MOSCOW, Jan. 28 (UPI) -- Russia and Serbia finalized their oil and gas cooperation Friday, signing an international agreement on the sale of Serbian state-owned oil-refining monopoly Naftna Industrija Srbije to Russia's Gazprom and the construction of the South Stream gas pipeline across Serbia.
This will accelerate the South Stream project, give Russia a strategic asset in the Balkans and turn Serbia into a gas distribution hub for southeastern Europe.
The possibility of privatizing NIS, which has the largest network of filling stations in Serbia, was first aired in 2005. Austria's OMV, Hungary's MOL, Greek Hellenic Petroleum, and Russia's LUKoil and Rosneft all expressed an interest. However, the Serbian government was only prepared to sell a minority stake, and demanded that the buyer make additional investment in NIS. This did not appeal to the potential suitors.
Late last year and in early 2008, Gazprom held successful talks with Serbia, offering it terms that simply could not be rejected. The Russian energy giant proposed a package agreement stipulating the involvement of Serbia in the ambitious South Stream project.
The 560-mile underwater section of the South Stream gas pipeline, proposed by Russia's Gazprom and Italy's Eni, will run from Russia's Black Sea coast to Bulgaria, where it will branch off to northern or southern destinations in the European Union, supplying 30 billion cubic meters of gas annually to Romania, Hungary, the Czech Republic, Italy, Austria and Serbia. Deliveries are to start in 2013.
One of the destinations is southern Italy, which means that the pipeline will run across Bulgaria, Greece (and possibly Albania) and across the bed of the Adriatic Sea. The other destination is Austria, with the pipeline running across the northwestern Balkans.
Serbia had to make its choice after Bulgaria signed the agreement to join South Stream on Jan. 18.
The financial aspect of the deal has so far been kept secret, but it is rumored that Gazprom has offered Serbia $591.2 million in cash and $739 million in direct investment for a 51 percent stake in NIS. It has also promised to build South Stream across Serbia, expand the Banatski Dvor underground gas storage facility from 800 million to 3 billion cubic meters, and build Serbia's largest gas-fueled power plant.
Serbia could probably have raised more by selling the stake at open tender, but the prospect of stable gas transit revenues (about $295.5 million annually) and becoming a European energy hub tilted the scale in favor of Gazprom.
Western experts say the agreement is Prime Minister Vojislav Kostunica's thanks to Russia for its firm stance against Kosovo's secession.
Nearly all of Serbia's political leaders have come out in favor of Gazprom, including the pro-European president, Boris Tadic, who will fight for re-election in the second round of presidential elections on Feb. 3.
Serbian Minister of Economy and Regional Development Mladjan Dinkic, the only opponent of the deal, had to leave the government commission that considered the agreement with the Russian gas monopoly. Other members of the Serbian government describe the deal as the largest economic project in Serbia's modern history.
The European Commission, alarmed by Gazprom's acquisition of energy assets in Europe, is not pleased with its breakthrough in Serbia. Brussels long ago expressed concern over the Russian energy expansion in Europe and is striving to mitigate Europe's energy dependence.
(Oleg Mityayev is an economic commentator for RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti. This article was republished with permission from RIA Novosti.)
(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)