VZCZCXRO0253
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHBW #0051/01 0200624
ZNR UUUUU ZZH
R 200624Z JAN 09
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0883
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 BELGRADE 000051 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD SR
SUBJECT: Serbia: Gas Deliveries from Germany and Hungary Continue 
 
Ref: a) Belgrade 12 b) Belgrade 21 
 
Summary 
------- 
 
¶1.  Hungary and Germany continue to deliver gas to Serbia as the 
Ukraine-Russia gas dispute went unresolved.  The government took 
proactive action and decided to allow for more fuel oil imports and 
an increase of its reserves in the event of a protracted dispute. 
Serbian officials continued to blame Ukraine for the gas crisis and 
announced possible legal action against Ukraine.  End Summary. 
 
 
European Assistance Continues 
----------------------------- 
 
¶2.  As the Ukraine-Russia gas dispute continues, so does Serbia's 
dependence on emergency gas deliveries from Hungary and Germany. 
Director of state-owned gas company Srbijagas Dusan Bajatovic told 
us on January 16 that Serbia extended agreements with Hungarian MOL 
and German EON for urgent gas deliveries of up to two and 2.7 
million cubic meters (MCM) per day, respectively until January 24. 
The agreements are flexible and can be discounted at any time. 
Bajatovic said that Serbia also succeeded in securing an additional 
two MCM of gas from Hungary and Germany - which he hoped would begin 
to flow on January 19 - to restart supply to small and medium 
companies, mainly in Vojvodina, which are directly connected to 
Srbijagas pipes.  Bajatovic also thanked Hungry and Germany for 
their assistance and said Russia had no part in helping Serbia 
receive this additional gas. 
 
Government Takes Action 
----------------------- 
 
¶3.  On January 15, the government decided to allow for additional 
import of fuel oil and to allow Belgrade district heating power 
plants to borrow 7,700 tons of fuel oil from the state's reserves, 
if necessary.  In a press conference after the recent government 
session, Energy Minister Petar Skundric said the decision would 
ensure that Serbia had enough fuel oil, should the crisis continue, 
and if Hungary and Germany no longer could deliver emergency 
supplies to Serbia.  Belgrade City Assembly President Aleksandar 
Antic told us on January 16 that daily production of fuel oil 
satisfied daily consumption demand, but reserves were thinning.  The 
government's decision would allow district heating power plants to 
keep three to four days worth of fuel oil in reserve. 
 
Electricity System Overloaded 
----------------------------- 
 
¶4.  Milos Milankovic, director of the state-owned electricity 
transmission operator EMS, told us on January 14 that the 
electricity grid was overloaded.  EMS transferred a record 175.5 
million kWh on January 13, Orthodox New Year's Eve.  The transfer 
included a record 155.5 million kWh in electricity consumption and 
20 million kWh of emergency electricity supply from neighboring 
countries due to thermo power plant outages in the Eastern Serbia. 
Some suburbs of Belgrade and Nis, Serbia's third largest city, 
experienced blackouts due to old distribution networks. 
 
Ukraine to Blame 
---------------- 
 
¶5.  On January 13, both President Boris Tadic and Srbijagas head 
Bajatovic blamed Ukraine for the gas crisis.  Bajatovic told the 
press that Srbijagas received a request from the government to 
consider legal action against Ukraine.  Later in the week, Bajatovic 
said Russia's responsibility would be considered as well, although 
he believed there was no legal or economic basis to sue Russia. 
Conversely, Serbian Employers' Union President Stevan Avramovic told 
us on January 15 that the Union would file a lawsuit on behalf of 
its members against the Serbian government for more than $31 million 
in damages and lost business caused by the gas shortage. 
 
Energy Security 
--------------- 
 
¶6.  The gas crisis began a finger pointing game in the Serbian media 
for finding blame for Serbia's energy vulnerability.  Critics 
particularly focused on finding someone to blame for the unfinished 
underground gas storage Banatski Dvor.  According to Bajatovic, only 
$30 million was needed to finish Banatski Dvor.  On January 14, 
Milos Milankovic, EMS Director and a former Srbijagas Director, told 
us that Srbijagas had an open offer from Hungarian MOL to finish 
Banatski Dvor.  He added that Serbia could have easily secured a 
bank loan to complete construction, but by the terms of the Gazprom 
deal signed on December 24, 2008, Russia would not allow Serbia to 
take out a loan with any other country except Russia.  Gazprom 
negotiators had lead Srbijagas officials to believe that Gazprom 
 
BELGRADE 00000051  002 OF 002 
 
 
would withhold Russian gas that would go to Banatski Dvor, if Serbia 
pursued a separate loan.  Milankovic also said Russia would not 
allow Serbia to connect to Bulgaria's gas system through a proposed 
167 km long pipeline from Nis to Dimitrovgrad that would have 
provided an alternative to the sole pipeline connected to Hungary. 
The Gazprom agreement stipulated that the two countries would decide 
by mid-2009 whether to complete construction of Banatski Dvor.  The 
agreement also prohibits Serbia from seeking another partner to 
finish Banatski Dvor until the end of 2009. 
 
¶7.  Serbian entrepreneur Goran Percevic, head of the Interkomerc 
holding company, told DCM on January 16 that Serbia needed to wean 
itself off of gas entirely.  He said gas was a newcomer to the 
Serbian energy scene and that Serbia needed to return to traditional 
energy sources - hydro and coal - and also concentrate on developing 
renewable energy.  Percevic said construction of a new hydroelectric 
plant on the Drina River would service both Bosnia and Serbia and 
said privatization and renovation of the Obrenovac power plant on 
the outskirts of Belgrade would meet Belgrade's energy needs.  "But 
we need foreign investors for both projects," he said.  DCM replied 
that the Serbian government would do well to pay more attention to 
improving its foreign investment climate and noted that the Gazprom 
energy deal had seemed to backfire on Serbia.  "We needed the $500 
million Gazprom gave us for NIS," Percevic said, "what could we do?" 
 
 
Regional Solidarity 
------------------- 
 
¶8.  The current gas crisis sparked a rare show of regional 
cooperation.  Last week Serbia allowed urgent gas deliveries from 
Hungary to Bosnia-Herzegovina through Serbia.  Bosnian officials 
applauded the gesture, approved by Serbian President Boris Tadic, as 
a sign of good neighborly relations.  In addition, Tadic spoke with 
Croatian Prime Minister Ivo Sanader on the gas crisis and they 
agreed to have an open line of communication until the end of the 
crisis. 
 
COMMENT 
------- 
 
¶9.  The Serbian government continues to place blame for the current 
energy crisis on Ukraine, avoiding any mention of Russia as the 
possible culprit.  Although there is talk of a lawsuit against 
Ukraine, there appear to be little legal basis for one.  The crisis 
is, however, begging the more important question of Serbia's energy 
security and the reality that Serbia's deal with the Russians has 
and will not shield it from energy vulnerabilities.  End Comment. 
 
MUNTER