VZCZCXRO3738
RR RUEHBW
DE RUEHBW #0336/01 0951452
ZNR UUUUU ZZH
R 041452Z APR 08
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0137
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE 0206

UNCLAS SECTION 01 OF 02 BELGRADE 000336 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG SR MW
SUBJECT: SERBIAN'S ENERGY DEAL WITH RUSSIA POSTPONED 
 
SUMMARY 
 
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¶1.  At the April 3rd session, Serbia's caretaker government 
denied PM Kostunica's proposal to send the draft law on the 
Serbian-Russian energy agreement to parliament for ratification. 
 Belgrade and Moscow signed the deal on January 25, 2008.  The 
DSS-NS coalition used the failure as a political tool to accuse 
DS of not working in Serbia's national interest.  The deal is 
now uncertain and may or may not be approved by the new 
government or ratified by the new Parliament.  End Summary. 
 
 
 
GAS DEAL ON AGENDA 
 
------------------ 
 
 
 
¶2.  PM Kostunica included the Serbian-Russian energy deal on the 
April 3rd to be sent to parliament for ratification.  In his 
argument he said that Russia had completed all procedures 
necessary for the deal to take effect, so Serbia should do the 
same.  Although DSS and NS ministers voted for the energy 
agreement to be sent for immediate parliamentary ratification, 
DS ministers abstained, explaining that the caretaker government 
did not have the authority to approve and propose laws.  G17 
Plus Minister of Economy and Regional Development Mladjan Dinkic 
did not attend the session in protest at what he described as 
Kostunica's attempt to use the deal for election campaigning. 
 
 
 
¶3.  At the post-session press conference, DPM Bozidar Djelic 
from DS and Minister of Trade and Services Predrag Bubalo from 
DSS debated their interpretations of Serbia's law on the power 
and authority of a caretaker government to approve draft laws 
and send them to parliament for ratification.  The two, however, 
did agree that the Russian energy deal was crucial for Serbia, 
and Djelic said that it would be approved by the new government 
and ratified by the new parliament.  On April 3 Srdjan 
Mihajlovic, advisor to the NIS General Director, told Econ FSN 
he expected the energy deal to be one of the main topics of DSS 
political campaign against DS and that negotiations with Moscow 
would continue during political campaigning and after elections, 
especially if democrats win.  Mihajlovic believes in order to 
avoid attacks from DSS Tadic will not block negotiations. 
 
 
 
DEAL NOT DEAD 
 
------------- 
 
 
 
¶4.  Milos Saramandic, the new General Director of NIS from DS 
confirmed in a conversation with Econ FSN on April 4 that PM 
Kostunica's DSS party was in a hurry to close the NIS deal.  He 
said General Secretary of the Government Dejan Mihajlov and 
President of NIS Managing Board Srdjan Bosnjakovic, both from 
DSS, were Gazprom's main lobbyists and wanted to close the deal 
before elections, after which a DS victory might lead to DS 
control of NIS management.  Saramandic also said he believed 
Kostunica included the deal on the agenda knowing it would fail 
to create an opportunity for DSS to accuse DS and G17 Plus 
ministers of working against Serbia's national interest. 
 
 
 
¶5.  According to Mihajlovic, there is a power struggle over who 
will control negotiation with the Russians and who will lead key 
NIS positions.  According to Mihajlovic, Gazprom is doing due 
diligence of NIS thanks to Bosnjakovic's willingness to freely 
share documents with Gazprom.  Bosnjakovic is able to do this 
while DS members are distracted with an internal battle over who 
will head key positions within NIS.  Reportedly, Saramandic is 
unsuccessfully trying to channel the flow of documents. 
 
 
 
¶6.  Mihajlovic believes DS would try to negotiate with the 
Russians knowing that it would be hard to change the purchase 
price of $570 million, but DS would still fight to increase 
future investment commitment.  DS may also try to reorganize NIS 
 
BELGRADE 00000336  002 OF 002 
 
 
and spin-off some of its smaller companies and NIS Naftagas (the 
domestic production and research division) to sale individually. 
 According to Mihajlovic, DS would offer Gazprom a concession 
for domestic production and ask for royalty fees.  When the 
concession expires, NIS Naftagas would sell in a tender. 
 
 
 
GAZPROM GIVES SERBIA A BLACK EYE 
 
--------------------------------- 
 
 
 
¶7.  During an April 2 lunch at DCM's house to discuss the 
economic and financial future of Serbia, bankers and academics 
agreed that the Gazprom deal gave Serbia a black eye in 
international financial circles.  Everyone knew, they said, that 
NIS was undervalued, that others --including Hungarian and 
Austrian companies -- had been interested in the tender, and 
that the sale to Russia was completely political. 
Privatizations up until the NIS privatization had been done in 
accordance with modern financial and economic principles, but 
the Gazprom deal was completely corrupt.  They said they thought 
future investors would be increasingly wary of a level playing 
field in Serbia, as a result of the Gazprom deal. 
 
 
 
COMMENT 
 
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¶8.  Although there was much hype surrounding Kostunica's attempt 
to muscle the Russian energy deal onto the caretaker 
government's agenda and into parliament, for the most part his 
short-term goal was seen for what it really was: political 
maneuvering and campaigning.  The question remains: if the 
democrats win, will Tadic find the strength to stand up to DSS 
and negotiate a transparent deal for Serbia's energy resources? 
End Comment. 
MUNTER