This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BELGRADE 000522 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ENRG ECON SR MW YI UNMIK
SUBJECT:  SERBIAN POWER STILL A TURNOFF FOR KOSOVO 
 
SUMMARY 
------- 
¶1. (U) Econoffs met with Assistant Minister of Energy 
Aleksandar Vlajcic and Head of the International Cooperation 
Unit Miroslav Kukobat at the Ministry of Energy on March 1 to 
discuss the recent energy crisis in Kosovo and the problems 
associated with Serbia's offer to export electricity. 
explained that the Serbian offer was "unconditional" because, 
as a donation for a humanitarian crisis, it should benefit 
those experiencing the greatest electrical outages, but he 
acknowledged that EPS did request that the power be targeted 
to certain areas.  Kukobat also discussed Serbia's goals in 
regards to energy for the upcoming Kosovo negotiations.  This 
discussion usefully summarizes the Serbian view of the Kosovo 
power supply issue.  END SUMMARY 
 
RECENT ENERGY CRISIS HIGHLIGHTS EXISTING PROBLEMS 
--------------------------------------------- ---- 
¶2. (U) Since June 1999, state-owned Electric Power Industry 
of Serbia (EPS) has been unable to manage its facilities in 
Kosovo; these facilities are under the management of UNMIK 
and the Kosovo Energy Corporation (KEK).  Customers, for a 
variety of reasons, are not paying their electricity bills to 
KEK.  The collection rate is around 30 percent, and 90 
percent of that is coming from international organizations 
situated in Kosovo.  Recognizing poor collection rates as one 
of the main causes of the energy crisis in Kosovo, KEK 
introduced the "ABC program" in December 2005 in order to 
reward neighborhoods that pay their electricity bills.  Under 
the program, areas that pay their bills would receive a more 
reliable supply of electricity.  Non-paying areas would 
receive limited amounts of electricity as available. 
 
¶3. (U) The controversy peaked at the beginning of 2006 when 
the president of the Coordination Center for Kosovo (CCK) in 
Belgrade, Dr. Sanda Raskovic-Ivic, accused KEK and UNMIK of 
distributing electricity on an ethnic basis, with Kosovar 
Serbs experiencing the longest blackouts.  On the other hand, 
Joachim Ruecker, Deputy Special Representative of the 
Secretary General (DSRSG) of the United Nations Mission in 
 
SIPDIS 
Kosovo, accused Serbia's transmission system and market 
operator, EMS, which is controlled by EPS, of non-cooperation 
in providing transit for electricity from neighboring 
countries for Kosovo. 
 
¶4. (U) Kosovo's energy problems are longstanding.  Issues 
include poor collection rates and Kosovo's low generating 
capacity.  The international community has provided EUR 1 
billion to improve the energy system in Kosovo, but problems 
persist. After 1999, some 7,500 Serbs lost their jobs in the 
power company.  Currently, power plants are generating only 
500 MW, compared to a total installed capacity of 1,500 MW in 
Kosovo, according to EPS. 
 
¶5. (U) According to Assistant Energy Minister Vlajcic, this 
problem was recognized by the British company formerly 
engaged by UNMIK to operate generating plants there.  The 
company had offered jobs to former Serbian employees, but it 
could not guarantee their safety.  After the British pulled 
out, Irish company ESBI was engaged by UNMIK, but  believes 
that only minor improvements were made. 
 
¶6. (U) In regards to KEK's accusation of non-cooperation by 
EMS in getting electricity through Serbia, Vlajcic attributed 
the problem to pre-existing contracts.  The transit of 
electricity from other countries is planned annually.  In the 
event of a crisis, such as a lack of electricity due to cold 
weather, KEK would not be able to draw a large amount of 
electricity from other countries because the transmission 
capacity has already been reserved.  However, some 300 MW of 
the EMS transmission capacity is always reserved for KEK, and 
UNMIK need only notify EMS in a timely manner about KEK's 
needs.  Vlajcic says EPS regularly conveys power for 
KEK/UNMIK on a commercial basis. 
 
UNCONDITIONAL DONATION OR CONDITIONAL OFFER? 
-------------------------------------------- 
¶7. (U) The GOS offered various solutions for what it called a 
"humanitarian catastrophe" in Kosovo.  According to Vlajcic, 
in 2005 it offered to pay some debts and future electricity 
bills for the Serbian population.  In addition, it offered to 
dispatch electricity in advance for Kosovo, with repayment to 
EPS later as collection improved.  Since the electrical 
system previously was part of EPS' system, EPS workers from 
Kosovo would know how to maintain it, opening the possibility 
of re-employing Serbian workers, he argued.  Nevertheless, 
Vlajcic said that UNMIK and KEK rejected these offers. 
 
¶8. (U) At the beginning of 2006, the same "unconditional" 
offer to provide 50 million KWh daily for the most vulnerable 
areas (meaning those primarily inhabited by Serbs) was still 
valid.  Only after the Sitnica River flooded key power plants 
in Kosovo in late February and rendered some generating units 
inoperable, UNMIK accepted the GOS offer to deliver 50 
million KWh per day free of charge.  Taking into 
consideration the needs of the Serbian market, the offer was 
valid from February 24 until March 24. 
 
¶9. (U) Radomir Naumov, Minister of Energy and Mining, spoke 
with Ruecker on February 2 about the GoS's January 27 offer 
of "humanitarian aid", but Ruecker rejected it and insisted 
that the Kosovar Serbs sign contracts with KEK.  After the 
flooding, however, Ruecker accepted the offer on February 24. 
However, not a single KWh was dispatched to Kosovo.  Vlajcic 
contended that, because the situation is a humanitarian 
crisis, Serbia should be able to control how its "donation" 
of electricity is used, as would any other donor.  The GOS 
insisted that UNMIK guarantee that electricity would be sent 
to the most vulnerable areas.  Even though such areas are 
primarily Serbian, the GOS asserted that Albanians in such 
areas would benefit, as well. 
 
¶10. (U) However, UNMIK would accept only an unconditional 
offer, without providing a guarantee as to where the 
electricity would be used.  UNMIK insisted on a commercial 
solution that would require Serbs in Kosovo to sign 
commercial contracts with KEK and apply for subsidies or 
other forms of relief.  For Serbs in Kosovo, that solution 
was not acceptable for political and economic reasons, 
Vlajcic said.  Signing a contract with KEK would mean that 
they were accepting KEK as the only legal supplier of 
electricity in Kosovo, Vlajcic said. 
 
SERBIAN GOALS FOR KOSOVO NEGOTIATIONS IN REGARDS TO ENERGY 
--------------------------------------------- ------------- 
¶11. (SBU) Miroslav Kukobat informed Econ FSN on March 20 that 
he was named Serbia's chief negotiator for energy issues in 
the Kosovo talks.  Kukobat said that the GOS will insist on 
stabilization of the system and supply for all consumers in 
Kosovo.  EPS has offered to pay for electricity to the Serbs 
there while these issues are being resolved.  Specifically, 
the GOS will demand an uninterrupted (24 hours/day) 70 MW 
supply of electricity for Serb enclaves during the winter 
months.  For reasons mentioned above, EMS still considers the 
capacities in Kosovo as a part of its own system and 
therefore owned by Serbia.  In addition, Serbia paid 135 
million dinars (about USD 1.9 million) in 2005 to 
international financial institutions to service loans to EPS 
companies in Kosovo. Kukobat indicated the Serbia was not 
inclined to push its previous proposal for a separate, Serb- 
controlled power distributor in Northern Kosovo. 
 
¶12. (SBU) The GOS will also demand that a solution be found 
for the 7,500 former EPS workers.  Some 6,000 of these 
workers are still on the EPS payroll.  Meaningful employment 
should be found for these workers, with guarantees of their 
safety, Kukobat said. 
 
¶13.  comment.  EPS managers make the point the Kosovo grid 
was designed and built as an integral part of the Serbian 
transmission network; therefore, the integrity of the Kosovo 
system has a direct impact on its operations through many 
interconnection points.  They also are well aware of the 
potential for exploiting Kosovo's considerable coal deposits 
for power generation and export.  At some point, Serbian 
negotiators may begin to focus on the conditions that would 
be necessary to facilitate EPS's access to the Kosovo market, 
regardless of the outcome of status talks. end comment 
 
POLT