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Why Does Serbia pay the highest price for Russian gas?

The refinery of Serbia's Oil Industry in Pancevo, near Belgrade, November 21, 2011.

The tight “fraternal” energy embrace of Serbia and Russia, since the sale to Gazprom of a majority stake in the former Serbian gas giant NIS in 2008, has not paid off for Serbia. It has been paying more to its Russian “brothers" than other countries.

While some try to explain this as a result of Serbia’s gas debt to Russia, others point at corrupt Serbian politicians who did little in their country’s interest.

As shown on the website, the world’s most reliable information base for foreign trade, Serbia paid $720 per 1,000 cubic meters of gas last year, which is significantly more than the average price other European countries, such as Germany, Austria, France and the Netherlands are paying. The average price of Russian gas to those countries last year was $574 for 1,000 cubic meters, almost one third lower than the price that Serbia is paying.

Other countries in the Balkans, such as Croatia, Macedonia and Slovenia, are paying a lower price; only Bosnia and Herzegovina is paying more- $731 per 1,000 cubic meters.

Dragan Nedeljkovic, editor of the website energoportal, explains the high price as related to the debt of more than a billion euros that Serbia owes to Gazprom.

“When Slobodan Milosevic’s regime ended in 2000, the intermediary company 'Progress', which was importing gas from Russia for NIS, owed Russia 260 million dollars. That is why the Russians have suspended delivery. That’s why (Zoran) Djindjic, the first Serbian prime minister after the democratic changes, went to Moscow as soon as he formed his government. It was January 2001. He went there to beg them to release the gas, and to promise that Serbia would pay off the debt. Then he agreed to add a certain amount of dollars to the cost of each cubic meter of gas until the debt was settled. This debt, however, is not yet paid off. That is the first reason for the high gas prices. In addition, the Serbian state company "Srbijagas" has a huge recent debt to NIS and to Gazprom. Total debts have reached a level close to one billion euros."

On the other hand, Sijka Pistolova, the editor of the website believes that the debt to Gazprom should not affect the price of Russian gas because these are two completely different things. There is no doubt, she says, about who is to blame that Serbia pays the highest price of gas to Russia.

“We are the main culprits for such high price of gas. If we ever learn how to negotiate, things may change. I, therefore, do not blame the Russians for this. I blame our side. I believe that there was corruption involved. I do not have any evidence, but the fact that we negotiated so badly means that we’re corrupt," says Pistolova, while emphasizing that the governments of former Serbian politicians Vojislav Kostunica (Democratic Party of Serbia) and Boris Tadic (Democratic Party) are responsible for failure to negotiate better on the price of gas.

"We sold NIS very cheaply, and that was the jewel of Serbian economy. We sold it for only 400 million euros. If we had better politicians, surely we could agree on more favorable conditions than we did,” she adds.

Even though general director of "Srbijagas" Dusan Bajatovic (Socialist Party of Serbia, minority partner of Serbian Progressive Party in the former government) has tried for years to convince the public that Serbia doesn’t pay the highest price for gas in Europe, the facts contradict him. The BBC, in cooperation with vaasaEtt, a renowned global energy think-tank, researched gas prices paid by European capitals last year and reported that Belgrade is third, behind only Stockholm and Lisbon.

Rome, Warsaw, Prague, Ljubljana, Madrid, Copenhagen and Zagreb paid much less. Energy was the cheapest in Luxembourg, London, Brussels and Paris, none of them a supposed “fraternal” partner of Russia.

Pistolova thinks that Serbia should get not the most expensive but the least expensive Russian gas:

“Serbia deserves to pay the lowest price of gas because of Gazprom’s purchase of NIS. That is, however, not the case and I think the main culprit is ‘Srbijagas’. I think that this issue can be solved, but only if the country takes the initiative. Unless Serbia’s officials put the issue on the political agenda, nothing will be done.”

Serbia has not raised this issue. Moreover, Bajatovic, head of ‘Srbijagas’, has never explained why Serbia is the only country that does not import gas directly from Gazprom and not from the intermediary “Jugorosgas”, a Russian-Serbian company, also controlled by Gazprom, in which Bajatovic, as board member earns 9,000 euros a month.

During his time in office, Djindjic stopped collaborating with “Jugorosgas”, but Kostunica’s government, which succeeded Djindjic’s, got this company back in the game. “Jugorosgas” will stay in the game for another decade, because Bajatovic signed a 10-year contract with Alexei Miller, the director of Gazprom and Vladimir Koldin, director of “Jugorosgas”.

Zorana Mihajlovic (Serbian Progressive Party), former minister of energy, warned repeatedly during her tenure that Bajatovic was deceiving Serbian citizens, in that, rather than representing the people, he represents certain business interests in Serbia.

"In every country energy is associated with the politics. And it's nothing unusual, [but] the only question is how is that going to work--in Serbia's interest or in the interest of different lobbies. We have to say clearly that Bajatovic was chosen by the Serbian Socialist Party to be the director of ‘Srbijagas’. The results show that he was not the best solution," said Mihajlovic last year, adding that Bajatovic is not stronger than the state, and that he mustn’t be.

Mihajlovic was the most vocal critic of the energy deal signed with Russia, which she saw as being detrimental to Serbian interests and, as such, did not win any favor with Russia.

Vucic, as deputy prime minister, supported Mihajlovic in November last year, saying that neither Moscow nor Washington, but only the Serbian people should decide who would be a minister of their government. Vucic pointed out that he had a lot of confidence in Mihajlovic’s performance.

However, after the early March elections, Vucic, newly elected as prime minister, visited with Russian leaders. And now Mihajlovic is no longer the minister of energy, while Dusan Bajatovic is still the head of "Srbijagas".