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South Stream Cancellation: Enormous Damages for Serbia

Planirana ruta Južnog toka.

Will the Serbian public learn about the amount of damages caused by the cancellation of the South Stream pipeline project, and will those who seven years ago brokered the energy package agreement with Russia – an agreement authorities now call harmful - be held accountable?

So far, Serbia has invested EUR 30 million in preparations, but the damage could be much higher, claim experts. For example, Serbia sold the Russians NIS (Serbia’s state-owned oil company) below market price as part of the South Stream construction project and agreed on a low mineral resource rent tax.

This transaction, which is now considered damaging for Serbia, has been under investigation by the Ministry of Interior for months.

Editor-in-chief of the weekly ‘NIN’ Milan Culibrk told RFE/RL that the total amount of damage caused by the cancellation of the South Stream is hard to estimate at this point:

“If we include the potential gain this pipeline could have brought Serbia, and allegedly they counted on 200 million in transit taxes annually, plus EUR 450 million in contracts for Serbian construction companies, then the damages are enormous. The damages might be even higher where construction of the pipeline started and was later halted, rendering the work futile. It is estimated that so far some EUR 30 million has been spent[MAM1] . Other losses came from the sale of NIS at a low price as part of an agreement under the energy package that included the construction of South Stream. Without the prospect of South Stream, the price of NIS would have been higher, or it would have been sold through an international tender, and not through a direct agreement with Russia. So, everything should be accounted for to get the final amount in damages. In any case, it is enormous.”

RFE: Former Minister of Energy Zorana Mihajlovic stated that Serbia cannot request a compensatory payment from Russia, because such an option was not included in the agreement.

Culibrk: I was afraid of that at the time the agreement was signed, seven years ago. The point is that the Russian side is well protected, and there was no possibility of cancellation of the agreement due to a third party. The negotiators at that time were former President Vojislav Kostunica and his successor Boris Tadic and all of the ministers who were involved in it.

RFE: According to some statements by the authorities, not even the NIS privatization can be challenged, even though it was part of the South Stream package?

Culibrk: The Russian side is safe there too. The problem is that the Serbian side did not get assurances, and they did not insist on better conditions in that agreement. Also, the Serbian side is not allowed to increase the mineral resource rent tax – that rent tax is much higher in the region, seven times higher than in Serbia… We can only bow our heads to Russia for getting such a phenomenal agreement for themselves, while the Serbian side made a bad agreement and we will all now face the consequences of such an arrangement.

Rodoljub Sabic, Commissioner for Information of Public Importance, says he does not believe it is possible at this point to see all of the consequences of the cancellation of South Stream and the role of the Russian-Serbian energy agreement:

“But to start, what is realistic and what does not include guessing, and what the public has a right to know, is what has been spent so far - how much public money and resources have been used for the implementation of this project.”

Sabic reminds that it has been two years since reporters requested information about that gas project. As Commissioner he ordered that the information be made available, yet ‘Srbijagas’ failed to do it. Later the Serbian government also failed to fulfill the request and to publish the information.

“The authorities are obliged to provide information to the citizens of Serbia about expenditures in money and property, and later damage estimates, if possible,” Sabic emphasized.

Authorities do not deny that the damages are enormous.

Serbian President Tomislav Nikolic: “We cannot be left without energy sources for the winter - that much Russia owes us. We are also suffering greatly because of Russia.”

Prime Minister Aleksandar Vucic: “We are paying the price of the big players.”

Minister of Energy Aleksandar Antic: “All damages related to current investments in the project are marginal in comparison with the potential loss of a EUR 2.1 billion investment, considering that our companies were supposed to do the EUR 500 million construction work.”

Former Minister of Energy Zorana Mihajlovic, whose doubts about the conditions of the project led to her transfer to another sector in the government reshuffle, says that Serbia cannot seek compensation for damages:

“When you read the agreement, you realize that the Serbian side did not predict anything like this during negotiations.”

Serbian agencies published information coming from the Kremlin – a statement of Spokesperson Dmitri Peskov given to the Russian daily ‘Kommersant,’ according to which the information on the cancellation of the South Stream project will be followed by procedures for the cancellation of bilateral agreements on the construction of that pipeline. The magazine wrote that Russia will now be involved in “a long process of terminating agreements on South Stream and resolving potential financial requisitions.” Russian legal experts say that penalties for the termination of such agreements had not been foreseen, and that the procedure will be guided by the document itself.

Russian Ambassador in Belgrade Alexander Chepurin stated that Russia will meet all of its obligations towards Serbia regarding the energy plan for this year, as well as through “appropriate agreements” in the future.

Asked about possible compensation for the cancellation of South Stream, he cited the statement of Russian President Vladimir Putin, who said that damaged parties should address the EU.