Serbian gas takeover not yet decided

The Serbian President Boris Tadic is in Moscow to put his name to an energy agreement struck in Belgrade earlier this week. The accord includes laying the South Stream pipeline through Serbia and selling oil monopoly NIS to Gazprom. However this agreement

Serbia has already given the green light to the project that’s been under negotiation for several months.

Gazprom initially offered to buy a 51% stake in the oil company NIS for 400 million euros, investing another 600 million euros over several years.

Solid Bank analyst Denis Borisov says the Russian gas monopoly could end up paying a lot more.

“NIS includes two oil refineries and a retail chain in Serbia. 500 million euros for a 51 per cent stake is a reasonable offer. But I don’t rule out the possibility that the Serbian government will try to push the price up to 700 million,” Borisov said.

And Gazprom may agree, as the level of profitability in Europe remains high at three to four dollars per barrel.

The purchase of refineries with a capacity of more than seven million tonnes per year fits Gazprom’s plan to expand its oil business.

But that provoked a wave of criticism from the EU, which fears Gazprom’s expansion on the European market.

Gazprom’s purchase is tightly linked to two things: the building of Russia's South Stream pipeline through Serbia, and the construction of an underground gas storage tank in Serbia.

Troika Dialog analyst Valery Nesterov says the deal brings huge benefits to Serbia.

“The pipeline and the storage facility will guarantee the security of gas supplies for Serbia. Now Serbia buys 2 billion cubic meters of Russian gas but the economy is growing and guaranteed supplies are essential to Serbia’s development,” Nesterov said.

Belgrade currently pays 60 million euros to Hungary in transit fees for gas.

If the pipeline goes ahead, it would stop paying Hungary.  Instead it would receive up to 150 million euros in transit fees itself.

But the actual income will depend on what terms Serbia wins in the South Stream project, and this may take more time to finalise.