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Gas supply: Serbia caught between Russia, EU

A symbolic pipe prepared for the ceremony kicking off construction of the South Stream gas pipeline near the village of Sajkas, November 24, 2013

Serbia was warned late last month that its failure to implement an agreement signed within the European Energy Community in 2006 might endanger Serbia’s accession to the European Union.

The Ministerial Council of the European Energy Community (EEC) determined that Serbia violated regulations by failing to divide the activities of its Srbijagas and its Jugorosgaz gas companies.

According to European regulations, as well as the regional agreement Serbia had signed, the country was obligated to separate its operations to produce and to distribute gas. Currently there are two gas companies in Serbia, state-owned Srbijagas and Jugorosgaz, in which Russian Gazprom has a 50 percent interest.

In fall 2013, Jugorosgaz founded its daughter company for gas transport, but the EEC claims it is not enough to ensure independent decision-making within the company – and that prevents competition on the gas market.

Serbian Prime Minister Aleksandar Vucic said in comments to RFE, “We are working on that with the EU and considering what we are going to do”

Vucic was also asked if the danger to the European integration of Serbia is realistic if the country does not meet the EEC demand.

“I do not think that is realistic,” he said. “But we do know what our strategic goal is, and that is accession to the EU. But we will also not endanger Serbia in any way, at any price. We will also not impose sanctions against Russia, or act with animosity in any way.”

Members of the EEC, along with the EU, are Albania, Bosnia and Herzegovina, Macedonia, Moldavia, Montenegro, Ukraine, Serbia and Kosovo.

The EEC is intended to help the region align its legislation with the EU regulations and prepare for integration into the European energy market.

One of the strategic goals of the EEC is, considering the geographic position of its members, to create a connection between the EU energy market as end user with Caspian, Northern African and Middle Eastern gas reserves.

Sijka Pistolova, editor-in-chief of the Balkan Observer website, says that the goal is to prevent monopoly on the energy, or gas market. When it comes to gas, Serbia depends only on Russia and the gas pipeline going through Hungary.

“The basic goal, when it comes to the EU, is to diversify so a buyer has a right to choose from whom to buy or transport gas, and not to have one partner both seller and supplier at the same time. That is monopoly. Imagine you are a housewife and you have to buy apples from just one salesperson your whole life. Would you agree to that? No!” says Pistolova.

Srbijagas, a domestic company that produces and distributes gas, depends on its older brother, explains the editor of ‘Novi magazin’ Mijat Lakicevic on why Serbia did not meet its obligations:

“We would have probably done it before if there was no agreement on the South Stream, because we depend on Russia. And if Russia does not want to allow us, we cannot do much there. If Russia does not want do it, Srbijagas also cannot do much here, because they are, sort to say, a younger brother.”

Pistolova, however, believes that responsibility for certain strategic moves is in the hands of Srbijagas.

“Srbijagas surprises me as a company. For example, why did they not connect with Romania, because that would take 100 kilometer gas pipeline, which does not present a big cost in the energy sector? Why did they not connect to Bulgaria earlier? Bulgaria will also get Greek gas, as well as Azerbaijan gas through Turkey, and we only depend on Russia.”

South Stream, a Russian gas pipeline expected to enter Europe through Bulgaria and Serbia, is an obstacle. The EU halted construction of the pipeline in Bulgaria and the issue is still unresolved.

Lakecevic said, “The issue has definitely not been resolved yet, especially because certain EU member countries want the South Stream functional, because they need gas. I believe negotiations will continue and it is possible an agreement will be reached.”

Vucic said he believes that the fate of the South Stream depends on the agreement between Russia and the EU.

“We are talking and we will continue to talk with the EU about South Stream. I am not hiding it, the South Stream is a good agreement for Serbia, a very good agreement. I said that during the meeting with the EU officials… As I hear, President Putin will visit Milan on October 16, and I expect continuation of the dialogue there,” said Vucic.

The European Commission, the executive body of the EU, believes that all agreements Moscow signed with the countries in the EU and Serbia on the South Stream partially violate the EU regulations. Bulgaria had to halt construction of the pipeline because it was determined the country violated regulations on transparent public procurement and an obligation to issue a formal tender when signing construction agreement with one Russian company. Serbia, on the other hand, can continue with the construction as it is not a member of the EU, but it must follow regulations of the European Energy Community.