VZCZCXRO5159
OO RUEHPOD
DE RUEHBW #1376/01 2830734
ZNR UUUUU ZZH
O 100734Z OCT 07
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1567
INFO RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/USDOC WASHDC 0008
RUEHTH/AMEMBASSY ATHENS 0581
RUEHVJ/AMEMBASSY SARAJEVO 0373
RUEHVB/AMEMBASSY ZAGREB 1447
RUEHSF/AMEMBASSY SOFIA 0863
RUEHBM/AMEMBASSY BUCHAREST 0264
RUEHUP/AMEMBASSY BUDAPEST 1125
RUEHSQ/AMEMBASSY SKOPJE 0886
RUEHTI/AMEMBASSY TIRANA 0381
RUEHPOD/AMEMBASSY PODGORICA 0123
RUEHPS/USOFFICE PRISTINA 3713

UNCLAS SECTION 01 OF 02 BELGRADE 001376 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG SR
SUBJECT:  ENERGY MINISTER POPOVIC TELLS AMBASSADOR SERBIA NEEDS MORE 
ENERGY 
 
 
SUMMARY 
------- 
 
¶1. (U) Serbian Energy Minister Popovic told the Ambassador on 
October 4 that Serbia's single source of gas from Hungary, and 
domestic electricity production could not meet peak demand during 
winter cold snaps.  Popovic compared Serbia's energy relationship 
with Russia as "business, not friends."  In response to the 
Ambassador's question, Popovic said he walked out of the Southeast 
Europe Energy Community (SEEC) meeting in Athens on September 28, 
because the UNMIK delegation presented itself as the "Government of 
Kosovo" delegation.  Serbia wanted, he said, to cooperate with 
Kosovo on energy, but not when the delegation caused an unnecessary 
provocation.  End Summary. 
 
 
Gas Storage and Pipelines Primary Challenge 
------------------------------------------- 
 
¶2. (U) During the first part of the meeting, Popovic highlighted the 
natural gas import capacity limitations of having only one pipeline 
from Hungary to support all of Serbia's gas needs as well as transit 
gas to Bosnia-Herzegovina.  Serbia is constructing a gas storage 
facility, Banatski Dvor, and plans to have the facility operational 
before next winter.  This facility will allow Serbia to avoid gas 
shortages when cold winter weather (below -5 Celsius) spikes demand 
to 12.5 million cubic meters (MCM), well above the 10 MCM capacity 
of the import pipeline.  According to Popovic, Serbia would like to 
build a gas pipeline connection to either Croatia or Romania, but 
which connection, and how large the pipe would be is dependent on 
the future of the Nabucco and South Stream pipeline projects.  In 
this context, the Minister noted that Serbia was an observer in the 
Nabucco project, but did not have a significant role in influencing 
the possible gas pipelines that were being proposed to cross the 
region.  Serbia would like to be a transit country and the country 
could benefit from transit revenue. 
 
¶3. (SBU) Popovic did not comment on how Serbia would pay for the gas 
required to fill the Banatski Dvor facility and indicated that 
Serbia would look to purchase gas from anyone willing to deliver it 
to Serbia.  In an October 5 discussion, the head of Srbijagas, told 
Econoff that Serbia had been unsuccessful in finding suppliers who 
could deliver gas due to restrictions by Gazprom and MOL, the owner 
of the pipeline connection to Serbia.  The Vice Chairman of Gazprom, 
Alexei Miller, arrives in Serbia October 9 for discussions with the 
Serbian government to discuss gas issues, including storage and 
transit pipelines, and the privatization of NIS, the state-owned oil 
company.  Popovic did not mention the Gazprom visit, during the 
meeting with the Ambassador, and just a few days before the visit, 
the director of Srbijagas only warned to watch for activity on gas 
issues in the coming week, but was unwilling to divulge the fact 
that Miller would visit Serbia.  In response to a question about the 
nature of the energy relationship with Russia, Popovic replied that 
the relationship was, "business, just business, not friends."  In 
response to DCM's question about eventually buying gas directly from 
Turkmenistan, rather than Russia, Popovic waved his hand 
dismissively saying something about not dealing with that 
"Turkmenbashy guy." 
 
Privatization of NIS and Winter Electricity 
------------------------------------------- 
 
¶4. (U) Turning to oil and electricity, Popovic expressed optimism 
that the NIS (state-owned oil company) privatization of a minority 
share in the company would move ahead in the coming months, but he 
said that the process was awaiting political agreement at the 
highest levels. With regard to electricity he outlined his goal to 
release a tender before the end of the year for strategic partners 
to join in constructing two 700 MW coal-fired power plants.  A law 
must be passed in parliament for the tender process, but Popovic 
expressed optimism that the project tenders would move ahead 
quickly.  Serbia had sufficient electricity production for most 
needs, but required electricity imports during the coldest days of 
the year.  Continuing on electricity, he raised the issue of 
supplying electricity for Kosovo Serbs.  Popovic said that Serbia 
would again offer to donate power to Kosovo Serbs and expressed hope 
that an agreement could be reached this year with UNMIK.  During a 
 
BELGRADE 00001376  002 OF 002 
 
 
later discussion, a senior UNMIK official in Belgrade told Econoff 
that he expected a deal on power donations this winter could be 
reached, but would require some flexibility as UNMIK and KEK 
(Kosovo's electric utility) could not meet Belgrade's requirement to 
only support Serb enclaves as some of the enclaves were on small 
spur lines serving both ethnic Serb and Albanian communities. 
 
SEEC Meeting in Greece - Reaction to Provocation 
--------------------------------------------- --- 
 
¶5. (SBU) Prompted by a question from the Ambassador about the 
September 28 SEEC meeting in Athens where Popovic walked out in a 
dispute over the presentation by the representative from Kosovo, 
Popovic said that he did not have a problem with UNMIK participation 
at the meeting.  Although he had been impressively sane and rational 
throughout the first part of the meeting, he resorted to a "crazed 
Serb" analogy, asking if the United States would allow Al-Queda to 
represent Liberia at a multilateral meeting.  Returning to logic, he 
then outlined the Serbian government's position that did he object 
to a "so-called minister" from a "so-called ministry" representing 
UNMIK.  He said he was compelled to walk out, when the 
representative from Kosovo opened his power-point presentation with 
a slide that including the title "Government of Kosovo".  Popovic 
expressed his desire to continue working in the SEEC process, but 
that he needed to work with the EU to come up with clearer 
guidelines for discussions involving UNMIK and Kosovo.  He 
emphasized that the EU mediator had acted entirely correctly during 
the meeting. 
 
Comment 
------- 
 
¶6. (SBU) Popovic's outline of Serbia's energy situation covered the 
significant issues - access to gas, electricity production - but 
left out key details about the relationship with Russia.  The fact 
that he did not mention the planned visit from Gazprom, less than a 
week before the visit, is one indication of the back-room nature of 
the energy relationship with Russia.  While the Serbs say that they 
are looking for ways to enhance their energy security, and diversify 
their energy partners, Gazprom is working to more firmly entrench 
itself.  Any of the three prospective Gazprom scenarios purchase of 
NIS, construction of a pipeline through Serbia, or partnership in 
the Banatski Dvor gas storage facility mostly would serve to cut off 
Serbia's leverage to integrate more into a European energy network, 
possibly supplied with gas not originating in Russia.  End Comment. 
 
 
MUNTER